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SEPTEMBER 2020

Kremlin. The Awakening

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Kremlin. The Awakening

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On April 15, Russian President Vladimir Putin announced a new package of measures to support Russia’s economy hit by consequences of the COVID-19 outbreak and the following lockdown.

Putin announced a direct financial support to businesses hit hardest by the nationwide lockdown, including small and medium-sized businesses and airlines.

The announced measures include:

  • Monthly state payments to small and medium-sized businesses for every employee in April and May, provided firms maintain 90% of their workforce. The payment is 12,130 rubles ($160) for an employee per month;
  • The federal government allocates a package of 200 billion rubles ($2.6 billion) of support for regional budgets;
  • At least 23 billion rubles ($307 million) of government support for airlines.
  • The federal government will reform the government-backed system of interest-free salary loans for firms. The reform is aimed at providing an easier access to loans by businesses.

It looks like the Russian government has analyzed the economic-support measures employed by Germany and developed its own variant. For example, Germany adopted the following measures:

The federal government announced assigning 538 billion euro as a first stage of forming a fund for supporting the private sector of the economy through low-interest loans. The majority of it is to be allocated for private corporations that are crucial to their branches of the economy. There are also funds intended for small and mid-sized business. The funds are being disbursed unevenly from one federal land to another, depending on the number and size of businesses located there which are suffering losses due to temporary stoppages caused by force majeure.

Subsequently the general aid packet was increased to over 750 billion euro, with additional measures being adopted, including:

1. The economic stabilization fund of 600 billion euro. It complements liquidity assistance already provided through the KfW (Kreditanstalt für Wiederaufbau, a state bank 80% of which is owned by the German government and 20% by German lands). This fund is to support crisis-affected major firms (over 250 employees), which sustain Germany’s labor market and its international standing. However, this fund can also be used to eliminate liquidity problems of small and mid-sized business if they are crucially important. The fund is operated by KfW, and includes:

1.1. 100 billion euro for direct corporate support

1.2 400 billion euro to guarantee business obligations

1.3 100 billion euro to refinance already approved KfW programs, if needed.

2. Special low-interest credit programs operated by KfW up to 1 billion euro for a group of firms in order to ensure liquidity of small business, self-employed, and freelancers, with a term of up to 5 years and without first-year payments. Interest has been reduced to between 1% and 2.12%. KfW also offers various credit programs with unlimited volume. Negatively affected firms have access to KfW credit through their own banks. If necessary, they can also use the guarantee instrument. The KfW 2020 special program has been active since March 23, 2020. KfW accepts the majority of responsibility for these credits, ranging from 80 to 90%. The federal government is the ultimate guarantor (this is outside the “750+” packet). With loans of up to 3 million euro, KfW accepts all the risks of creditor banks. Loans of up to 10 million euro may be offered following a simplified risk assessment procedure. These special programs may be implemented thanks to federal government’s increasing KfW capital from 465 billion euro to 822 billion.

3. Supplemental state budget of 156 billion euro funded through borrowing. The overall sum of fiscal measures is 353.3 billion euro, and the guarantees’ total is 819.7 billion euro. The supplemental budget will finance the following funds and measures:

3.1. In order to support microenterprises and the self-employed who have suffered from the crisis, the federal government adopted the Soforthilfe direct emergency aid program with 50 billion euro. This fund is mainly intended to provide one-time assistance grants to individual entrepreneurs, freelancers, and microenterprises when these businesses are threatened.

3.2. Supplemental fund (to the existing Arbeitslosengeld II basic social assistance fund) of 3 billion euro in order to ensure basic economic security (Grundsicherung) of unemployed citizens. It means that housing and basic living needs will be supported during the crisis in spite of loss of employment. One is guaranteed to remain in own home. Applicants for the basic social assistance do not need to provide information about their financial assets or obligations. This will be the norm for six months. The use of the assistance will be audited retroactively.

3.2.1. The basic Grundsicherung (Arbeitslosengeld II) assistance can be obtained by anyone living in Germany aged 15 through 65, who lacks the means for independent existence or existence of own family. This is not dependent on whether one is unemployed. A single adult currently receives 432 euro. Depending on age, children receive between 250 and 354 euro. In addition, this assistance can cover living expenses (rent, utilities, heat). Application for Grundsicherung (Arbeitslosengeld II) may be submitted through phone, email, or mail at the local employment center. (https://www.arbeitsagentur.de/corona-faq-grundsicherung).

3.3. A supplemental fund to the existing packet of federal measures for immediate support of start-ups of 2 billion euro. State venture investors are to shortly receive additional state funds for joint investment in start-ups together with private investors. It is also planned to create a 10 billion euro fund for mid-term perspective support of start-ups.

3.4. Federal government assigned an additional 3.5 billion euro for protective equipment, vaccine development, and other treatment measures. Additional 55 million euro for combating pandemics will remain in a mobile reserve and will be used depending on how the pandemic spreads.

3.5. Tax revenue is expected to decrease by 33.5 billion euro.

On March 23, 2020, the Cabinet adopted a large packet of measures which Angela Merkel characterized as unprecedented in the history of modern Germany (it was approved by Bundestag on March 25, 2020 and Bundesrat on March 27, 2020). The packet includes:

–Simplifying the procedure of receiving benefits for underemployment or forced furlough (Kurzarbeit). This measure is also used both when the worker’s work hours are reduced (for example, 4 working days a week, or other similar measures) and when the worker is sent on forced furlough, which means complete stop of productive activity.

–When at least 10% of workers in an enterprise are involuntarily furloughed, the enterprise may turn to the Federal Labor Agency or the Federal Personnel Agency in order to receive Kurzarbeitgeld. Up to March 1, the requirement was 30% of workers. This new norm has legal force.

–Kurzarbeitgeld represents 60% of total salary or 67% if the worker has at least one child under 12 years. The benefit covers all the days and hours of furlough. Four example, when a worker is assigned a 4-day work week, working from home (to use the specific example of an IT firm in Nuernberg), that worker receives 100% of salary for four working days and 60-67% of salary for 1 furlough day. Businesses can independently increase Kurzarbeit compensation. For example, the MANN concern set Kurzarbeit for its Bavaria workers at 90% of actual salary. Most of MANN workers in Bavaria have been furloughed, which means they are not engaged in productive activity at all while receiving 90% of their salaries.

–Federal Labor Agency compensates for Kurzarbeit in full volume.

–Social assistance packet approved on March 27, 2020, also includes temporary relaxation of limits on additional income while receiving Kurzarbeitgeld while furloughed. Additional incomes in structurally significant businesses or professions will not be counted against Kurzarbeit until these additional incomes combined with Kurzarbeit do not exceed the normal salary the citizen would have received without the furlough.

For example, a citizen received 2000 euro per month at his main workplace, then was transferred to 50% work schedule from home. Accordingly, he continues to receive his salary of 1,000 euro and the 60% benefit, totaling 1600 euro. In the event the citizen starts to earn additional 400 euro per month from additional employment, meaning that his total income has not exceeded 2,000 euro that he’s earned in ordinary times, this additional income does not influence the size of the benefit. But if the additional income exceeds 400 euro, then the Kurzarbeit benefit is reduced accordingly.

–It is forbidden to end rental agreements in the event of irregular payments for housing payment, and also for office and other commercial and business work space during the Corona-crisis. The same applies to payments for electricity, gas, and telephone. During the period between April 1 through June 30, 2020, landlords are not allowed to break rental agreements on the basis of falling behind on rent payments, as long as it was caused by the pandemic. Renters and lessees are allowed to pay that debt by the end of June 2022. Rental payments remains unchanged during that period, and interest is added to it.

–Repayment of consumer loan interest and principal, on loans issued prior to March 15, 2020 and subject to repayment during the period of April 1, 2020 through June 30, 2020, is postponed until the end of the Corona-Crisis. The qualifying reason for the postponement is the consumer’s loss of income due to the crisis.

–Self-employed and micro-enterprises employing up to 5 workers (equivalent to full-time employment) are apply to receive one-time grants of up to 9,000 euro once every three months. Businesses with up to 10 workers may receive up to 15,000 euro once every three months. Grant support may be received in parts during a three-month period. These are federal measures, with lands assigning additional funds for the support of the self-employed and micro-enterprises. Therefore the applications are processed in a single center in each of the federal lands. Bureaucratic procedures are simplified to a minimum, in order to ensure timely financial support. Asset verification has been suspended for six months, and the payments are to be disbursed very quickly.

–Delaying firms’ payments into social funds, including medical insurance funds. As of early April, the delay is available for payments for March and April, if all other support measures available through various federal aid packets are exhausted.

 –Firms of all sizes receive tax breaks to increase liquidity. Firms whose business activity suffered due to the pandemic will benefit from the following breaks until the end of 2020:

-Tax agencies offer delays for all tax obligations until the end of 2020 (this does not apply to social insurance deposits, which are addressed by the measure mentioned above).

-Tax advance payments may be corrected and returned.

-All compulsory measures are delayed until the end of 2020.

–Limitations on bankrupticies.

–Greatly simplified ability to obtain Grundsicherung (Arbeitslosengeld II) basic social insurance

–Eligibility for the Notfall-KiZ emergency child benefit. Families with low income may receive KiZ of up to 185 euro per child. Benefits and their extent depend on family income, cost of housing, size of family, and age of children. Families with two children and rent of 1,000 euro, including utilities, may receive Kiz if the gross family income is between 1,600 and 3,000 euro. Starting with April 1, families who apply for Kiz will no longer need to prove their income for the last six months, but only for the last month prior to applying. In addition, parents no longer have to provide information on assets if they don’t have significant ones. This provision will remain in force until September 30, 2020. There is one additional change: If the applicant already received the maximum KiZ of 185 euro  per child, approval will automatically be extended for another 6 months. If the applicant has not received the maximum 185 euro but income was reduced due to pandemic, he may make a one-time application to revise the size of Kiz in April or May. Also, the citizen may receive Notfall-KiZ. However, Notfall-KiZ cannot be issued in addition to regular KiZ. There are also certain provisions governing Grundsicherung (Arbetslosengeld II) if the inhabitant obtains regular KiZ.

–Stipends in accordance with the Federal Education Encouragement Law ( BaföG) are disbursed in normal manner irrespective whether the educational establishment is temporarily closed or has transitioned to distance learning.

Putin’s announcement came amid several other important signals. On April 15, First Deputy Chairman of the State Duma Committee on State Building and Legislation Vyacheslav Lysakov made a harsh statement de-facto criticizing the approaches of the team of Moscow Mayor Sergey Sobyanin.

“Using the automatic photo and video fixation system in this case as a source of fines for car owners is absolutely illegal,” Lysakov said. “The federal legislative system does not provide ground for Moscow’s current innovations,” Lysakov said emphasizing that ideas to use the using system of photo and video fixation to impose fines on drivers that supposedly violate the so-called self-isolation regime imposed under Sobyanin’s digital pass system.

Earlier on April 15, Kommersant newspaper wrote that they would track drivers without special passes in Moscow using these cameras. A newspaper source in the Moscow government said that drivers without a digital pass will be fined for each ride under the camera. The fine will amount to 5,000 rubles (~$67).

On April 8, it was revealed that courts in Kazan city (Russia’s Republic of Tatarstan) began dismissing cases of violation of the so-called self-isolation regime, which were opened en mass recently.

Summing up the situation, Police officers detained the city’s residents on the streets and drafted protocols for “Violation of legislation in the field of ensuring the sanitary and epidemiological well-being of the population”. The fine for this violation is 15,000-40,000 rubles (~$200-533).

Courts concluded that such actions of Kazan did not constitute an offense since there is no evidence that they have caused any harm to other citizens or the public interest. At the same time, the Resolution of the Cabinet of Ministers of the Republic of Tatarstan does not prohibit all citizens from leaving their place of residence (people can go to work, visit markets etc). The interesting fact is that the court took into consideration that the regime of so-called “self-isolation” imposed in the region is not regulated by the federal legislative system, and the absence of the officially declared state of emergency.

These developments are certainly a positive trend that will allow to minimize the damage to the economy and society by the nation-wide lockdown imposed over the COVID-19 outbreak.

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