United Russia Proposes a Bill to Seize Property Belonging to Residents of Countries That Introduced Sanctions Against Russia

On October 15, the online edition of „Profile“ magazine published an interview with United Russia’s State Duma representative Evgeniy Fedorov, author of the bill proposing to nationalize foreign assets in Russia in response to the international sanctions targeting its state officials and businessmen. Once nationalized, the assets would be sold to compensate for any damage that the Russian state officials and businessmen might have suffered. Fedorov was at odds to explain how exactly would the government choose the foreign assets to be nationalized: he merely stated that the bill represents a „mirror reflection“ of the western sanctions against Russia and its citizens. Fedorov sees the western sanctions as a violation of the sanctity of private property: „The United States of America and its allies have practically declared that the people in Russia are of a lower class and have no right to private property. Our bill responds accordingly: we are just like you, and if you think that the people in Russia have no right to private property, that means your citizens don’t have this right, either.“

Fedorov called the right to private property „sacred“, to which the interviewer asked how could someone with such a position put forward a bill that proposes to seize private assets. However, Fedorov saw no problem here and continued to assert that the bill would actually strengthen the institution of private property, as it would make foreign governments think twice before freezing Russian assets abroad. Fedorov seems to propose to randomly choose which foreign assets in Russia will be nationalized in response to freezing of Russian assets in the West. When asked to describe what happens in a hypothetical case when U.S. authorities freeze the property of a certain Russian citizen, he said that a Russian court will decide which U.S. assets in Russia will be seized. “Which of the U.S. citizens will end up being lucky or unlucky – this is for the court to decide,” Fedorov stated. Consequently, while the freezing of Russian assets in the West represent a consequence of their owner’s support for the Putin’s regime, the seizure of foreign assets in Russia might end up resembling a sort of a lottery. The interviewer was puzzled by this explanation, but Fedorov remained unfazed: he believes that a Russian court will be able to identify a foreign investor in Russia most deserving to have its assets seized in return for western sanctions. Economic climate is of no concern to Fedorov, either. As a matter of fact, he believes that his bill provides an incentive for foreign investors to invest in third countries through Russia, thus becoming eligible for compensation from the pool of foreign assets in Russia should their investments in those countries become jeopardized.

In addition, Fedorov thinks that foreign investments are not that important for the Russian economy. “As a matter of fact,” he says, “foreign investments come from our money, only transferred through the dollar and the euro”. Instead, Fedorov says, the Russian Central Bank should look to its U.S. counterpart and pump more rubles into the domestic economy, which would lead to a 15-20 percent growth. Fedorov is right when he says that Russia would benefit from an all-out mutual seizure of assets, as there are more western investments in Russia than Russian assets in the West. He estimates the “Anglo-Saxon” FDI stock in Russia at USD 700 billion. The interviewer doubted if such a scenario could be called beneficial for Russia, as it will lead to complete isolation and loss of all economic ties. Fedorov’s response is noteworthy: “With whom? With 10 percent of the world, while the remaining 90 percent will applaud Russia and follow its example. It is them [America and England] that will become isolated.“

Evgeniy Fedorov was elected to the State Duma four times (1993-1996 and since 2003) and is the President of the Parliamentary Committee for Economic Policies and Entrepreneurship. He is known for numerous allegations against the Russian artists, businessmen and the media that he considers to be a part of a “fifth column”. Not surprisingly, he isn’t too interested in the difference between freezing and seizing, just as he doesn’t recognize that the sanctions are a consequence of Russia’s military involvement in Crimea and Eastern Ukraine. Apparently, he truly believes that the bill proposing arbitrary seizure of U.S. investors’ assets in Russia will at the same time serve as an incentive for them to invest in third countries through Russia.

However, Fedorov is right about one thing, and that is the Russian Central Bank policy: in 2014, it increased its reference rates by approximately 50 percent, hoping to stem inflation and prevent the capital outflow. Experts from the Center for Macroeconomic Analysis and Short-term Forecasting found that increasing the Central Bank’s base rate did neither and only acted as a further drag on the economy.

Russia increases its military spending, but the reasons are internal

In an essay for Slon.ru, former State Duma Representative Aleksei Mikhailov writes about sharply rising military spending foreseen by the Russian 2015 budget. According to the proposed budget for the next year, Russia’s defense spending should reach 4.2 percent of the GDP, a sharp increase from 3.4 percent of the GDP in 2014 and only 1.5 percent of the GDP in 2010. If the proposed budget passes, military spending will take up 21.2 percent of the total central government expenditures for 2015.

Consequently, Mikhailov writes, other budgetary expenditures will have to be cut. Budgets for education, healthcare and sport will be noticeably reduced, with healthcare suffering the most. According to Mikhailov, the World Bank ranked Russia as 9th on the list of countries with highest military spending in relation to GDP, higher than any other nuclear power, including the United States with defense spending of 3.9 percent of GDP. If it passes the 2015 budget as planned, Russia will enter the top 5 countries in the world in terms of defense spending as a percentage of the total central budget. The author notes that Russia’s increased military spending is unlikely to surpass the respective budgets of the two top defense spenders, the United States and China, in absolute terms. As a matter of fact, even if Russia decided to spend its entire central budget on defense, it would still fall short of the U.S. military spending. In order to match the Chinese military budget, Russia would have to spend as much as 8 percent of the GDP on defense. At the same time, Russia’s defense budget dwarfs that of its neighbors – it spends 36 times as much on defense as Ukraine does. Consequently, Mikhailov concludes, the sharp increase in Russia’s military spending is most probably motivated by internal factors.

Mikhailov claims that the recent herding of the Russian defense industry into state-owned monopolies damaged its competitiveness, which led the former Defense Minister Serdyukov to consider foreign suppliers. When Serdyukov was removed in 2012 under allegations of embezzlement, some speculated that it was a consequence of his unwillingness to continue equipping the Russian army with local production regardless of its quality. At the same time, the Russian Government sees the defense industry as one of the few remaining possible generators of economic growth and wants to ensure that the respective budget is spent locally. However, Mikhailov writes, such a strategy is likely to play into the hands of the chosen few, as the secretive military contracts in a competition-free environment represent an ideal opportunity for the suppliers to inflate prices. He concludes by noting that the USSR’s military budget in 1990 amounted to 19 percent of the country’s GDP, and it still didn’t help the economy from running into the ground.