|
Hello and welcome to the third edition of our newsletter—an essential guide to Russian politics and economics—written by Farida Rustamova and Margarita Liutova. Our main stories this time are:
A draconian online censorship law likely requested by the security services leads to expressions of dissent from pro-Kremlin activists and officials;
The Central Bank announces its deepest interest rate cut since 2022 as fears grow that the economy is cooling too fast.
We also briefly discuss the chaos at Moscow airports caused by Russia’s response to Ukrainian drone attacks, a major change to the draft for military service, and the cancellation of Russia’s biggest annual naval parade.
⏳ This newsletter contains 2017 words – it will take about 10 minutes to read. At the end of the letter, you will find a link to a very short survey.
We are always delighted if you want to share our reporting! If someone has forwarded this email, you can subscribe here:
Russia’s security services seek total control over the internet
A major expansion of online censorship, which may lead to a ban of WhatsApp, has provoked a rare show of opposition in the Russian parliament.
The approval of a law by the lower house of the Russian parliament Tuesday that fines those “deliberately” seeking out “known” extremist materials online has provoked fears that a major scaling up of online censorship is underway. In addition to targeting those who simply google material deemed extremist (a notoriously vague concept in Russian law), the law also clamps down on virtual private networks (VPNs), which are used by millions of Russians to access blocked services—including entertainment platforms, and professional services. From Sept. 1, using a VPN will be an aggravating factor in other offenses, and the authorities will have the power to impose fines on VPN service providers who do not share information with the intelligence agencies.
The law is a “scare tactic” aimed at VPN users and VPN service owners, a highly-placed official familiar with the bill told Faridaily.
This approach was chosen, he said, because Russia lacks the technical ability to monitor people when they use VPNs—and the security agencies want to close this loophole. At the same time, it will also be used to selectively target, and intimidate, opposition activists.
The rapid passage of the law illustrates where power lies in Russia’s political system. Formally, the bill was submitted to the State Duma by the government. However, high-ranking sources in the government and parliament told us that the real authors were in the Kremlin’s legal department—and they were working to the orders of the security services. Most likely, this means the influential Federal Security Services (FSB), whose powers the new law expands.
It’s hard to predict exactly how the new law will be enforced. In theory, it means that police and FSB officers will be able to stop people on the street and check their electronic devices to see if they have been searching online for “extremist materials.” If they are deemed to have done so, they can be fined up to 5,000 rubles ($64). However, it’s hard to imagine this becoming very common—not least because of the huge administrative burden it would place on law enforcement. Earlier this year, Interior Minister Vladimir Kolokoltsev said the Russian police force was severely under-manned, with over 172,000 vacancies. And, at present, Russia’s existing list of “extremist materials” has 5,500 entries.
The Kremlin’s plan was to pass the new law without any fuss, but, in the end, it was flagged by independent journalists and human rights activists. Surprisingly, though, it also ended up being criticized by pro-Kremlin activists, and propagandists, and even debated in the State Duma—an extremely rare occurrence in Russia’s highly controlled political system where dissent is a risky endeavor.
Critics of the bill included the leader of the New People party, Vladislav Davankov, who claimed it “contravened basic freedoms;” Communist Party deputy Artyom Prokofiev who argued it violated the Russian constitution; and Yekaterina Mizulina, the influential head of Russia's League for a Safe Internet, who said: “To violate this law it will be enough to click on a link… Within a few days this law will lead to a wave of fraud, doxxing, blackmail and extortion. It will be so simple to frame someone.”
The reason the Kremlin allowed this public criticism was not clear. Perhaps there was a decision to let deputies blow off steam, or play at being real opposition to help sustain the democratic illusion. Perhaps it was just bad management by Putin’s political overseers. We do know that the real authors of the law—the FSB—were in such a hurry to get it passed (or so disdainful of engaging in “politics”) they didn’t coordinate with anyone in advance. They didn’t consult State Duma Speaker Vyacheslav Volodin (who controls the State Duma), Putin’s Deputy Chief of Staff Sergei Kiriyenko (who oversees domestic politics), or pro-government activists.
As a result, the Kremlin ended up staging a last-minute meeting involving government ministers and Putin to discuss the law. This was highly unusual. The Kremlin even posted a clip of the meeting on its Telegram channel—likely an attempt to allay concerns, or send a signal to law enforcement to show restraint.
The law was passed Tuesday with 306 deputies voting in favor, 67 against and 22 abstentions. The “no” votes and abstentions came from Kremlin-controlled opposition parties like the Communists, Just Russia, and New People.
Of course, officials did not admit publicly the law was a “scare tactic.” Digital Development Minister Maksut Shadaev argued it was necessary because extremist content was so readily available on Western platforms like Google and WhatsApp. And he claimed that only individuals who knowingly sought out extremist material would be punished—not those who were tricked, or made a mistake.
In recent months, Russian officials have publicly discussed whether messaging service WhatsApp (which has 97 million users in Russia) should be blocked. The authorities have long sought to replace Western internet services with homegrown alternatives, and Russian messaging app MAX, which is often touted as a replacement for WhatsApp, claimed last month it had over a million users. The passage of the new law on extremist content and VPNs looks a lot like a precursor to a full ban of WhatsApp—and perhaps the start of a new wave of censorship.
Finger on the pulse
Ukrainian drone attacks spark chaos at Moscow airports
Over the course of Saturday, Sunday and Monday, 517 flights were canceled out of airports in Moscow and Moscow region, while 169 were diverted, according to Russian officials. No data was available on delayed flights, but images of departure boards shared online suggested almost a third of all flights were late.
Russian social media quickly filled up with videos of packed airports, jostling crowds, and confrontations with airport staff. Adults and children slept on the floor, and some waited over a day for flights. As Moscow’s airports are major transit hubs, the problems also led to nationwide flight disruptions. According to Russia’s Transport Ministry, a total of 75,000 passengers were caught up in the chaos.
The problems were caused by the Russian military closing airspace to civilian aviation in order to protect against Ukrainian drone attacks. Such restrictions can last from just a few minutes to several hours. They were imposed in Moscow and the surrounding region 21 times over the course of Saturday, Sunday and Monday.
This is the third time since the start of the war that there have been such dramatic scenes in Russian airports. The first was in May, and the second at the end of June. Before this year, drone-related flight delays tended to be regular, but short-lived.
Images of the chaos, which were widely shared online, contradict the Kremlin’s narrative that “normal life continues” despite the fighting in Ukraine. But polling does not suggest this will significantly change attitudes toward the war, or increase support for peace.
 |
Kremlin closes major military service loophole
A bill submitted to the Russian parliament this week looks to abolish a Soviet-era practice whereby the draft for compulsory military service (which applies to all men aged 18 to 30) runs for limited periods in the spring and fall. Instead, it would establish a year-round draft with summons papers issued on a rolling basis. The existing rules mean young men who don’t want to serve can, in theory, evade their call-up by hiding during the draft periods—for example, by going to live with friends. Although conscripts are generally not sent to fight in Ukraine, this change is part of the Kremlin’s efforts to make it easier to recruit manpower into the armed forces.
St. Petersburg naval parade cancelled for the first time during war
Russia has cancelled its main naval parade for the first time amid the escalating drone war with Ukraine. In past years, the ceremonial gathering of ships on the Neva in the center of St. Petersburg took place on the last Sunday of July to coincide with celebrations of Navy Day. The authorities did not give any reasons for canceling this year’s event, which Putin always attends alongside most of the naval high command. The media, citing sources, put it down to “security measures.” Perhaps, the risks from increasingly sophisticated Ukrainian drones were considered too high. While the parade was established in 2017 by Putin, who is known to enjoy such military spectacles, the tradition dates back to the time of Tsar Peter the Great.
Central Bank slashes interest rates as ‘over-cooling’ fears rise
While the military-linked manufacturing sector is still booming, other parts of the economy are contracting—and this could spell trouble for the Russian budget.
Russia’s Central Bank reduced interest rates by 2 percentage points on Friday to 18%, the country’s deepest cut since 2022. The reduction was the second in as many months, and it came amid signs that the economy is cooling rapidly. Or, as the Central Bank put it in an official statement: “The economy continues to return to a balanced growth path”.
For much of the war in Ukraine, the Central Bank has been grappling with the problem of economic overheating as military spending super-charged growth. Eventually, though, the record-high interest rates imposed by the regulator helped cool the non-military part of Russia’s economy. This also curbed inflation, which dropped as low as 4% last month (this is the seasonally adjusted annualized rate).
The situation across the manufacturing sector is highly uneven. Data published this week showed that overall Russian industrial output fell as much as 1.7% last month. However, this is not true across the board, with sectors linked to the production of weapons and other military goods still growing rapidly.
The current cycle of monetary policy easing is unlikely to significantly revive Russia’s non-military manufacturing sector. Although rate cuts will likely continue through this year, the Central Bank will ensure they do not go so low that inflation starts to creep upward. Controlling inflation is also a priority for the Kremlin, which traditionally views it as more politically dangerous than weak economic growth.
At the moment, the economic cooldown does not seem to threaten a catastrophic budget deficit, or dictate any changes to planned levels of military spending (which remains a Kremlin priority as it pursues its war aims in Ukraine). The cooldown has also been de facto endorsed by Putin, who has repeatedly praised the Central Bank and government for achieving a “soft landing.”
Nevertheless, lower levels of GDP growth could eventually end up creating problems for Russia’s budget. With oil-and-gas revenues declining, non-oil-and-gas-revenues—which are directly related to the pace of economic growth—play an increasingly important role. The Finance Ministry will likely have to pursue stealth cuts to non-military spending in the coming months in order to balance the books. Such stealth cuts could include indexing certain social handouts at a rate below inflation, or deferring major expenditure.
Thank you for reading! We want our newsletter to not only be useful, but also convenient. As a result, we’d like to ask: when would you prefer to receive it in your inbox? To answer, please follow the link. It will take less than a minute of your time.
| ||||||||||
