“Don’t step on a fork twice!”: admonition of Vladimir Putin to Russian businessmen in his address to the Plenary Session of the Eastern Economic Forum, Vladivostok
Vladimir Putin’s work schedule these days prior to, during and after the Eastern Economic Forum being held in Vladivostok 11-13 September stretches far into the night and resumes before the sun rises. The “after” part relates to the meetings with North Korean leader Kim Jong Un, which will likely begin late tonight or tomorrow. I will deal with this issue in the concluding section of this essay.
Notwithstanding the strain, Putin was in excellent form when I watched him deliver his address to the Plenary Session of the Forum this morning, Brussels time. His sense of humor never left him. Indeed, to the great amusement of the audience, he several times repeated his admonition to the Russian business community, both oligarchs and managers of state enterprises, not to “step on the fork twice,” by which he meant not to keep the hard currency proceeds of their export sales abroad but to repatriate them.
Though there has been talk in Russian financial circles of compelling Russian exporters to send their funds home, as was done on an emergency basis in the first phase of the SMO, there is now no such compulsory requirement, in line with the free market ideas that still form a part of Russian political life, however much the country is criticized as ‘statist’ by Western observers.
As we know, $350 billion of the Russian state’s own hard currency reserves were frozen by the United States and its European allies in the days following the start of the Special Military Operation in February 2022. Private companies and wealthy Russians also suffered confiscations of their assets held in the West. Putin acknowledged that the Russian state recovered the equivalent of its frozen assets in the course of 2022 from the sale of even reduced quantities of gas and oil thanks to the price explosion on world markets. However, we may assume that individual Russians and companies were less fortunate.
In urging Russian businesses to repatriate their export earnings and invest them in the much safer Russian economy, Putin provided his audience with sound reasons to follow his advice. His entire speech was devoted to the comprehensive development program in the Russian Far East now being implemented that opens many different opportunities for private investment. For business there is the assurance that they will be supported by massive government investment in infrastructure and by extension to them of preferential tax and credit regimes. The scope of the program encompasses road, rail and port infrastructure, as well as urban renewal, construction of new neighborhoods which integrate schools, kindergartens, and medical facilities so as to provide attractive living conditions to those who will arrive in the region to fill the high paying jobs being created.
Doctors and teachers residing in the Far East now have the right to state-subsidized housing mortgages for up to 6 million rubles (currently 60,000 euros) at 2% interest over 20 years. This will now be raised to a 9 million ruble ceiling for acquisition or construction of housing exceeding 60 square meters. Moreover, these preferences will now be extended to workers in the defense industries.
In parallel, there are separate projects directed at providing the Far East and the Far North of Russia with gas supplies by pipeline and LNG, so as to be able to satisfy the energy needs of manufacturing and extractive industries that till now were frustrated by logistical and energy restraints. In this connection, one must note that Putin’s first mission after he landed in Vladivostok was to go out and visit the Zvezda shipyards, Russia’s largest, and to witness the commissioning of two ultra-modern “ice category” vessels, one for carrying Liquefied Natural Gas and other for carrying petroleum. “Ice category” means they are capable of sailing the Northern Sea Route without assistance from accompanying ice breakers. This type of technology is held by very few countries. Until recently Russia was purchasing nearly all of its tankers from South Korea. Those days are gone.
Taking in at one glance what Vladimir Putin outlined to the audience of the Plenary Session, it is clear that this is the most significant investment program in the Russian Far East since the construction of the Trans-Siberian Railway in the 1890s under Emperor Nicholas II. The next big investment milestone in the Far East was in the 1970s during the construction of a parallel rail line to the Trans Siberian, the Baikal Amur Mainline. However, those investments did not have the kind of comprehensive development approach that we see in what Putin just unveiled.
When asked by the moderator whether this development program was researched and launched because of the sanctions imposed by the West, Putin replied that the program was first sketched in detail ten years ago, back in 2013 when it was clear how the balance of economics and political influence was shifting to the Asia Pacific. The plans had been slowly progressing since. What happened in the course of 2022 was the decision to go full speed ahead and implement right now what had been planned earlier.
Now a word about that moderator in the Plenary Session, Managing Director of the RBC TV channel, Ilya Doronov. That he was selected conforms to the changes made at such high level events ever since relations with the West collapsed. Previously, at the St Petersburg International Economic Forum and at the Vladivostok event, well known journalists from CNBC, from CNN and similar mainstream media regularly took the podium and led the Q&A with Putin. Whether they were just pretty women or well-dressed males, these journalists were as pumped up with their own self-importance as they were ill-informed about Russia. They read off the hostile questions they were given by their home offices, again and again. In the person of Doronov, we have a top level Russian journalist who knows Kremlin insiders and leaders of the business community on a first name basis and who could formulate questions that were really worth pursuing with the President.
In particular, let us consider Doronov’s question with respect to the defense of the ruble through the rise in the Central Bank lending rate to 12.5%: won’t this reduce credit available to expand business, he asked, and so work against the growth plans?
Putin explained that the decision to raise the lending rate was motivated firstly to fight inflation, which already has risen to 5.2% on an annualized basis. The defense of the ruble was a secondary consideration. In brief, the government is facing problems which are manageable but require close attention and fine-tuned solutions. The plans for development of the Far East will not suffer, he said, because the government will extend credit on preferential terms to priority projects.
One is left to conclude that the Russian government wishes to slow down consumer credit, since that is the part of the economy that has been overheating. Moreover, it is the resumption this year of imports for the consumer trade that has been driving the balance of payments from high positive numbers in 2022 to negative numbers today, and this, too, bears on the exchange rate.
After hearing Putin’s explanation of the current management of the economy, which is based on a set of theories to make sense of the world and is widely debated in the State Duma and media, as well as within the cabinet, we may conclude that Mr. Putin is a fully ‘rational actor’ in the sense defined by Professor John Mearsheimer in his latest book How States Think.
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A WhatsApp message to me early this morning from WION, the Indian English-language global broadcaster, prompted me to pay special attention to the visit to Russia of the North Korean Supreme Leader Kim Jong Un, which I was asked to comment upon. I put on my thinking cap and came up with a couple of observations that should guide our appreciation of what Kim may accomplish and why the West should be worried.
First, not much has been said in major media about the timing of Kim’s visit. He is arriving in Vladivostok on the second day of the three-day Eastern Economic Forum in Vladivostok. He will not be taking part in that event, to be sure, but all of the Russian government and business leaders with whom his delegation should meet to discuss a comprehensive deepening of relations are on the spot in Vladivostok. The very wording with which Press Secretary Peskov described arrangements for the visit is a tip-off: he said that Putin and Kim will have one-on-one talks “if necessary.” This summit event is thus very different from the Trump-Kim meetings of several years ago which were focused on a very few issues and were held with no one but translators present. Moreover, though the talks may be behind closed doors, the Russian-North Korean negotiations are not surreptitious; they are going on under the noses of global media.
The second question given me by the program host from WION was what does this meeting mean for the West given that the accent is likely to be on arms sales.
Allow me to quote a relevant interpretation of the meeting’s sense by today’s online New York Times:
“North Korea could provide Russia with much-needed ammunition. In return North Korea is seeking food aid and some advanced technology.”
The widespread assumption that Russia needs North Korean ammunition for its ongoing war in Ukraine is just plain wrong. The other type of military supply which Russia is said to seek in North Korea is medium range ballistic missiles, which some analysts say are among the best and least vulnerable to air defenses in the world. There, too, I say that the Russian interest is not to deploy such missiles in the Ukraine campaign.
Instead, I believe the Russians are seeking the aforementioned military materiel from North Korea to add to their weapons inventory in preparation for a direct war with NATO if that comes. In such eventuality this materiel can be of crucial importance. In the meantime, conclusion of agreements for supply from North Korea allows the Russians to be more liberal in their deployment of their own top-of-the-line hardware as they shift in coming weeks from defense to offensive operations on the ground in Ukraine. By way of example, I note that Russian use of their Iskander hypersonic missiles in Ukraine thus far has been very sparing. But most recent news suggests that Russia is placing large numbers of Iskander in the field for use when it goes on the offensive. These missiles cannot be produced in great numbers quickly. Therefore, it will be very handy for Russia to have a back-up in the form of Korean medium range missiles.
There are, in fact, a good number of areas of common interest which the sides can discuss if they so wish. Among them, I would mention the long frozen project to build pipelines for gas transmission across Korea to China.
We may learn about the fields of agreement following the Kim-Putin meetings. And then again, perhaps the sides will wish to keep the West guessing.
The link to my interview this morning with WION:
Russia-North Korea arms deal on the table? | Latest English News | WION