Dear friends,
This is “The Report” (all in caps!), the famous and, for some, infamous report presented by Sergei Glaziev to the Russian Security Council.  Not an excerpt of a paraphrase – the full thing, appendices and all.  To say that our translators did a huge and very hard job would be an understatement.  I read the original Russian text, and I can attest that it is hell to translate.  So I immense and heartfelt THANK YOU to KA, Elona, Seva and Eugenia – what you guys did is fantastic!!
The Saker
Translated by KA, Elona, Seva, Eugenia
“Business Online» for the first time publishes the full text of the widely discussed analytical document that will be presented today at the Security Council of the Russian Federation. Today, presidential adviser Sergey Glazyev will be presenting at the closed session of the interdepartmental commission of the Security Council the same report, which became widely known thanks to front-page article in the newspaper “Kommersant”, where it was named as the most complete presentation of the program outlined by the supporters of the “modernization breakthrough.” At the same time, at the disposal of both critics and apologists of these ideas was a biased set of fragments, but not the text itself – “Business Online» fills this gap.
word-image
Today, presidential adviser Sergey Glazyev will be presenting at the meeting of the interdepartmental commission of the Security Council a report on additional measures to overcome the economic sanctions against Russia
The report “On urgent measures to strengthen the economic security of Russia”, will be presented today at the inter-ministerial committee of the Security Council, which, after reading will pass it to the “Grand Council” chaired by Russian President Vladimir Putin. Proposals for the change of economic policy were prepared under the supervision of the Presidential Adviser Sergey Glazyev, although not by him alone, but by a group of about fifteen associates. Most of them belong to the domestic scientific community, moreover, the adviser to the president is a member of the Academy of Sciences.
Meanwhile, last week, the document acquired notoriety because of freestyle exposition of its ideas in the newspaper “Kommersant” – many economists and liberal journalists criticized the report. Yet no one could read the ” Pasternak himself”, because the report has not been published anywhere. As explained one of our well-known economists, head of the Institute of dynamic conservatism Andrey Kobyakov, the quotes from the report in “Kommersant” were “completely torn out of context,” and in this distorted form caused quite a stir in the Internet and in the liberal press. Meanwhile, in his view, the document offers practical measures to prevent the collapse of the Russian economic and public institutions in a standoff with the West.
“Business Online» is the first of the Russian Media to offer its readers the opportunity to to make up their own minds about the report of Sergey Glazyev. For ease of reading, we have divided it into chapters.
“THE US IS TRYING TO KEEP THE LEADERSHIP VIA INITIATION OF A WORLD WAR”
The US aggression against Russia and the seizure of control over Ukraine is an integral part of the global hybrid (chaotic) war waged by Washington to retain world leadership in the growing competition with China. Russia is selected as the direction of the main attack on a combination of objective and subjective circumstances.
Objectively, the escalation of the international military and political tensions caused by the change of technological orders and historical cycles of accumulation, in which there is a deep restructuring of the economy based on a fundamentally new technology and new mechanisms for the reproduction of capital. At such times, as the five hundred years of experience of capitalism, there is a sharp destabilization of the system of international relations, the destruction of the old and the formation of new world order, which is accompanied by the wars between the old and new leaders for dominance on the global market.
The US aggression against Russia and their takover of Ukraine are parts of the global hybrid war.
Examples of such periods in the past include: the war of the Netherlands for independence from Spain, which resulted in the center of the development of capitalism been moved from Italy (Genoa) to the Netherlands; Napoleonic Wars, which resulted in the UK becoming the dominant power; First and Second World Wars, which gave the domination over the capitalist world to the United States, and the Cold War between the US and the USSR, which resulted in seizure by United States of the global leadership due to the superiority in the development of new technological structure based on microelectronics, information and communication, and the establishment of a monopoly on emission of the world’s money.
In the present period of growth in the wake of new technological advances, China comes ahead, and the accumulation of capital in Japan creates opportunities to move the center of the world accumulation of capital to Southeast Asia. Faced with over-concentraion of capital in the financial pyramids and obsolete production facilities, as well as the loss of markets for their products and a drop in the share of the dollar in international transactions, the US is trying to keep the lead by stirring up a world war in order to weaken its competitors and partners. In trying to establish control over Russia, Central Asia and the Middle East, the United States is seeking a strategic advantage in managing the supply of hydrocarbons and other critically important natural resources. The US control over Europe, Japan and Korea ensures its dominance in the creation of the new knowledge and development of advanced technologies.
Subjectively, the anti-Russian aggression is due to irritation of American geo-politicians by independent foreign policy of the President of Russia and his focus on a broad Eurasian integration – from the creation of the EAEC and SCO to initiatives in creating a common economic space from Lisbon to Vladivostok. The US fears the formation of independent global centers of growth, primarily – the BRICS countries. The historical role of Russia in the organization of projects of global integration determines the surge of American Russophobia. Furthermore, there is a demonization of the Russian President, who Washington sees as chiefly responsible the US’ loss of control over Russia and Central Asia, and Putin’s independent foreign policy is seen as a key threat to the American global dominance.
Washington unleashes a world war that differs from the previous one by lack of front-line clashes of fighting armies. It is based on the use of modern information and cognitive technologies with reliance on “soft power” and the limited use of military force in the form of punitive operations when the enemy is deprived of the possibility to resist. The aim is to destabilize the internal situation in the victim-country by the indoctrination of its social consciousness by subversive ideas, by causing deterioration of the socio-economic situation, cultivation of various opposition forces, bribery of productive elites to weaken government institutions and the overthrow of the legitimate leadership and the subsequent transfer of power to the puppet government.
Such wars are called hybrid: the victim-country’s leadership does not feel threatened by the enemy until the last moment, its political will is constrained by endless negotiations and consultations, the immune system is suppressed by demagogic propaganda, while the enemy is actively working to destroy the structure of its internal and external security. The decisive moment is their military suppression of the emerging pockets of resistance. That waa way how the United States have achieved success in the Cold War against the Soviet Union, and is now expanding chaos in the strategically important regions of the Middle East and try to regain control over the post-Soviet space.
The Asistant Secretary of State Victoria Nuland is giving away cookies on Maidan.
“ORGANIZATION OF MILITARY CONFLICT BETWEEN RUSSIA AND EUROPE IS FOR THE USMOST DESIREBLE ”
By organizing a coup and establishing full control over the structure of Ukrainian state power, Washington relies on the transformation of this part of the Russian world into a springboard for military, information, humanitarian and political intervention in Russia in order to transfer a chaotic war to its territory, the organization of the revolution and the subsequent dismemberment. The expectation is that the consciousness of Russian public is not immune to the penetration of agents of influence from Ukraine, which is an integral part of the Russian spiritual and cultural root. And also the fact that Russian armed forces would not dare to use weapons of mass destruction against the brotherly people.
Unleashing the Ukrainian-Russian war, the US dragged in NATO against Russia, achieving by anti-Russian economic sanctions both to weaken the EU and consolidate its control over Brussels. The organization of the military conflict between Russia and the European countries of NATO in Ukraine is the most desirable scenario for the US, for whom the war in Europe has always been “good”. The unleashing of a war under the slogan of protection against “Russian aggression” is the main objective set by the Americans for the Kiev Russophobic regime. While this regime exists, attempts to provoke a war against Russia will continue, including through the terror against the Russian population of the South-East of Ukraine.
Even if we can stop the US aggression in Ukraine and solve the Ukrainian crisis, there is no doubt the inevitability of a long and significant deterioration of the trade and economic relations between Russia and NATO member states, as well as others dependent on US countries (Japan, South Korea, Canada, Australia). Given the high external dependence of the Russian economy, it creates a serious threat to national security. The most urgent of these risks lies in the freezing of foreign currency assets, cutting off the Russian banks from the international payment and information systems, the ban on high-tech products, worsening of the conditions for Russian export.
Currently, the amount of foreign currency assets of the Russian Federation located in the jurisdiction of the NATO countries, is more than 1.2 trillion USD, including short term- about 0.8 trillion dollars. Their freeze may be partially offset by retaliation against NATO assets in Russia, which amounts to 1.1 trillion USD, including long-term – more than 0.4 trillion dollars. This threat would be neutralized if the monetary authorities organized timely withdrawal of Russian short-term assets in the US and the EU, which would change the balance in their favor. However, despite the threat of sanctions, the placement in the US and European securities of Russian assets continues.
Before it is too late, there is an urgent need to sell the foreign currency assets placed in the obligations the of US, Britain, France, Germany and other countries participating in sanctions against Russia. They should be replaced by investments in gold and other precious metals in stocks of highly liquid commodity, including a crucial imports in the securities of member countries of the EAEC, SCO, BRICS, as well as in the capital of international organizations with Russian participation (including the Eurasian Development Bank, CIS, IIB, New Development Bank, and others.), expansion of infrastructure that supports Russian exports. Among the elements of the latter, the creation of international trade marketplaces of Russian commodities in Russia’s jurisdiction for rubles is very important, as is the creation of international sales and service networks of Russian goods with high added value.
With regard to the emerging trend of freezing private assets of Russian legal entities and individuals, with which the monetary authorities of Western countries started to interfere, Russia should consider measures of full or partial moratorium on the servicing of loans and investment from these countries.
The Central bank dragged its feet in the creation of the National Card Payment System.
The Central Bank delayed the creation of the National Payment Card System, as well as the system of international exchange of bank information that could protect the Russian financial system from sanctions of the western jurisdiction of settlement and payment systems VISA, MasterCard, SWIFT, as was discussed three years ago. Now it is necessary to put the agenda of the creation of such systems internationally for the next meeting of the BRICS countries in Ufa to ensure the work of the Russian payment instruments, not only domestically, but also abroad (Appendix 1).
As have been repeatedly indicated by Russian President, it is necessary to implement de-offshorization of the Russian economy, to avoid creating supercritical dependence of its reproduction circuits on the Anglo-Saxon legal and financial institutions and prevent systematic loss of the Russian financial system up to 60 billion dollars per year on the difference alone in yields from borrowed and allocated capital. Relevant proposals were repeatedly sent to the Ministry of Finance and the Bank of Russia (Appendix 2). Recent legislative initiatives in this regard are limited to issues of tax revenues transferred abroad, which does not eliminate the most important reasons for the export of capital, but also stimulates the transition of taxpayers to a foreign jurisdictions.
It is important to fulfill multiple instructions of the President of Russia on the establishment of a national financial market infrastructure, including the transition to the use of domestic rating agencies, auditing, legal and consulting companies. Slowing down their execution leads to significant losses for the national financial system due to the systematic understatement of the credit ratings of Russian borrowers and misconduct of Western partners.
The bank of Russia is continuing to the policy of complete openness of the Russian financial market.
“THE BANK OF RUSSIA CONTINUES TO SERVE THE INTERESTS OF THE FOREIGN CAPITAL”.
In order to pursue an independent policy, it is essential to manage your own economic development. An adversary who controls the reproductive performance of the national economy can manipulate the behavior of the business community, critically affecting the conditions of the vital functions of society. It is not possible to win a war with him under such circumstances, making it impossible to conduct an independent foreign policy. It follows from this that the Russian leadership’s course of an independent foreign policy must be supported by the restoration of the national sovereignty and of control of the reproductive performance and development of its own economy.
The most important condition for neutralization of Western sanctions is transition from external to domestic sources of credit. Russian experts and specialists have repeatedly suggested solutions to these problems but these have been categorically rejected by the Bank of Russia management, which continues its policy of focusing on serving the interests of foreign capital.
Thus far, despite the bitter experience of the outflow of foreign speculative capital in 1998, 2008 and 2014, the Bank of Russia continues its policy of full exposure of the Russian financial market, not taking necessary measures both to counteract the export of capital and to create internal sources of credit. As a result of this policy, the money supply in the Russian economy is largely developed under foreign obligations and remains obviously insufficient to finance even a simple reproduction of fixed capital. The result is a profound external dependence of the Russian economy on the foreign market, its commodity specialization, the degradation of the investment sector and the decline of the manufacturing industry, the subordination of the financial systems to the interests of foreign capital, in whose favor there is an annual transfer of $120-150 billion (Appendix 3). The Bank of Russia’s policy of high interest rates and a limited amount of credit against a background of freezing external sources of credit leads to a contraction of the money supply , a decline in production and investment as well as a chain of company bankruptcies with negative social consequences.
Appendix 3
Economic growth, which, according to the objective conditions of the production sector last year, should have been a 3-5 % of GDP, was halted by a step-by-step increase in the key rate of the Central Bank above the average level of profitability for the real sector of the economy. This increase was based on standard IMF recommendations to reduce inflation by raising interest rates.
In practice, this policy leads to the economy entering a stagflationary trap. Over the past two decades numerous studies have been conducted showing that raising interest rates and shrinking the money supply does not as a rule lead to lower inflation, but everywhere and always entails a decline in production and investment as well as a banking crisis and a rash of bankruptcies. In addition, in our conditions of demonetization and monopolization of the economy, these are accompanied not by a decrease but by a rise in inflation.
The second blunder of the Central Bank was the transition to a free floating ruble exchange rate. There is no scientific proof of this being needed to target inflation. On the contrary, in the conditions of excessive exposure of the Russian economy, and the dependence of its exports on oil prices and the high share of imports in the consumer market, a free rate mechanism is not compatible with the macroeconomic stability. Price fluctuations in the world market, an attack by financial speculators or any other change in the external economic environment can overturn plans for achieving the inflation target.
The Central Bank’s transition to a free floating ruble exchange rate proved to be a major blunder
The combination of these two mistakes led to the fact that while announcing the transition to inflation targeting, the Central Bank achieved the opposite results – inflation doubled, trust in the national currency and the regulator was undermined for a long time. With a potential of 6-8% annual GDP and investment growth, the Russian economy was artificially driven into a stagflationary trap. The monetary authorities target a 5% decrease with a 15% rate of inflation. Meanwhile an even worse scenario, fraught with serious consequences – a default of major Russian borrowers in the event of further capital flight and falling oil prices – is not impossible. In the first quarter of 2015 we can observe a sharp deterioration in the conditions of reproductive performance of the real sector of the Russian economy. The volume of issued credit decreased by almost half a trillion rubles and the share of overdue debt grew by 60%. Since January of this year the economy was generally unprofitable. The total profit of enterprises dropped by half compared to the pre-crisis year 2007.
Continuing against this background the Bank of Russia’s policy of further contracting the monetary supply aggravates these processes and causes the disruption of all systems of reproduction and monetary circulation. The decrease in the level of monetization by 10% last year and by 15-20% this year will inevitably lead to a corresponding fall in investment and production, further worsening the financial situation and causing a mass bankruptcy of real sector enterprises.
Deterioration in the conditions of reproduction of the real sector is accompanied by maintenance of an artificial extreme profitability of currency speculation. If last year’s currency speculation on the fall of the ruble yielded 30-50% per annum, involving ¾ of loans issued by the Bank of Russia in the refinancing of the banking system, now they yield 40% on the appreciation of the ruble. In creating foreign currency Repo transactions, the Bank of Russia is de facto subsidizing currency speculators, who convert currency credits obtained at 2%, acquire federal bonds with a yield of 10% and then again buy currency at a reduced rate. Through its policy the Bank of Russia stimulates currency speculation to the detriment of the real sector. After an appreciation of the ruble course by a third, the ruble almost completely lost the gain in price competitiveness received as a result of last year’s devaluation, which creates the conditions for another wave of devaluation.
“De-offshorization” of the economy could have stopped the systematic outflow of capital
“RUSSIAN BORROWERS’ DEBT TO WESTERN CREDITORS IS 560 BILLON DOLLARS”
As this example shows, the contours of external management of the economic and social life, as they are not perceptible, which means that they are not detected and dismantled, are no less dangerous than other types of “containment” of Russia. Lack of clear realization and gradualness (mundanity) are features of the cognitive weapon by means of which Russia is herded down a path imposed from the outside into institutional and financial traps, they create exorbitant threats to national security, the risk of damage by hurtling at full speed into a hybrid (economic, informational and other, right up to hot) war. The infiltration of false targets and unusable methods into the awareness of leaders and the regulators’ work methods allows them to be easily manipulated and to be used towards self destruction of their own economy and the subordination of the policy they pursue to foreign interests.
Onother dogma of the IMF, the inadmissibility of currency restrictions, adds to the mistakes discussed above (which are, in fact, the framework of external control). Following this dogma spins into gigantic capital flight, encourages corruption, facilitates offshorization of the economy with its extreme vulnerability to external threats. The untenability of this dogma, which is focused on serving the interests of foreign speculative and offshore capital, of corrupt officials and organized crime, is proven both by scientific research and practical experience. Selective exchange controls and restrictions on cross-border movement of capital are practiced by the vast majority of countries, including the USA. On a system level, these are carried out by our partners in BRICS, who have been highly successful in attracting direct foreign investments. The need for exchange controls to repel speculative attacks and to ensure macroeconomic stability is proven.
If urgent measures are not taken to radically change monetary policy in the direction of establishing domestic sources of long-term credit and ensuring stability of the Russian currency and financial system (Appendix 4), then Western sanctions could halt the reproductive performance of the sectors of the Russian economy focussed on exports and also paralyse the activities of a number of systemically important banks and corporations. In particular, urgent action is needed to replace the foreign loans of state corporations and banks with targeted loans, granted by the Bank of Russia on similar terms, either through one of the development institutions or as direct liabilities of the loan recipients. However, like last year, the Bank of Russia ignores the negative impact of Western sanctions, exacerbating their effect with their own tough monetary policy. Meanwhile the monetary authorities of the US and the EU by continuing a policy of credit expansion easily manipulate the Russian stock market, critically affecting the reproductive performance of the Russian economy and creating competitive advantage for its corporations, including absorption of the most valuable assets. Sustainable development of the Russian economy, its remonetisation, modernisation and the organisation of long-term loans available for the real sector cannot be achieved without correction of this error.
Russian borrowers’ total debt to Western creditors is $560 billion with total currency reserves of $360 billion. This creates the risk of default of the Russian financial system and the bankruptcy of many borrowers in the case of simultaneous request to repay loans. It could be resolved by a swift deoffshorization of the economy, which would stop the systematic outflow of capital and would secure the return of assets of half a trillion dollars to Russian jurisdiction. The threat of nationalisation of strategic corporations in the event of their owners’ failure to return their assets to Russian jurisdiction could provide an important incentive to deoffshorization. As a reward for the return you could use the substitution of external credits by domestic ones, granted on the same terms according to the principles of project financing.
“MAINTAINING A DEPENDENT ECONOMY LEADS TO A DEFEAT IN THE HYBRID WAR”
The above listed measures do not nearly exhaust the requirements for the provision of economic security, the status of which is unsatisfactory (Appendix 5). Among the most pressing issues requiring immediate solutions, the following should be highlighted: the dismal state of the investment sector, especially machine-tool construction, instrumentation and the electronic industry; the degradation of scientific and technical potential due to constant underfunding of R&D and the virtual elimination of industrial science and design institutions during the privatisation crusade; the disruption of basic science owing to an administrative clamp down as a result of the reform of the Russian Academy of Sciences; the growing technological gap in the key areas of growth in the new technological order (nanotechnology, bioengineering and information technology); over-reliance on foreign technology in critically important sectors (aviation, medicine, ICT equipment).
To overcome the extremely critical external dependence on foreign technology imports, we need large scale programs of import substitution, balancing material, financial and human resources. This cannot be done within the existing system of the economic regulation, in which planning methods, including the preparation of balance sheets, goal programming, scientific forecasting and system design are forfeited. It requires the deployment of a strategic planning system with the centralisation of key functions at the level of the President of Russia (Appendix 6).
The greatest danger of economic sanctions is that they block Russia’s access to new technologies
The greatest danger of economic sanctions is that they do not allow Russia access to new technologies. If this is not neutralised then in a few years our economy will be in a state of irreversible lag as regards mastering the processes of the new technological order, the output of which will ensure a long wave of growth, the upgrading of both industry and the army to a qualitatively new level of efficiency. In order to prevent this lag it is necessary, on the one hand, to greatly increase allocations for R&D in key areas of growth of the new technological order. But on the other hand, a radical increase of responsibility of the heads of development institutions for the effective use of allocated funds must be emsured. This requires the creation of a modern system for managing the scientific and technical development of the country, covering all stages of research and the scientific-production cycle and focused on the modernisation of the economy on the basis of the new technological order (Appendix 7).
The proposals described above for strengthening the economic security during the unfolding world hybrid war against Russia are focused mainly on improving the efficiency of state institutions. Along with this, favourable conditions for business initiatives and growth of private business activity must be supported. In addition to the proposed measures on the creation of cheap domestic sources of long-term loans, they must include a tax scheme to transfer the tax burden from production to consumption (Appendix 8), as well as measures to reduce costs for the services of infrastructure sectors, especially power, the ill-conceived reform of which led to a multiple increase in the tariffs in the interests of monopolistic intermediaries (Appendix 9).
Implementation of these measures and above all the elimination of the causes of stagflation and the creation of the conditions essential for economic growth (Appendix 10) must be realised within the next year. Otherwise the escalation of economic sanctions against Russia will lead to the destruction of reproductive profiles dependent on the foreign market, to a sharp drop in the income level of economic operators, and to a stoppage of many import-dependent industries, as well as to the bankruptcy of many companies dependent on external sources of loans. This will lead to a marked drop in people’s living standards (by the end of 2015 – to the level of 2003, offsetting the positive effect of 10 years of income growth) that will enable our enemies to proceed to the next phase of the chaotic war against Russia.
The stability of the domestic social and economic order cannot be guaranteed without long-term goal-setting, without the overall systemic work of the state, companies and citizens on implementing the course on the sovereign development in a modern socially and technologically advanced understanding – on the role of Russia in the world.
Clear guidance should be given to all social groups and to the public opinion on the real international and internal situation of the country. Without informational and personal actions, the measures taken to counter the economic threats will not be not effective enough.
Russia has been placed in a position where she is struggling for her very independent existence, where the preservation of the dependent status of the economy on the western core of the world economic and financial system will bring about defeat in the hybrid war unleashed by the United States and the danger of losing the national sovereignty. Neutralisation of this threat is impossible without changing the country’s model of “integration” into the world economy, the formation of sovereign sources and mechanisms of development, without building a broad anti-war coalition of countries based on the principles of equal partnership, mutual benefit and respect for national sovereignty.
In any case, it is necessary to give a systemic, long-term response to the imposed long-term credit and technological embargo, since the lack of response provokes the West to impose further embargo packages – trade and payment embargos including the freezing of foreign currency assets, the exclusion of Russian banks from international payment and information systems, the deterioration of Russian export terms.
We are talking about urgent and systemic (interrelated) measures to mobilise the state and society to counter threats to the very existence of Russia as a sovereign state. Moreover such measures must objectively be comprehensive: not just defence and diplomacy (which relate to the field of geopolitics) but also the restoration of control over domestic markets, including currency control and integration with partners, the creation of a layered system of protection of the economic interests of the Russian Federation, with monitoring and rapid response to the growing threat to national security in the economic field.
The Security Council should play the role of “civilian General Staff” creating a suitable strategic plan to counter the threats, the implementation of which involves all the national economic governing bodies.
Dissatisfaction with the current global system of absolute domination by the United States is common to all BRICS countries.