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‘Foreign agent’: Putin’s new crackdown on the opposition

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Ksenia Fadeeva was born and raised in Tomsk, the Russian city in the heart of Siberia. She attended local schools and the city’s state university. And in September, aged just 28, she was elected to the city council, defeating the candidate of Vladimir Putin’s ruling party.

Yet the next time that Ms Fadeeva runs for election, her name on the ballot will most probably come with an official warning for voters that she is a “foreign agent” — if indeed she is permitted to run at all.

That is just one upshot of a series of bills rushed to Russia’s parliament in November, following the unexpected success of Ms Fadeeva and other anti-Kremlin candidates in September’s local elections, which are set to further tighten Russia’s already repressive electoral laws in a bid to stifle rising dissent at the ballot box.

While Mr Putin’s regime is generally popular, propped up by powerful security services, huge state control over the economy and a largely obsequious media, it remains hypersensitive over potential threats and paranoid about instability and is rushing to smother any elements of independence in the tightly controlled political system.

Mr Putin’s trust ratings have fallen this year, while support for his United Russia party has sunk to a record low, battered by years of falling real incomes, a pandemic-induced recession and a turgid economy that has been given little support from austere government spending.

As a result, at next year’s parliamentary election the party will probably struggle to retain its current hold on more than three quarters of the chamber’s seats, a supermajority that gives the Kremlin an iron-like grip on lawmaking and leaves no room for political debate.

The unexpected victory in local elections of Ksenia Fadeeva, left, and other opposition candidates prompted a series of bills to tighten Russia’s already repressive electoral laws
The unexpected victory in local elections of Ksenia Fadeeva, left, and other opposition candidates prompted a series of bills to tighten Russia’s already repressive electoral laws © Maxim Shemetov/Reuters

That threat has sparked a rash of legislative proposals designed to hamper opposition parties before the current convocation of MPs loyal to Mr Putin step down and begin campaigning.

Four separate bills were tabled on three consecutive days in November, outlawing the last remaining legal means of spontaneous protest and increasing the state’s control over content shared online.

In the case of Ms Fadeeva and thousands of other Russian activists, campaigners and potential candidates, the new bills make use of the country’s infamous “foreign agent” designation, broadening the scope and impact of a term first written into law in 2012 and which has been steadily expanded since to target those whom the Kremlin deems enemies.

Top of that list ahead of critical elections slated for September is Alexei Navalny, the anti-corruption campaigner and opposition politician, and his organisation’s “smart voting” initiative, which directs disgruntled voters to support candidates most likely to defeat the United Russia nominee — and helped Ms Fadeeva and her colleagues overturn the party’s majority in Tomsk.

“I am certain that all these repressive bills are a response to our victories . . . to the success of smart voting,” says Ms Fadeeva, who heads Mr Navalny’s regional office in the city. “They are terrified of what to do given the crashing ratings of United Russia and Putin and are trying to tighten the screws.

“United Russia understands perfectly well that they will not be able to win the elections to the State Duma honestly,” she says. “Therefore, now we see the emergence of these crazy new laws. They tried to stop us with endless arrests for rallies, fines, searches, and criminal cases. It didn’t work . . . It is clear that they will continue to come up with more and more repressive measures in order to somehow stop us.”

A growing witch hunt

A term loaded with hints of subversion and espionage, “foreign agent” was first used to stigmatise Russian NGOs which raised money overseas, casting them as traitors or implying that they acted on behalf of an overseas government to undermine the state.

Broadened last year to include foreign-backed media groups, it also burdens the designated entity with scores of bureaucratic requirements such as quarterly reports on political activities and financing, threatens them with impromptu raids on their offices, and imposes heavy fines for adjudged non-compliance.

Ekaterina Schulmann of Chatham House says the government’s ‘foreign agent’ designation aims to deter candidates from being associated with the smart-voting initiative
Ekaterina Schulmann of Chatham House says the government’s ‘foreign agent’ designation aims to deter candidates from being associated with the smart-voting initiative © Alexander Shcherbak/TASS/Getty

The proposed law, tabled on November 18, further weaponises the existing legislation by expanding the term to cover an individual deemed to have received any material or organisational support from overseas, or anyone affiliated with or supported by a Russian entity already designated under the law — such as Mr Navalny’s organisation.

Those individuals would then be banned from holding municipal government positions, and when running as election candidates would be labelled as a “foreign agent” on ballots, campaign literature and in media reports.

“Certainly, it is a label which scares people off,” says Ekaterina Schulmann, associate fellow in the Russia and Eurasia Programme at Chatham House. “It has significant negative connotations. And it will also scare candidates from being associated in any way from support of the smart-voting initiative.”

Opposition figures will probably be blocked from running in the election using existing laws on how candidates qualify and regulations preventing, for example, convicted criminals from being on ballots, says Ms Schulmann, adding that the new laws were about “fine-tuning” the pro-government system.

“There is an evident attempt to brand smart voting as a foreign-supported activity,” she says. “This all points pretty straightforwardly to seeking to hamper candidates supported by Navalny and his regional network.”

Andrei Klimov, head of the commission for the protection of state sovereignty and prevention of interference in the internal affairs of the Russian Federation in the country’s upper house of parliament, has defended the measures as “balanced and seriously formulated”.

“Our commission has a lot of materials relating to how foreign states, organisations and individuals are trying to engage in political missionary work in Russia,” he told the parliamentary journal last week.

Russian opposition leader Alexey Navalny, who is recovering in Germany after being poisoned with novichok in August, takes part in a hearing by European Parliament Foreign Affairs committee in Brussels last week
Russian opposition leader Alexey Navalny, who is recovering in Germany after being poisoned with novichok in August, takes part in a hearing by European Parliament Foreign Affairs committee in Brussels last week © Olivier Hoslet/EPA-EFE/Shutterstock

“They do not hide that the ultimate goal . . . is to change the political system of the Russian Federation.”

Critics argue that the phrasing of the law is so intentionally broad that it could easily be used by the government to smear opposition politicians who have never received any direct overseas funding, but may have attended an event organised or sponsored by a foreign group or been promoted by a foreign-backed media outlet, for example.

“The bill signals a new witch hunt of civil society groups and human rights defenders standing up for justice and Dignity,” says Natalia Prilutskaya of Amnesty International’s Russia office. “The Russian authorities have already starved civil society financially and forced many organisations to close. Now, they are further demonising individual activists.”

Stifling civil society

Russia’s political opposition has long been forced to navigate an ever-growing list of obstacles in its bid to challenge Mr Putin’s almost 21-year-long regime, from burdensome legal requirements designed to trip them up to frequent harassment from state and quasi-state entities.

Sometimes the attacks are physical: Mr Navalny, who has been barred from running against Mr Putin due to a previous fraud conviction that the European Court of Justice has ruled was politically motivated, was poisoned with the banned military-grade nerve agent novichok in August, while campaigning in Tomsk in support of the smart-voting initiative.

He has accused the Russian state of being behind the assassination attempt, which left him in a coma for 18 days. He is still recuperating in Berlin, where he was treated. The Kremlin has denied any involvement in the poisoning.

Prior to the attempt on his life, Mr Navalny had been repeatedly jailed, preemptively arrested to prevent him from taking part in protest marches, and attacked with a chemical that left him partially blind in one eye.

The offices of his Anti-Corruption Foundation (FBK), which regularly publishes investigations into alleged graft by state officials and prominent Russian businessmen, have been repeatedly raided by security services.

Russian opposition activist and lawyer Lyubov Sobol at the offices of the Anti-Corruption Foundation (FBK) when it was raided by police in December last year
Russian opposition activist and lawyer Lyubov Sobol at the offices of the Anti-Corruption Foundation (FBK) when it was raided by police in December last year © Sergei Ilnitsky/EPA-EFE

But it is Russia’s courts and laws that inflict the broadest damage. FBK, which was branded a “foreign agent” in October last year, is now in liquidation, after a defamation lawsuit brought by Yevgeny Prigozhin, a businessman whose connections to the Kremlin have earned him the nickname “Putin’s Chef” as well as US sanctions, left the organisation with a Rbs29m fine.

According to Ms Schulmann, the slew of proposed new laws targeting opposition politicians suggests that the approach to next year’s elections could be similar to the Moscow city elections in 2019, where a decision not to include almost all opposition candidates on the ballot sparked the largest popular protests in the capital for almost a decade.

In that vote, which was the first to be targeted by Mr Navalny ’s smart-voting initiative, United Russia lost a third of its seats on the city council and saw its majority cut to just five. In the local elections this September, in addition to the wins in Tomsk, smart voting also helped end United Russia’s majority in the council of Novosibirsk, Russia’s third-largest city.

Adding to the Kremlin’s concerns ahead of the parliamentary ballot next year are ongoing protests in Khabarovsk, a city in Russia’s far east, against the arrest and replacement of a popular local governor, which have taken place daily for the past four-and-a-half months.

At the same time, this autumn Mr Putin watched in concern as popular protests against rigged elections toppled the president of one post-Soviet neighbour — Kyrgyzstan — and pitched another, Belarus, into crisis.

The proposed laws are United Russia’s response to those threats, civil rights groups say. Tanya Lokshina, associate director for Europe and Central Asia at Human Rights Watch, says the legislation would impose “new draconian restrictions on independent civic activity”.

“It will enable the government to designate individuals as foreign agents, obligating them to present themselves as such when making public comments and basically barring them from participation in elections, including local ones,” she says. “The government clearly aims to stifle civil society.”

The Kremlin has been rattled by daily protests in Khabarovsk since the arrest and replacement in July  of popular local governor Sergei Furgal
The Kremlin has been rattled by daily protests in Khabarovsk since the arrest and replacement in July of popular local governor Sergei Furgal © Aleksandr Kolbin/EPA-EFE

Moscow has long claimed that foreign countries, and particularly the US, have funded Russian organisations and individuals seeking to destabilise the country, topple Mr Putin and provoke a “colour revolution” aimed at installing a pro-western administration. Russian MPs have pointed to US rules mandating the registration of lobbyists for foreign countries as synonymous with the proposed legislation.

In addition to the bills regarding foreign agent status, Russia’s parliament is also discussing legislation to curb freedom of protest and internet content.

The first would give Moscow the right to restrict access to YouTube, Facebook and Twitter, social networking sites that are heavily used by opposition politicians to publish campaign materials and recruit typically younger supporters as a means to work around a Kremlin-mandated boycott by the country’s main television channels.

The second would close the last remaining loophole for unsanctioned street protests. Currently, administrative approval is required for public rallies. As a way around that, citizens have staged single-person pickets, where one protester holds a placard for a few minutes before passing it to a second person waiting in line. The new law, tabled in parliament by a United Russia MP, would outlaw this practice.

“Nowadays nothing should be surprising, especially when it comes to the current trends in Russian lawmaking. Nevertheless, this has turned out to be so shocking in terms of issuing prohibitive initiatives from atop the mountain that it is impossible to feel unmoved in response,” wrote Dmitri Drize, deputy editor of Kommersant, in an opinion piece for the newspaper, one of the country’s most-read broadsheets.

“On the one hand, everything is possible [in Russia], but on the other, only in theory,” he said of the impact of the proposed legislation. “If you are going to become an independent politician, or if you decide to protest against something, you will understand that it is impossible to do this legally.”

It’s all about the economy

At the last parliamentary election in 2016, opposition parties made little impact. United Russia romped home with 54 per cent of the vote, winning 343 seats in the 450-seat chamber.

But much has changed since then. At the time Mr Putin and his party were riding high on a wave of popular support for the Kremlin’s invasion and annexation of Crimea two years earlier.

Today, United Russia’s support stands at just 31 per cent, according to state-run pollster VCIOM, after hitting a record low of 30.5 per cent in August.

Chart of Russian polling intentions

Most disgruntled voters cite the gloomy economy. Even before the coronavirus pandemic, the economy had been moribund since 2014, when western sanctions imposed over the Crimea annexation combined with a plunge in the price of crude oil — Russia’s key export — to pitch the country into a sharp recession. Real incomes have fallen for five of the past seven years.

This year, GDP is expected to fall by 6 per cent, according to the World Bank, as Moscow struggles to tackle the spread of Covid-19 with sporadic lockdowns and scattershot quarantine measures.

Even as Russian incomes dropped 8 per cent in the second quarter of this year, the largest fall for more than 20 years, the government refused to increase financial stimulus, which has been much smaller than other major European nations.

According to a survey conducted in October by the Levada Center, Russia’s sole pollster independent of the government, 43 per cent of citizens said they thought the country was heading in the wrong direction, up from 23 per cent in 2014.

“Each of these new bills makes sense only in the context of elections, of course . . . [United Russia] got scared,” says Leonid Volkov, head of Mr Navalny’s regional network. “This is nothing new: just their usual contempt for the citizens of Russia.”

Mr Klimov says he expects the laws to be passed before the end of the year, to make sure they are active before September. “This is extremely important — we are striving to implement a set of planned legal response measures before the start of the election campaign in 2021,” he says. “This is no coincidence.”

The ruling United Russia party is worried that it will struggle to retain its current hold on more than three quarters of the chamber’s seats at next year’s parliamentary elections
The ruling United Russia party is worried that it will struggle to retain its current hold on more than three quarters of the chamber’s seats at next year’s parliamentary elections © Shamil Zhumatov.Reuters

While only winning a simple majority would not be a grievous blow to United Russia, a worse result that forced the party into coalition government with other broadly pro-Kremlin but at times unpredictable parties like the Communists or nationalist Liberal Democratic party would significantly disrupt the Kremlin’s control of lawmaking.

It would also complicate any potential succession manoeuvres should Mr Putin decide to step down in 2024. His fourth term as president will end that year but constitutional changes pushed through parliament this year allow him to run for two more six-year terms.

“This quite frantic legislative action does show the nervousness in the minds of the [ruling party] candidates,” says Ms Schulmann, who last year was dismissed as a member of Mr Putin’s Presidential Council for Civil Society and Human Rights alongside three other outspoken officials who had criticised the government’s handling of the Moscow protests.

She adds: “The direction and intention of these repressive political policies show what the perceived threats are to that goal: bad foreigners, foreign influence and possible mass protests and rallies, and YouTube . . . the alternative television that threatens the state TV channels’ monopoly.”

With less than 10 months to go before the election, Ms Fadeeva — who says all her fundraising comes from local sources — says she is unbowed by the legislative onslaught, if a little insulted.

“Certainly, being labelled as a ‘foreign agent’ is unpleasant and even offensive to me,” she says. “Yes, perhaps some parts of the electorate may be put off by this . . . but the main thing is to convince our supporters to attend the elections.

“Thus, we must keep working as we have always been doing” she adds.



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Emerging Markets

Bolsonaro faces investigation over election fraud claims

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Brazilian politics updates

Brazilian president Jair Bolsonaro’s legal problems have multiplied after a court opened an investigation into his unsubstantiated warnings of voter fraud in presidential elections next year, a probe which could lead to him being disqualified from running.

The judicial inquiry comes as the far-right leader’s ratings are on the slide following accusations of his incompetent handling of the Covid-19 pandemic, which has claimed the lives of more than half a million Brazilians.

Rising living costs and allegations of corruption in vaccine procurement within his administration have damaged Bolsonaro’s standing further.

With political pressure building, the populist has increased attacks on the electronic voting system in recent weeks, reiterating calls for the adoption of printed paper receipts in order to avoid manipulation.

Opponents fear the former army captain is seeking to cast doubt on the legitimacy of the vote, in preparation for refusing to recognise a potential defeat. A group of 18 current and former Supreme Court justices have defended the current ballot system, which was introduced in 1996, insisting that Brazil had eliminated election fraud.

The Superior Electoral Court this week opened an administrative probe into Bolsonaro over his claims, for which he has provided no evidence. It also asked the Supreme Court to investigate whether the president had committed a crime by disseminating fake news about the voting system.

The president hit back on Tuesday. “I will not accept intimidation. I will continue to exercise my right as a citizen, to freedom of expression, criticism, to listen, and to meet, above all, the popular will,” Bolsonaro told supporters in Brasília.

The electoral court’s intervention showed the judiciary was striking back against Bolsonaro’s attacks, said Carlos Melo, a political scientist at Insper in São Paulo. “He [Bolsonaro] is harming the rules of the game, of democracy and the institutions,” he added. “It’s not different to what [Donald] Trump did, and demagogues in other countries. His intention is to question the electoral process without proof.”

Both moves by the electoral court could in theory eventually pave the way for Bolsonaro being barred from standing in the 2022 poll.

“There is a long way until this can bring actual legal consequences against the president which might affect his eligibility,” said Rogério Taffarello, a partner in criminal law at Mattos Filho and professor at the Getúlio Vargas Foundation. “[This] does not mean, of course, that the existence of such investigations cannot generate political consequences”.

The president is already the subject of a criminal investigation into whether he failed to act on warnings about alleged irregularities by public officials in negotiations over vaccine purchases. Bolsonaro and the government deny any wrongdoing.

Protesters have taken to the streets in cities over the past two months calling for the impeachment of Bolsonaro, who in polls is trailing former leftwing president Luiz Inácio Lula da Silva, also a likely frontrunner in next year’s election.

Bolsonaro had long promised to present evidence of cheating in elections, even claiming that the 2018 ballot he won was tampered with. Yet last week he admitted to not holding any proof, only “indications”.

Despite his falling popularity, Bolsonaro retains backing in Congress from an amorphous grouping of centre-right political parties known as the Centrão, or “Big Centre”. Analysts said for now this support appeared to be holding.

Additional reporting by Carolina Pulice



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South Korea looks to fintech as household debt balloons to $1.6tn

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South Korea Economy updates

After her family business of ferrying drunk people home was hit by closures of bars due to Covid-19 curfews and social distancing, Lee Young-mi* found herself juggling personal debts of about Won30m ($26,000).

The 56-year-old resident of Suncheon in South Korea was already struggling to pay off or refinance four credit cards, but now faces the prospect of those debts rapidly multiplying after her husband was diagnosed with cancer.

“We’ve had little income for more than a year as not many people are out drinking until late into the night,” said Lee. “Now my husband won’t be able to work at all for the next three months after his surgery.”

Lee’s story is playing out across Asia’s fourth-largest economy as self-employed workers, who make up nearly a third of the labour force, have seen their incomes reduced sharply due to coronavirus restrictions. Now, after struggling for years to keep a lid on household debts that hit a record Won1,765tn ($1.6tn) in March, Seoul is looking to fintech companies and peer-to-peer lenders for answers. 

Chart showing increase in South Korea's household debt

Among them is PeopleFund, which touts tech-based investment products backed by machine learning that allow borrowers to refinance their higher-interest loans from banks and credit card companies.

The company has loaned at least $1bn to more than 7,500 customers since it was established in 2015. Its products allow borrowers to switch their debts to fixed-rate, amortised loans at annual interest rates of about 11 per cent, a change from the riskier floating rate, interest-only loans common in South Korea. 

PeopleFund has received about Won96.7bn in financing from brokerage CLSA, and along with Lendit and 8Percent is one of the first among the country’s 250 shadow banks to win a peer-to-peer lending licence. 

“The country’s most serious household debt problem is with unsecured non-bank loans, whose pricing has been too high. We can offer more affordable loans to ordinary people unable to receive bank loans,” Joey Kim, chief executive of PeopleFund, told the Financial Times.

The proliferation of digital lenders and fintechs in South Korea, where higher-risk borrowers are often cut off from bank financing, has been encouraged by the country’s government.

“We hope that P2P lenders will help resolve the dichotomy in the credit market by increasing the access of low-income people to mid-interest loans,” said an official at the Financial Supervisory Service.

South Korea’s household debt situation has become more pressing since the onset of the pandemic, with increases in borrowing for mortgages, to cover stagnating wages and to invest in the booming stock market. South Korean households are among the world’s most heavily indebted, with the average debt equal to 171.5 per cent of annual income.

South Korea’s household debt-to-GDP ratio stood at 103.8 per cent at the end of last year, compared with an average 62.1 per cent of 43 countries surveyed by the Bank for International Settlements.

Much of the new debt has been risky. Unsecured household loans from non-bank financial institutions were Won116.9tn as of March, up 33 per cent from four years ago, according to the Bank of Korea, much of it high interest loans taken out by poorer borrowers.

Getting on top of the problem has taken on national importance. In a rare warning in June, the central bank said the combination of high asset prices and excessive borrowing risked triggering a sell-off in markets and a rapid debt deleveraging.

“If financial imbalances increase further, this could dent our mid-to-long-term economic growth prospects,” BoK governor Lee Ju-yeol said in July.

The country’s economic planners, however, are struggling to contain debt-fuelled asset bubbles without undermining South Korea’s fragile economic recovery.

The government has attempted to address the danger by tightening lending rules. Regulators in July lowered the country’s maximum legal interest rate that private lenders can charge their customers from 24 to 20 per cent.

Economists caution that rising debt levels increase South Korea’s vulnerability to an economic shock. 

They also warn that the asset quality of financial institutions could be hit by a jump in distressed loans when the BoK rolls back monetary easing, expected in the fourth quarter.

“Monetary tightening is needed to curb asset bubbles but this will increase the household debt burden, holding back consumption further,” said Park Chong-hoon, head of research at Standard Chartered in Seoul. “The government is facing a dilemma.”

For Lee Young-mi, however, the 11 per cent rate offered by the PeopleFund is still too high. “I am not sure how to pay back the debt.”

*The name has been changed



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European and Chinese stocks rise after calming words from Beijing

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Chinese equities updates

European shares chased gains in China after calls from Beijing for greater co-operation with Washington helped sooth jitters over a regulatory crackdown in the world’s biggest emerging market.

Europe’s Stoxx 600 index rose 0.7 per cent on Monday to hit new all-time highs, while the UK’s FTSE 100 rose 1 per cent led by economically sensitive stocks including banks and energy groups. London-listed lender HSBC gained 1 per cent after it reported second-quarter figures that easily beat analysts’ expectations.

The gains came after the China Securities Regulatory Commission, Beijing’s market regulator, called on Sunday for closer co-operation with Washington, stressing the country’s efforts to improve transparency and predictability after a crackdown on tutoring groups obliterated the market value of the $100bn sector’s biggest companies.

Chinese listings in the US have become a geopolitical flashpoint as Beijing has sought to exert greater control over the country’s powerful tech sector. The US Securities and Exchange Commission said on Friday that Chinese groups that sought to sell shares in America would be subject to stricter disclosures.

Shares in China rebounded after their worst month in almost three years, with China’s CSI 300 benchmark of Shanghai- and Shenzhen-listed blue-chips rose 2.6 per cent on Monday, while Hong Kong’s Hang Seng index added 1.1 per cent. The city’s Hang Seng Tech index, which tracks big internet groups including Tencent and Alibaba, reversed early losses to rise 1 per cent. Futures tracking Wall Street’s benchmark S&P 500 index climbed 0.6 per cent.

Last month, China’s cyber-security regulator announced plans to review all foreign listings by companies with data on more than 1m users after top leaders in Beijing called for an overhaul of how the country regulates initial public offerings in the US. The crackdown came just days after the $4.4bn listing of ride-hailing group Didi Chuxing.

The intensifying scrutiny of how Chinese groups access capital markets has pummelled stocks, delivering the worst month for China tech groups listed in the US since the global financial crisis. The Hang Seng Tech index fell 17 per cent last month.

“While we do not consider it prudent to completely avoid investments in China, further volatility can be expected until the first quarter of 2022, by which time we believe most regulatory changes may already be in place,” analysts at Credit Suisse wrote in a note on Monday.

Meanwhile, data released by China at the weekend showed that factory activity grew at the slowest pace in 15 months in July as demand contracted for the first time in more than a year.

Government bonds were steady with the yield on the benchmark German 10-year Bund, which moves inversely to its price, gaining 0.01 percentage points to minus 0.45. The equivalent US 10-year yield was steady at 1.234 per cent.

Bond yields have been falling in recent weeks, despite higher than expected inflation readings in the US and indications from the US federal Reserve last week that it was moving a step closer to the day when it would start tapering its $120bn in monthly asset purchases.

The euro rose 0.1 per cent against the dollar to $1.1885, while the pound gained 0.1 per cent to purchase $1.3924. Prices for global oil benchmark Brent crude fell 1 per cent to $74.66.

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