Vtb To Sell Tele2 Russia Stake, Fuelling Consolidation Talk

Beat them in a fair election By Milan Svolik More Alexei Navalny (Sergei Karpukhin/REUTERS ) [Joshua Tucker: The following is a guest post from University of Illinois political scientist Milan Svolik in response to previous posts here at The Monkey Cage on the Russian mayoral electoral race between Alexei Navalny and Sergei Sobyanin . The election featured a two-round majoritarian electoral rule: If one candidate won the first round of the election with more than 50 percent of the vote, then that candidate would be declared the winner (as turned out to be the case in this election); however, if no candidate had won a majority of the vote, the top two candidates would have advanced to a runoff election.] ***** After reading Timothy Fryes and Scott Gehlbachs interpretations of the recent mayoral election in Moscow on The Monkey Cage, I thought I would offer my own, different explanation for this event. As you highlight in your earlier posts, a fundamental question that political scientists address is: When and why do incumbents manipulate elections? In the case of the Moscow mayoral election, the puzzle has been the reverse: Why would a government that has a history of manipulating elections decide to hold a free one? In a research paper titled Third Parties and the Success of Democracy (co-authored by Svitlana Chernykh ), we provide a general answer to these questions that also clarifies why the Kremlin decided to hold one of the freest elections in the recent memory. Our logic goes as follows: An authoritarian incumbent will find a clean election most valuable when he needs to dispel the impression that the opposition might be more popular than he is. This is precisely the scenario before the Moscow mayoral election last month. Moscow is the most likely place in Russia where an opposition candidate might enjoy widespread popular support. If the incumbent, Sergey Sobyanin, held a nontransparent election and claimed a quick victory, the opposition might have believed that the election was stolen by the regime and incite those opposed to President Vladimir Putin to fight for a victory in the streets. After all, finding out ahead of the election who was the most popular candidate in Moscow was not easy, due to the widespread belief that opinion polls were manipulated by the regime. Just as in Iran in 2009, this could prove costly for Putin and Sobyanin even if they did eventually succeed in suppressing such protests. Holding a (reasonably) free and fair mayoral election was therefore the best way for Putin to convince Muscovites that his candidate was indeed the most popular one. While the leading opposition candidate, Alexei Navalny, came out of the mayoral race looking better than expected, the election managed to dispel any hopes that the opposition might be more popular in Moscow than the regime is. After all, Sobyanin beat Navalny by more than 20 percentage points. Holding a free mayoral election was therefore a calculated risk that paid off (even if at the price of barely avoiding a runoff.) The broader implication is that the benefit of popular legitimacy does not come for free or at least not without running the risk of losing an election.

Credit: Reuters/Bobby Yip By Mark Hosenball WASHINGTON | Fri Oct 11, 2013 2:14pm EDT WASHINGTON (Reuters) – The four laptop computers that former U.S. spy contractor Edward Snowden carried with him to Hong Kong and Moscow were a “diversion” and contained no secrets, according to an ex-CIA official who met with Snowden in Russia this week. The classified documents that Snowden had downloaded from the U.S. National Security Agency were stored on smaller devices, such as hard drives and thumb drives, and they have not been turned over to the Russian or Chinese authorities, said Ray McGovern, a former Central Intelligence Agency analyst. On Wednesday, Snowden held a six-hour meeting in Moscow with McGovern and three other former U.S. intelligence and law enforcement officials who have all become critics of government surveillance programs. Snowden, 30, is living in a secret location in Russia, beyond the reach of U.S. authorities who want him on espionage charges because he leaked the details of top-secret electronic spying programs to the media. He had traveled to Hong Kong in May and later, under pressure from China, flew to Moscow. U.S. officials have said that they were operating on the assumption that any classified materials downloaded by Snowden have fallen into the hands of China and Russia’s spy agencies, though the officials acknowledge they have no proof of this.

While the government can boost government wages or increase pensions (as it has done repeatedly over the past several years), its just a lot more difficult for it to increase the total output of the industrial sector. Worryingly, via the always useful FRED , the total production of Russian industry has been essentially flat since the beginning of 2012. Does this mean that the whole house of cards is going to collapse? No. Virtually all of Eastern Europe is going through a period of severe economic weakness. Poland, everyones favorite post-communist wunderkind, grew by 1.9% in 2012 and is forecast to grow by as little as 1.1% in 2013. Slovakia, which was also lauded for its determined economic reforms and its export-led growth model, had a similarly poor performance. It grew by 1.8% in 2012 and is forecast to grow by about 1% in 2013. So, even in its currently weakened state, Russias economy is actually performing better than those of many other countries in the region. Nonetheless, continued stagnation of industrial production will eventually become a pretty serious problem. Oil prices arent going to increase forever, and even if Russia never become an export powerhouse if it wants to play an important international role it cannot have an industrial sector that is permanently frozen in early 2012. The Russian government has actually been following a very prudent and inflation-adverse monetary policy, but it has shown almost no interest in the sort of supply-side reforms that would spur investment and, eventually, improvements in productivity and production. It can, of course, continue to eschew those reforms, but if it does so then it should expect to see more of the same uninspiring performance. Russia always seems to draw out extremely heated opinions: the country is either imploding or poised to take over Europe .

Russia’s Economic Slowdown In One Chart

Russia’s mobile market is dominated by three companies – MTS (MBT.N), Megafon (MFON.MM) and Vimpelcom (VIP.O). Smaller players have little room to grow client numbers as many Russians already own more than one SIM card, fuelling speculation they will consolidate to step up the challenge to the “Big Three”. “I think this is just the first part of a deal, and the next step is likely to see Rostelecom join its (mobile) assets with Tele2 and get a stake in the united company,” said Anna Lepetukhina at Sberbank Investment Research. Yuri Soloviev, first deputy president of VTB’s management board, said on Friday that VTB would sell 50 percent of Tele2 Russia to a group of investors, including affiliates of Bank Rossiya and Alexei Mordashov’s steelmaker Severstal (CHMF.MM). The deal represents a quick turnaround for VTB, which bought industry No. 4 Tele2 Russia in April for $3.6 billion from Sweden’s Tele2 (TEL2b.ST). VTB had said it was not looking to hold the asset for the long term. The deal could be worth about $2 billion including debt, according to the valuation VTB gave for Tele2 Russia in its last financial report. That valuation – as of the end of June – showed the asset rose around 20 percent in value in the first three months of ownership. VTB declined to comment on the price. A tie-up between Tele2 Russia and the mobile arm of state-controlled Rostelecom (RTKM.MM) – the country’s fifth largest mobile operator – has long been speculated. The Vedomosti newspaper reported last month that Rostelecom had hired JPMorgan (JPM.N), Credit Suisse (CSGN.VX) and accountancy firm PricewaterhouseCoopers to advise on a possible joint venture with Tele2 Russia. Rostelecom’s chief executive Sergei Kalugin was quoted as saying last week that the company could put its mobile assets under the management of an unspecified partner to focus on cable TV in a strategy shift. Analysts speculated Tele2’s new shareholders might look to set up a joint venture with Rostelecom.