Conflicting alliance

In Russia, the criticism of the economic dogmatism of the ‘financial bloc’ comes from two currents that mostly overlap. The first is Sergey Glazyev, a patriotic who serves on the Eurasian Economic Commission’s Board of Integration and Macroeconomics. Glazyev, whose influence on the Kremlin is constantly speculated (he was one of Putin’s advisers between 2012 and 2019), could take a left-wing stance so much as acted together with the “Left Front” in the 2017 elections. As recently as 20 April 2022, he accused the Central Bank of not knowing the first thing about the credit system and of acting “according to primitive IMF dogmas relying on foreign investment-hungry citizens of the underdeveloped countries.” In many ways, Glazyev is advocating a new New Economic Policy (NEP). A Just Russia’s far-left deputy Mikhail Delyagin and the Communist Party form the second current. They, too, favor nationalizations and a new “Gosplan” in one form or another.

Sergey Glazyev with Putin

But in addition to crossing each other, these two overlapping currents also interact with the “financial bloc.”

The Central Bank and the Ministry of Finance are the two institutions that make up the “financial bloc.” At the very least, it is clear that the Central Bank has made an unmatched effort to overcome the crisis (within capitalism, of course). In actuality, the praise and even admiration given by European, and US financial institutions demonstrated that its efforts had been somewhat successful. But given that the Central Bank, which prior to February 24 was the “regulator” (i.e., policymaker), is now becoming a “technician” (i.e., practitioner), this inflationist praise and achievement should also be seen as an indication of the breakdown of the conventional “financial bloc”. It was no accident that in early June the attack of economists on the Central Bank for failing to depreciate the ruble was prompted by one of most audacious defenders of the “financial bloc”, RBK, a media conglomerate particularly specializing in economic news.

I have often dwelled on the dogmatism of this bloc. However, at least two instances illustrating the extent of dogmatism should be provided. When we look at these examples, we will also see how internal conflicts work and which factors limit them.

Default

First off, the Ministry of Finance, if not the Central Bank, employed every means to prevent saying that Russia had defaulted, including continuing to pay Eurobonds in foreign currency. Moreover, apart from the irresistible temptation of paying off the creditor, the Ministry had a potent ally: PIMCO (Pacific Investment Management Company). According to data from Tinkoff Investment Advisory, as of mid-May, PIMCO had sold CDS as insurance policies to Russia’s $3.1 billion in foreign debt bonds, demonstrating how confident it was that the country would not go into default. Furthermore, PIMCO had invested roughly $1 billion in credit risk premium (CDS) in Russia last year alone (The seller’s promise to pay the buyer the difference between the nominal price and the market price of these bonds in the event that the issuing nation defaults is known as a “bill” or “derivative”). In order to avert a possible loss, PIMCO was forced to advocate “let them pay”. However, neither the voice of money nor PIMCO’s lobbying efforts were able to prevent it from happening. The bond payments had to halt when the US Treasury Department eventually blocked the OFAC license on May 25. The next installments due on June 24 could not be made, which led to what Medvedev called a “political default.”

However, the world did not come to an end because it was seen that the fixation with default was founded, like all obsessions, on an entirely nonsensical justification. As a matter of fact, payments that were unable to be fulfilled were no longer in the news in the days that followed.

Let’s not forget the other performer on the stage, by the way. PIMCO doesn’t appear to lose money. One of the defining characteristics of the neoliberal period, which worships the financial god, is the use of “derivatives” or risk management coupons, etc. These are ways to extract surplus value through speculation, but more crucially, the forces that drive the market are playing in an echo chamber where the house always wins. The CDS committee, established by the huge businesses that market CDS policies, decides if a nation defaults. Naturally, there was no market left after the US Department of Finance blocked the OFAC license. What should poor PIMCO and poor Golden Sachs do when there is no market, no way to ascertain the market price, and to quantify the difference between the nominal price and the nominal price? How would they determine how much to pay? Thus, the CDS committee asked the US Treasury for permission to auction Russian government bonds and was granted it. As a result, the price of the bonds at the auction shot up by 48 to 56 percent. Coincidentally (!), PIMCO and Golden Sachs purchased the majority of them.

As a result, both the asset owners and the asset insurers are now the same. This implies that as long as Russia continues to declare, “I owe my obligation,” modern alchemists will continue to triumph. They will prevail thanks to 340 billion dollars in reserves, even if Russia writes off their debt. In this situation, individuals who own the bond and furthermore sell its derivative may even find the default to be a seductive opportunity. That is nothing meaningful, even if they lose. When compared to PIMCO’s $2.2 trillion trading volume, which is based on data from late 2021, who cares about a few billion dollars?

Leasing

Another example is the leasing problem; this time, the Ministry of Finance had some success in its struggle to keep making payments at the expense of the Treasury. The issue was whether to keep making the leasing payments to foreign firms that have left the Russian market and, thus, failed to fulfill their contractual obligations (at a cost of 350–400 billion rubles annually) by stopping manufacturing, importing, maintaining, and supplying spare parts and, or to declare moratorium. At the end of October, Prime Minister Mishustin authorized Deputy Prime Minister Manturov and Transport Minister Savelyev to make a decision on this matter. Based on the “expert report,” the Ministry of Transport gave an unfavorable judgment, and the Ministry of Finance seconded it. However, the “expert” committee’s members, who wrote the report, were representatives of foreign firms withdrew from the Russian market. It was such out in the open that Mishustin was forced to step in and partially fix the “issue”. Accordingly, payments are to be reduced. But there is still a problem with the availability of maintenance and supply of spare parts for leased vehicles. For this, robust routes with parallel exports through Turkey and -mostly- Iran are needed. As for leasing payments, the final word has not been said yet. It will be had by the representative of the “import substitutionist bloc,” Deputy Prime Minister D. Manturov.

Denis Manturov

This is a crucial example in terms of demonstrating how determined the ministries are to remain in the global capitalist system. The conflict began when Soviet industry, or economic independence, collapsed in the face of low-cost Western goods. Now they have to rebuild all over again. Either they must find other cheap suppliers, like China (but shifting the supply chain is a difficult task and China, which is equally dependent on the global capitalist system, is not very willing to do this). Or, they have to preserve their dependency in a way that keeps the wolf from the door with the hope of that that the crisis will be resolved soon.

Three options

The three options don’t differ significantly from one another, though. The phases of putting these options into action overlap. If we consider those who advocate for rebuilding to be the most radical, they are partnering with the “import substitutionist bloc” to make the gradual transition since they cannot do it again in a short time and must find a cheap supplier. And import substitutionists who wish to move their supply chain to the east cannot do so in a short time; instead, they must rely on the pro-imperialist system’s supporters who barely hold their end up until the issue is fully resolved.

This contradictory transitivity between the parties and this conflicted unity continues in all aspects of economic life. Consider dividends received by large corporations.

The first group, whether from the political “right” (pro-military) or left (popular), wants to fully halt these payments and keep using the profits of large state corporations to finance the budget. Furthermore, they believe that this situation is unavoidable because oil and natural gas revenues will certainly be threatened by sanctions, at which point they will either appeal to the bourgeoisie or the people for funding.

The second group is also aware of this, but they cannot afford to alter the capital structures of these businesses since their political objective is the ascent of the middle bourgeoisie through the exploitation of other classes, particularly the big bourgeoisie. However, this can only be accomplished within the capitalist system, whereas the first group’s radical solution entails closing one of the channels through which the middle bourgeoisie can rise.

This is where the third group enters the picture. In order for the capitalist system to survive, the stock market must continue to run. This can happen only if the giant state corporations that serve as the driving force behind the Russian economy continues to pay dividends, that is, they should keep feeding their local or international big bourgeois. As a result, a solution is found that keeps the conflict peacefully. Dividend payments are somewhat restricted but not entirely stopped. Due to “overlapping interests,” the second group gains the most from this, but also the other two.

Balance

The balance has been established so that under the terms of the sanctions, those who advocate paving the way for the middle bourgeoisie are in an favorable position. But the others are not desperate, though. Why?

1) Politically, the left is not opposed to a new rise of the middle bourgeoisie, as it may lead to the NEP, the golden age for the leftists. What was the NEP? “A tiny retreat for a big leap”, to quote Lenin. It is the first link in the process of rebuilding the USSR, which was on the verge of economic collapse, after the “war communism” era. It is the emergence of the petty and middle bourgeoisie under complete state control while the large bourgeoisie was suppressed. It is perhaps the most democratic period in Russia since the principality of Kyiv. (The latter leads to a secondary contradiction between the dictatorial “pro-military” wing of the first group and the “popular” wing demanding democracy at the most.)

2) Economically, the right, the “financial bloc”, is not against a new rise of the middle bourgeoisie as long as the interests of the big bourgeoisie are safeguarded. Because the big bourgeoisie will swallow the others anyway if these interests are preserved. Moreover, if the concessions envisioned by the second group are realized, they will be swallowed by a more fattened big bourgeoisie, which is particularly appealing.

Conflict and predictability

At the November 16 Cabinet meeting, Putin inquired as to whether the Ministry of Finance had given its approval before approving Denis Manturov’s request to expand the car loan program to include military personnel and partial mobilization conscripts. This was noteworthy because it demonstrates that the powers of the ministries are split by distinct boundaries and how, in the conflicts between them, the approval of the ministry in charge is sought first rather than the president’s. This is not an isolated instance. The likes frequently happen; especially in the conflicts between finance and industry, and between the “military bloc” and others.

It also points out that one of the most meaningless concepts of bourgeois political science, “totalitarianism”, which has become so fashionable these days, actually has no objective foundation because there is nothing like the application of “total” authority at all. Contrarily, the jurisdictions are established with distinct borders. Unless there are exceptional circumstances, the president does not meddle in these divided powers. The act of establishing boundaries does not result from a situation in which people gather to discuss the best form of “governance”. Rather, the lines are drawn because the conflict aiming at different political and social objectives continues and rules are set to prevent the conflict from spiraling out of control.

For this reason, I have always found absurd the tendency to explain Russia’s state decisions (in any area from militarism to foreign policy, from economic policy to the fate of offshore calculations) with the momentary, unpredictable, surprise decisions of a group of “totalitarian” decision makers. Politics is so determined with clear lines, and the institutions’ authority is so thoroughly defined to avert conflict to lead to war, therefore, few surprises are encountered. As a result, grasping the process only depends on understanding the conflict.

Conflict of authority and temporary retreats

The blocs jealously guard their authority, one another’s meddling is unwanted and repulsed even stingingly.

The “military bloc” and the “financial bloc” came into such a conflict at the end of April. General Secretary of the Security Council “Mr. Siloviki” Patrushev said that they were developing a financial system in which the ruble would be pegged to the currency basket and gold, but Central Bank Governor Nabiullina categorically denied this with almost an off-protocol discourse.

This really is a crucial matter. Suppose that contracts for international trade with Kazakhstan as a “friendly” or even an ally nation can and are made in rubles and tenge, but in any case, a “universal equivalent” (we are forced to use Marxist terminology) is needed by which these sums in rubles or tenge are evaluated. How about this universal equivalent? If “de-dollarisation” in global trade is not (and it is not) just a nice rhetoric, something else must be found. The “finance bloc,” which was still looking for methods to stay within the imperialist system, rejected Patrushev’s plan, which called for this to be a basket of gold and foreign currency, while the “military bloc” withdrew to prevent usurpation. However, this was the inevitable conclusion of the process. The following was reported by RBK on November 19: “One of the sources of RBK claims that even if commerce with Kazakhstan is conducted in national currencies, how many rubles will equal to one tenge is determined by the dollar rate of the tenge. For this reason, banks are collaborating with the Central Bank and the Ministry of Finance on a project that will allow some departure from cross-currency calculations.” The “financial bloc” appears determined to avoid even indirectly returning to the gold (or oil) standard, instead attempting to create a “currency basket” that is nothing but a hybrid dollarization. At least for now, the “financial bloc” assures to include banks, the sacred altar of the neoliberalist age, into this process.

Will it be a hit or a miss? It is doable. Does it mean the liquidation of dollarisation? No. It is inevitable that a new (one!) universal equivalent will be found if they are determined on this issue (and the troika’s sanction terror pushes them to determination, even if they don’t want to). It doesn’t matter if this equivalent is the “evergreen” gold or yuan or “oil of the earth,” or sheepskin.

The sword of balance

Fine, but where is the Kremlin in this picture? As with military-political issues, the Kremlin adopts a pragmatic attitude on political-economic matters, but this pragmatism is not unprincipled in the latter ones, just as it was in the former issues. In the political-economic matters, the Kremlin seeks to strengthen the middle bourgeoisie on the account of the big bourgeoisie, just as it is resolved to continue the battle until it achieves its minimal political objectives in the military-political issues (which means removing the Kyiv regime from being a current or potential threat to Russia in one way or another). The Kremlin’s current position therefore aligns with the second group; yet the Kremlin is already a conflicting alliance in its own image, as the blocs’ positions may shift in line with the balance of power, but they will keep doing so peacefully.

An example: At the November 16 meeting I mentioned above, Putin did not hesitate to attack the banks, the holy altar of the “financial bloc”: “Banks simply and cheerfully offer minor loans (…) but then these people become eternal debtors. Banks, with all due respect to these financial organizations, drain the lifeblood of the population. Obviously, it is needed to put an end to this.”

Although the Kremlin’s perspective is entirely discernible empirically, there remains a theoretical issue in the middle of the room. This is a problem I have touched on many times before: Bonapartism as a particular kind of authority in post-Soviet Russia.