Russia’s cash crisis and its Syrian bombing

Hermitage Capital’s Bill Browder speaks

I met a ghost the other day. Bill Browder, last seen in Davos when he was riding high on waves of adulation for his bold bet on Russia’s future, should have been dead. Few opponents of President Vladimir Putin and his favoured oligarchs remain alive, encountering death through startling “heart attacks” and plutonium poisonings.

“The reason I am still alive is that the Putin regime hasn’t figured out a way of killing me where they are sure to get away with it, “says Browder equably.” They have made lots of threats both to kill me and to kidnap me. Unfortunately, they get more brazen by the day so my safety is far from certain.”

His bold claim that Russia will run out of cash by July 2017 must be shortening the odds of his remaining alive: “In simple terms, Russian companies have approximately $600 billion of hard currency debt and the central bank has only $350 billion of reserves (of which I believe that $150 are fake). That means if sanctions aren’t lifted, the debt repayment schedule will deplete the country’s reserves within about 18 months.”

Russia is suffering economically from Western sanctions on the back of its incursions in Crimea and the Ukraine, and even more so from the collapsed oil price. Oil and gas accounted for over 50% of its budget revenues until 2014 – this year it is forecast to be a paltry 35%. A recent agreement between the Russians and the Saudis to boost the price appears to have evaporated.

President Putin is planning major privatisations to boost the state’s coffers, according to the FT, but it is not clear who would buy the substantial stakes. Foreign investors are wary of the regime’s trampling on the rule of law, while oligarchs are keen to keep extra funds safely parked abroad for when they fall out of favour with the regime.

London’s reputation for welcoming Russian money has been heightened by publicity stunts such as the new “Kleptocracy Tour” of London, organised by the Russian Anti-Corruption Foundation and two Western think tanks. Forget Buckingham Palace and Big Ben, this bus weaves its way between the multimillion properties bought by the corrupt elite.

In the summer of 2015 Prime Minister David Cameron announced that he would tackle foreigners investing dirty money in London using anonymous offshore companies. There have been no subsequent announcements. Meanwhile, the report into the poisoning of Alexander Litvinenko in London concluded that the former spy was most likely a victim of a state-sponsored murder sanctioned by President Putin. Yet again no action has been taken.

“The British government has been completely weak-kneed when it comes to standing up to Putin. I attribute it to fear – they believe it is easier to appease a bully than confront him – and greed – many powerful people in this country are feeding at the Russian trough and they don’t want the flow of money to dry up,” claims Browder.

His story is the stuff John Le Carré novels are made of. As Founder and CEO of Hermitage Capital Management, adviser to the largest foreign investment fund in Russia, worth $1 billion in 1997, Browder was a fêted man. Until in 2005 he wasn’t. There appears to be no middle ground in a country where one minute you are clasped to the regime’s bosom in lifelong friendship, and the next you are a mortal enemy whose days are numbered.

Browder’s campaigns against corporate corruption saw him declared a threat to national security and forbidden entry to the country, while the authorities stole $230 million via the Fund’s investment companies. Sergei Magnitsky, the lawyer he hired to investigate the crime, was tortured and killed in custody in November 2009. Since then Browder has dedicated his life to seeking revenge for an innocent man. His missionary zeal resulted in the US Congress passing the 2012 Magnitsky Act, which imposed visa sanctions and asset freezes on those involved in the lawyer’s death.

Browder believes that Putin has stepped up his bombing campaign on the rebels and civilians in Syria in order to create a negotiating position to force the West to withdraw sanctions in relation to Ukraine. (Russia and the US have agreed to enforce a ceasefire in Syria from Saturday, February 27. But the omens are not favourable, given the last time one was attempted it failed, and not all groups fighting in the war have agreed to it).

“Putin has created an existential problem for us by triggering swarms of new refugees. Many EU governments are on the verge of falling because of the refugee crisis. Putin is hoping we will beg him to stop and his condition for stopping is no more sanctions,” says Browder. “Secondarily, in the long term he would like to break up the EU and the best way of doing this is to create the conditions for hard core nationalism, which is another consequence of all the new refugees.”

Other experts agree that Putin’s aim is to make German Chancellor Angela Merkel’s position untenable, given that she is the only leader who can keep the EU united on Russian sanctions and, arguably, hold the EU together in the midst of an existential crisis. Already the Schengen open-border agreement is moribund, Hungary and Poland are evermore hostile to the EU and the political shenanigans around a possible Brexit are an unwelcome and divisive distraction.

Browder disagrees with the widely-held view that Russians are used to suffering under a Tsar-like figure and thus a revolution to unseat Putin, who has been in power for 17 years, is highly unlikely.

“That’s a myth. They have just never been rewarded for bravery because the instruments of state repression have been so effective…If at any moment there is an opening, the Russians will jump on it just like the Ukrainians, Tunisians or Egyptians did with their citizen revolutions,” he says.

Let us hope this brave man is there to see it happen. As Browder writes in the mesmerising book about his struggle, Red Notice, anyone who has read Chekhov, Gogol or Dostoyevsky, knows that Russian stories don’t have happy endings.