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Russia considers using National Wealth Fund to finance defense industry
Published: Tue, 16 Jul 2019 16:00:52 GMT

The funds in the Russian National Wealth Fund (NWF) should be used to give long-term and cheap loans to the defense industry, said Andrei Klepach, formerly the Russian deputy minister of economic development and currently an economist and vice chair of the board at Vnesheconombank (VEB).

“The government should provide the resource of long-term, cheap funds, which would enable us to solve the defense industry’s problems,” said Klepach. “In my understanding, the money in the National Wealth Fund could even be such a resource, because we have to invest them not only abroad in the assets of the US and other countries, we could also invest them in projects where we see return. Such projects definitely exist.”

Klepach emphasized that this possibility is currently being considered.

Russian Deputy Prime Minister Yury Borisov, who oversees defense, also lobbies in favor of extensive financial support for the arms industry. Last week he lamented that the portfolio of loans taken out by the defense industry is in excess of 2 trillion rubles (around $32 billion), and that repayments use up all the profit generated by the industry, forcing the companies to “live from hand to mouth”.

Borisov resents that these factories which produce “real products” are forced to feed banks, which “don’t produce anything”. He noted that plans to support the military-industrial complex with a loan of around 700 billion rubles ($11.1 billion) have been sent to President Putin.

It is not yet clear what the president will decide, Klepach noted.

“But I hope, the understanding should prevail, that if we want our defense industry to be a driver, and not a sore point, we need to invest in it in different ways,” he said, adding that the investment repayment in defense projects could be 5-7 or even 10-15 years.

Another reasons the funds are so badly needed is that the Russian defense industry is under severe US sanctions that block dollar transactions and restrict access to American technologies. “They are designed primarily to stall and to harm the development of the defense industry, and not only in the area of defense technologies,” said Klepach. “Essentially, it’s a consistent set of measures designed to strangle Russia technologically.”

The vice chair of VEB believes that the correct response would be to intensify the financing of the defense industry, which could become “a powerful technological driver, in the interests of the civilian population”.

“There are very good technological backgrounds and abilities here, and one can simply marvel at the enthusiasm and boldness of our engineers, scientists and managers, for dealing with these tasks, despite the rather difficult financial conditions,” observed Klepach.

As of 1 July, Russia’s NWF was officially worth 3.76 trillion rubles, or $59.6 billion.

Around 40% of this amount has already been spent on support for banks, lending to Ukraine, and infrastructural projects. The liquid part of the fund, in the form of foreign currency, includes $15.3 billion, €13.5 billion and £2.5 billion.

The real value of the NWF is significantly larger. Since 2017, the Finance Ministry has been buying foreign currency on the Moscow Exchange with the budget’s oil and gas earnings from prices significantly above $40 per barrel. Last year the intervention enabled the ministry to acquire $66.5 billion, which will be transferred to the fund in September. Between January and June this year, the ministry bought another $25 billion, and it could acquire another $28 in the second half of the year.

Thus the effective value of the NWF is actually around $150 billion, and will reach $178 billion by the end of the year, which is 10% of the GDP.

According to the budget rules, the fund can only be spent once it exceeds 7% of the GDP.

Ukraine extends embargo on Russian goods
Published: Tue, 16 Jul 2019 15:00:51 GMT

The Ukrainian government has extended the embargo on a number of Russian products until 2020, the press service of the Ukrainian cabinet of ministers announced on Monday 15 July. Originally the embargo was imposed at the end of 2015 as a response to similar restrictions imposed by Russia. On 15 May 2019, Kyiv decided to significantly expand the list of goods that may not be imported from Russia.

Since 1 July 2019, the embargo has applied to the raw materials for producing cement, all prepared forms of cement, mineral fertilizers, animal feed, veterinary medicine products and a number of other goods. In addition, as of March 2020, the importing of used railway carriages and trams will also be prohibited. The ban on importing cars from Russia to Ukraine has been postponed until the end of 2019.

At the end of June 2019, Russian President Vladimir Putin extended Russia’s food embargo until the end of 2020. The special economic restrictions were first imposed in 2014 on products from countries that support the sanctions against the Kremlin. Initially the embargo targeted goods produced in the US, EU, Australia, Norway and Canada. Since 13 August 2015, the list has been expanded to include other countries that have joined the sanctions on Russia: Albania, Montenegro, Iceland, Liechtenstein, and as of 1 January 2016, Ukraine. Putin’s decree states that the embargo is in place to “protect Russia’s national interests”.

Zelensky dismisses 12 Ukrainian ambassadors
Published: Tue, 16 Jul 2019 14:00:15 GMT

Ukrainian President Volodymyr Zelensky has decided to update Ukraine’s diplomatic corps, the presidential administration announced on its Telegram channel.

“The decision has already been made to replace 12 heads of embassies around the world. The Ukrainian ambassador to the US will also be ending his stay in Washington,” the post states.

The other countries where Kyiv is replacing ambassadors were not mentioned. Zelensky’s administration is already selecting new candidates for the ambassador position, and they will be appointed by a presidential decree in the near future.

Zelensky’s decision is the continuation of an extensive campaign to replace the senior officials in Ukraine’s government institutions. Before this, Zelensky began replacing the majority of Ukraine’s regional leaders. On 11 June, he fired 15 governors in a single day. On 10 July, he replaced the heads of 71 regional administrations in a single day.

Italy seizes air-to-air missile from Neo-Nazis who fought in Donbas
Published: Tue, 16 Jul 2019 13:00:10 GMT

The Italian police have uncovered a network of Neo-Nazis and seized an arsenal of weapons that includes automatic rifles, pistols and objects with Nazi symbols.

In a special operation, the anti-terrorist division of the Italian state police in Turin arrested three people and seized an arsenal of weapons, which included an air-to-air missile, which presumably belonged to the right-wing extremists who had been involved in the Donbas conflict, the Italian police announced in a statement on 15 July.

The investigation began about a year ago. The Turin police, in conjunction with the Central Police Directorate for Crime Prevention, started monitoring several persons linked to the ultra-right who had previously been involved in fighting in the Donbas, the report states.

After tapping phone calls and tracking movements, it was learned that one of the individuals under surveillance – a native of Gallarate in the province of Varese – had been involved in the sale of a missile which was later discovered in the province of Pavia. Two of his accomplices were also arrested, an Italian and a Swede. The missile in question was reportedly a French Matra Super 530, which is used by the armed forces of Qatar, among others.

During the raid, police confiscated nine assault rifles, one machine gun, seven pistols, three hunting weapons, 20 bayonets, about a thousand cartridges, and several placards with Nazi symbols.

The DPA news agency notes that the arsenal was discovered in the home of 60 year-old Fabio Del Bergiolo from Gallarate. According to Varese News, for many years Bergiolo was a member of the ultra-right political party Forze Nuova (“New Force”), and was also this party’s candidate in the senate

Forze Nuova was founded in 1997. Its ideology is based on extreme nationalism, Catholic traditionalism and the legacy of Italian fascism.

Visa and MasterCard may leave Russia
Published: Mon, 15 Jul 2019 14:00:00 GMT

The newly proposed provisions of Russia’s law “On the national payment system” could result in the international payment system (IPS) wrapping up its activity in Russia, and Russian citizens being unable to use their cards abroad, writes Kommersant. Within Russia, cards belonging to foreign credit institutions may no longer be accepted. Russia’s State Duma will consider the second reading of the law on 23 July.

The amendments themselves are supposedly meant to maintain the continuity of card payments in Russia. They prohibit IPSs from suspending transactions involving the cards of Russian banks under international sanctions. The international payment systems will not be able to comply with this demand.

The bill introduces the concept of the “foreign payment system” (FPS) in such a way that the IPSs registered with the Bank of Russia do not fall under it, and must consequently comply with the rules pertaining to normal payment systems.

Currently, subsidiaries of Visa, MasterCard, China Union Pay, JCB and other systems are registered with the Bank of Russia.

Unless the rules are amended, within half a year it will be illegal to suspend the transactions of any bank due to sanctions, for example. If IPSs fail to comply, they will be de-registered and effectively banned from operating in Russia.

If the license of an IPS is revoked, all transactions on their cards within Russia will be suspended for a period, warns Dmitry Vishnyakov, an independent expert on the payment market. At present, Russia’s national card payment system has not signed contracts with banks, but with IPSs, which pay it for servicing their transactions within the country, and all of the settlement conditions are stipulated in the rules of the IPSs, he explains.

The IPSs will not begin to change the rules, instead they will simply wrap up their business in Russia, believes an expert familiar with how the systems work. The proposed rules are impossible for the companies to comply with from a legal perspective. The subsidiaries are obligated to adhere to the rules and demands of their parent organizations, and there can be many reasons to exclude certain banks from the IPS, adds Maria Mikhailova, deputy executive director of the National Payments Association.

Russian MPs and the Bank of Russia are insisting on passing the bill this session. The regulatory bank insists that “the Russian subsidiaries of foreign companies that are carrying out their activity in Russian territory must operate in accordance with Russian legislation, which protects the interests of citizens, financial infrastructure and Russian business”.

Russian media: Kremlin will punish Greece if Athens provides information about S-300 missile systems to Israel
Published: Mon, 15 Jul 2019 16:00:14 GMT

Athens could suffer if it gives Israel information about S-300 aerial defense systems and lets the Israeli Air Force practice against such systems, writes the Russian site Avia.pro.

“If the key problem of the S-300s is the difficult attacking conditions for Israeli fighters, which are still taking cover behind civilian aircraft, then Iran will certainly be willing to act, attacking any hostile objects without restraint. Obviously, Israel is aware of this, which is why this country’s air force has carried out combat tests of the systems against its own planes,” the site remarks.

The site refers to information published previously by news outlet Tsargrad according to which the Israeli aircraft had practiced bypassing S-300s and attacking during drills over the Mediterranean Sea.

Military analyst Aram Shabanyan said that an Israeli plane had made a night-time training flight over the Mediterranean Sea, and that the distance flown by the plane was identical to “potential military targets in Iran”. Shabanyan believes the crew may have been rehearsing an attack against the heavy water plant in the city of Arak.

Avia.pro does not have information on how successful the Israeli Air Force’s drills against targets in Greece were, but considers it a dangerous thing for Athens to have allowed.

“Russia has enough levers to exert pressure on Greece, whose economy is steadily sinking. Today Greece has a new problem – the Turkish S-400s, which have already been transferred by Russia, but Russia could create far more serious problems for Athens if it starts to act against Moscow,” one of the site’s experts observed.

In October 2018, a little-known media outlet reported that Israel had practiced fighting against S-300s in Ukraine.

In 2007, Greece installed an S-300 system which it received from Cyprus, which had in turn obtained it from Russia in 1999 as protection against Turkey.

As a member of NATO, Greece gave permission for the US, British and Israeli air Forces to practice opposing S-300 systems in its airspace.

Foreign interest in Russian sovereign debt down by over 80%
Published: Mon, 15 Jul 2019 15:00:12 GMT

The influx of foreign investors into Russian government securities has sharply declined: by the end of June, their share in the Russian government debt market had effectively ceased to grow, said Elizaveta Danilova, head of the Bank of Russia’s financial stability department.

According to her, on 29 June, non-residents owned 30.1% of the federal loan bond market, as opposed to 30% at the start of the month.

The data comes from the National Settlement Depository, and may not take into account securities held abroad, Danilova notes.

Since the Russian Finance Ministry’s net bond placements in June amounted to 109 billion rubles, and non-residents’ share at the end of May was 30%, foreign investors invested only 39 billion rubles (around $617 million) in Russian government debt in June, observes VTB Capital strategist Maxim Korovin.

Compared to May (220 billion rubles), the influx has slowed down by more than 80%, its final amount being the lowest since the start of the year, Korovin notes: in January, non-residents invested 54 billion rubles in federal loan bonds, 70 billion in February, and 132-220 billion per month in the period between March and May.

Foreign investors bought a total of 664 billion rubles (around $10.5 billion) of bonds in the first five months of the year. The influx recorded by the Bank of Russia was a record and completely compensated for the panicked selling in 2018, when 560 billion rubles fled the market between April and December.

However, in June “not a trace of the previous interest remained”, says Raiffeisen Bank analyst Denis Poryvay: whereas in May, investors brought more than 200 billion rubles to the auctions, on 5 June the demand was 167.2 billion, and on 19 June it dropped to less than half – 70 billion, and 46.5 billion by 26 June. For the first placement in June there was only 27 billion rubles.

For the first time since the start of the year, investors started demanding yield premiums, in other words discounts to the market price. The fact that the demand disappeared so quickly confirmed how specific it was: a “narrow circle of non-residents, most likely form developing countries” Poryvay remarks.

Japan-Russia peace treaty talks fall through yet again
Published: Mon, 15 Jul 2019 13:09:06 GMT

A new round of Russian-Japanese peace treaty negotiations has come to nothing. Since the end of World War II, a peace treaty between Japan and Russia, as the legal successor to the Soviet Union, has still not been signed. A declaration that the state of war between the counties has ended was signed in 1956.

Until now, Japan has demanded that Russia return the southern islands of the Kuril chain – Iturup, Kunashir, Shikotan and Habomai. In negotiations on 14 July, Russia refused to even discuss handing over Shikotan and the Habomai archipelago, Kyodo reports, citing a source familiar with the situation.

Russia, which is interested in expanding its military presence in the Kurils, has expressed concern regarding Japan’s cooperation with the US.

Russian Foreign Ministry Spokesperson Maria Zakharova told RBC in a comment that the talks had exclusively concerned the signing of a peace treaty and that there had not been any “specialized contact” between the two countries.

On 12 September 2018, Russian president Vladimir Putin suggested to Japanese Prime Minister Shinzo Abe that they sign an unconditional peace treaty by the end of the year, and deal with the “contentious issues” at a later stage. Japan refused to sign any such unconditional treaty.

Abe will consider the possibility of signing a peace treaty if Russia gives Japan two of the four disputed islands – Habomai and Shikotan.

Russia is continuing to make it very clear to Japan that it does not intend to peacefully resolve the Kuril islands dispute. Instead, Russia’s leaders intend to expand Russia’s military presence on the islands for defensive purposes.

Ukrainian Prime Minister: Kyiv cannot stop rail traffic with Russia
Published: Sun, 14 Jul 2019 16:00:45 GMT

Ukrainian Prime Minister Volodymyr Groysman said that Ukraine can not severe the railway communication with Russia. Speaking on the program “Opposition” on Nash TV channel, Groysman explained that Ukraine has obligations to the European Union on the transit of goods. "We simply cannot stop the railway traffic, because we have obligations under the European Union Association Agreement," said Ukrainian Prime Minister.

At the same time, Groysman noted that Ukraine does not intend to restore air traffic with Russia.  

Last year, the Ministry of Infrastructure of Ukraine, headed by Volodymyr Omelyan, proposed that the Verkhovna Rada of Ukraine stop passenger railway communication with Russia completely. However, he didn't speak about the termination of cargo traffic.

In mid-May, Omelyan said that the passenger trains traffic between Russia and Ukraine will stop by itself because the citizens of Ukraine will stop going to Russia. He explained his position using statistical data, according to which the number of rail trips to the EU in 2018 exceeded the number of trips to Russia.

At the same time in mid-July liga.net news outlet, with reference to the financial indicators of Ukrainian Railways, reported that in the first five months of 2019, the most profitable route for the company was Kyiv—Moscow. Ukrainian Railways earned 117.7 million hryvnias (more than us $4,584 million) from this direction. Train occupancy was 66%. The second most profitable route was the train from Odesa to Moscow (39.2 million hryvnias, or more than $1.5 million).

At the moment there are direct trains from Moscow to Kyiv, Lviv, Odesa, Dnipro, and Donetsk.

Hezbollah partially withdraws from Syria
Published: Sun, 14 Jul 2019 15:00:43 GMT

In an interview on an Al-Manar TV channel, the leader of the Hezbollah terrorist organization Hassan Nasrallah said that Hezbollah reduced its presence in Syria.

"Our troops are still in all the locations in Syria where they were before. But we have reduced the forces to the number that is necessary now," he said, and added that "despite the tough sanctions, they will return if it is be needed."

He also warned Israel and the Gulf countries that the war with the US and Iran would lead to a catastrophe for the entire Middle East region. 

"Every country which becomes a partner in the war against Iran or the territory of which is offered to be used for attacks against Iran will pay the price," the head of the terrorists warned. At the same time, he noted that serious deterrence would not allow the Israelis to resort to war.

"The most important area for Israel is the coastal strip from Netanya to Ashdod, where most of the settlers and the main centers of the country are located. We can resist our enemy with tens of thousands of missiles capable of attacking this area. Will the enemy be able to oppose it? In this scenario, that area will return to the stone age. Huge destruction is the least that will happen to them," he said.

In the same interview, Nasrallah reported that the administration of US President Donald Trump tries to establish communication with Hezbollah through mediators in Lebanon.


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