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The Russian ringmaster

The Russian ringmaster
It is Russian tit for Western tat. Vladimir Putin is clearly the winner in the first round of what seems to resemble like the US-USSR cold war days. The Russian president’s combative response to the Western sanction against the country for its role in the Ukraine separatist movement is sending shivers through both the EU members and North America.

Putin has warned US President Barak Obama not to mess up with nuclear-armed Russia, probably in a bid to refresh his memory of the spine-chilling Khruschev-Kennedy nuclear stand-off. In a further snub to Washington, U.S. intelligence leaker Edward Snowden has been granted a three-year residence permit in Russia. Putin said if Russia at all wanted it could take over Ukraine in a fortnight.

Russia has already struck back by banning food imports from the West and dumping the powerful international US bankcards, Visa and MasterCard. The source of Putin’s confidence is the country’s increasing friendship and engagement with BRICS members, especially with China and Brazil. In their first major show of solidarity, the two original BRICS members and their friends have responded to the Russian call for a higher level of economic co-operation with such enthusiasm that the US and its allies fear to lose several hundred billions of dollars of Russian market, leading to shut-down of units and financial arms, involved in exporting, export funding, banking, shipping and insurance, etc. with consequent economic downturn and unemployment.

Western Europe’s two largest economies – Germany and France – have reported ‘zero’ GDP growth last quarter. Germany’s growth rate has, in fact, been in the negative, -0.2 per cent. Denmark, Europe’s largest pork meat exporter, could soon be the worst hit by Russia’s food import ban from the west. Brazil led a small South American pack to meet heavily meat-eating Russia’s almost entire meat requirement. Even Chile is keen to send food products to Russia. At the same time, China is ready with its global bankcard brand – UnionPay – to replace, possibly forever, US bankcard giants Visa and MasterCard which have withdrawn from Russia. Indian exporters are also in dialogue with Russian commodity importers to step up supplies this winter. As of now, pro-West South Africa is keenly watching and weighing its scale of business engagement with Russia. In all likelihood, Russia’s counter attack to the Western sanction will not only yield a positive result for the former Communist country, but also open the possibility of BRICS emerging as a powerful challenger of the Breton Woods system and the US influence over the global financial and economic environment.

The US-led economic sanction against Russia is almost certain to meet with a big defeat that threatens to usher in a new form of geo-economic cold war between BRICS and G-7 with Russia, China, India, Brazil and their Asian and South American neighbours coming together to build even a bigger economic block. The enthusiasm, with which Brazil and China have jumped into the fray, is bound to lift the spirit of other nations, including oil-rich Iran, Iraq and also Syria, erstwhile victims of US-led sanctions.

Brazil has almost instantly approved about 90 new meat plants to export beef, chicken and pork to Russia.  The South American nation is already working to increase its exports of corn and soybeans sales to Russian buyers. Moscow's trade and diplomatic relations with the West have practically hit their nadir. Russia banned all imports of food products and certain other goods from the US, European Union, Australia, Canada and Norway after President Vladimir Putin ordered retaliation for sanctions against Moscow over the Ukraine crisis. Incidentally, Brazil's relations with Washington had cooled after revelations last year that the U.S. spied on Brazilian President Dilma Rousseff's personal e-mails.

Brazil, the world's top exporter of beef, chicken and soybeans, and one of the only countries in the world with land available to ramp up agricultural production, looks like a clear winner from the US embargo. Brazil is a major soyabean exporter to China since the latter opened its commodities market about a decade ago. Beef products topped Brazil's exports to Russia during this year. While Brazil ships the vast majority of its soybeans to China, it sent only 352,849 tonnes of soy to Russia between January and June. The quantity may be increased in the coming months. Other South American countries such as Argentina and Chile having historical dislike for the US have come forward to help Russia. Chile, a possible alternative for European fruit, exported $643 million of farm products to Russia last year, comprising mostly processed foods, salmon and fruit.

On the financial side, the exit of Visa and MasterCard from Russia has opened a big opportunity for China which has been trying hard to expand its global bankcard network, UnionPay, to break the near-monopoly of the US firms in this business running into trillions of dollars.

Incidentally, India has just started an experiment with its own bankcard system, RuPay, initially a debit card that can be used only in India. After the two American credit system payment companies froze accounts without notice in March, Russia has been looking for an alternative in China’s UnionPay.

China plans to launch 2 million UnionPay cards in Russia in the next three years. Emerged first in 2002 on the domestic Chinese market as an alternative to Visa and MasterCard, UnionPay has quickly expanded internationally, and now is already number one in terms of quantity of cards. Russia’s biggest banks - VTB-Gazprombank, Promsvyazbank, Alfa Bank, MTS, and Rosbank- are already making technical preparations, running tests on UnionPay bankcards.

In March, both Visa and MasterCard blocked their cardholders’ accounts at BankRossiya and SMF Bank, which were sanctioned by the US over Russia’s involvement in Crimea. The service freeze means Visa and MasterCard will now have to pay a security deposit to Russia’s Central Bank to the tune of billions of dollars for a re-entry. Once UnionPay begins operation in Russia, it will also put down a security deposit with Russia’s Central Bank, about $3-4 billion. According to reports, there are already 20,000 cards in circulation in Russia, and a second order of 100,000 cards is planned for September.

In Russia, many banks accept UnionPay cards, but not merchants, that’s the next step. In overall transactions, Visa is still the world leader with $4.6 trillion in transactions, and China’s UnionPay comes in second with $2.5 trillion in the first half of last year. The size of China’s population and external trade helped UnionPay’s rise and acceptance. In total, UnionPay operates in 142 countries. Like India, Russia too is preparing itself to launch its own card payment system which may take another two to three years.

Crisis mothers innovation. The US-engineered crisis at Russia’s next door Ukraine leading to western trade and financial sanction against Russia seems to be resulting in an innovative South-South cooperation in commerce and finance that threatens to break the backbone of the hitherto Western economic imperialism. One can blame only the US and its western allies for creating such a situation. 

KHRUSHCHEV-JFK COLD WAR FACEOFF

In 1962, US and Russia faced a 13 day crisis after Russia at Cuba’s request placed its nuclear missiles just 90 miles off the border of US. Keneddy, the then US president and Khrushchev, his Russian counterpart reached an agreement after both nations offered to removed their missiles from each other’s borders.

PUTIN-OBAMA UKRAINIAN STANDOFF

Post Russian annexation of Crimea in March, 2014, the US imposed severe economic sanctions on the country. The situation has snowballed in to such a major crisis that Vladimir Putin, in a clear reminder of the possible renewal of Cold War hostility, has warned USA to not meddle in the Russian affairs.

BRICS 2014 SUMMIT IN BRAZIL

Russia has ensured its domestic requirements are met by China and Brazil. Being part of BRICS consolidation, all member nations have agreed on the New Development Bank, an alternative to US controlled World Bank and International Monetary Fund. This means victory for South-South cooperation



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