Vlad the Impaler -- Putin's bout with Oligarchs

[Timber Loftis]

http://www.economist.com/opinion/dis...ory_id=2173548

Vlad the Impaler

AT FIRST blush it sounds routine, even praiseworthy. An extremely wealthy businessman is suspected of committing fraud and tax evasion. Prosecutors labour for months to assemble their case, pulling in some of the businessman's closest associates for questioning along the way, before finally deciding to arrest and charge their real target. It is just the sort of thing that Americans might see as welcome evidence, post-Enron, of a zeal to tackle corporate crooks and to clean up capitalism's messes.

This is not, however, George Bush's America; it is Vladimir Putin's Russia. The businessman, Russia's richest, is Mikhail Khodorkovsky, the chief executive and biggest shareholder of Yukos, Russia's largest oil company, who was spectacularly seized on October 25th aboard his own aircraft in Siberia. President Putin insisted that the arrest was a normal function of the country's judicial system, in which he neither could nor should interfere. But everybody knows that, in Mr Putin's Russia, the taking of such a big fish has nothing to do with business misdeeds, still less with justice, and everything to do with politics and the Kremlin's control. And that is why Mr Khodorkovsky's arrest, along with the rumoured departure of the Kremlin's chief of staff, Alexander Voloshin, one of Mr Khodorkovsky's sympathisers, are so ominous (see article).

The BBC has a profile of Mikhail Khodorkovsky. The Exile, an alternative newspaper based in Moscow, features Mr Khodorkovsky in its deck of “political trading cards”. See also Yukos, Gazprom and Human Rights Watch's report on Russia.

This is not to say that Mr Khodorkovsky, and indeed any of the country's “oligarchs”, are as white as Siberian snow. In the post-communist chaos of the early 1990s, many murky bargains were struck, culminating in a raft of dodgy privatisations and the notorious “loans-for-shares” deals done under the presidency of Boris Yeltsin. Out of these emerged a small group of fabulously rich businessmen, most of them with control of both media outlets and banks—and also with the ear of the Kremlin. The process was even seamier than the episode with which its defenders like to compare it, the emergence of the robber barons in America in the late 19th century.


Putin power
Against this background, Mr Putin's promise, when he became president in 2000, to cut the oligarchs down to size was justified and welcome. His undeclared bargain with them—that the government (and the judicial system) would not inquire too closely into the legality of their ill-gotten gains, so long as they stayed out of Russian politics—was understandable. But Mr Putin's subsequent hounding into exile of two of the oligarchs who refused to relinquish power, Vladimir Gusinsky and Boris Berezovsky, bore troubling witness to his authoritarian instincts. His latest decision to go after Mr Khodorkovsky only reinforces this picture.

For Mr Khodorkovsky's real offence, in Mr Putin's eyes, is neither his role in the privatisation and subsequent running of Yukos, nor his vast wealth. After all, these have been evident for years—and Yukos has become such a model of (by Russian standards) good corporate governance that Exxon Mobil and Chevron Texaco, two American oil giants, are even now vying to buy a big chunk of it. What changed this spring was Mr Khodorkovsky's decision to get deeply involved in Russian politics. Beyond merely criticising Mr Putin's rule, he openly financed at least two important opposition parties and wielded heavy influence in the Russian parliament, the Duma. He even began to hint at political ambitions of his own, with rumours starting to circulate that he might run for president in 2008. It was surely this political meddling that triggered the arrest of one of Mr Khodorkovsky's closest associates in July, and that has now led to his own arrest.

Mr Putin, it has become plain, is not the sort of politician who brooks either critics or rivals. He has shut down or stifled most of Russia's independent media. As the recent elections in Chechnya and St Petersburg illustrated so graphically, he has intimidated or bought his way towards ensuring that his preferred candidates emerge as winners of any vote. Few doubt that, by hook or by crook, he will retain majority support in the Duma after December's elections: it was, indeed, the approach of those elections that gave him reason to attack Mr Khodorkovsky now. Nor does anybody expect him to tolerate any serious challenge to his re-election as president next March. In other words, the arrest of Mr Khodorkovsky must be seen as only part of a broader pattern confirming that Mr Putin is no democrat.

This, of course, may not upset the foreigners who have been pouring money into the country over the past couple of years. Stability and economic growth are what they, and arguably most Russian voters, want—and they are what Mr Putin has managed, largely thanks to high oil prices, to deliver. As the markets settled their initial nerves after this week's dramas, investors seemed to be signalling again that they would put stability above all else. Big foreign companies that have bought into Russia, such as the British oil firm BP, were quick to declare that they still had faith in the Russian government.

The trouble with this thinking is that the tacit trade-off of stability and growth against freedom and human rights may no longer work. This is because an increasingly dictatorial Mr Putin may not deliver his side of the bargain. His harassment of Mr Khodorkovsky and other oligarchs has already seen a sharp resumption of capital flight out of Russia. The run-up to the Duma and presidential elections could see more investors running from what already bore all the hallmarks of being an overbought market (see article).


Compete or die
The arrest of Mr Khodorkovsky is thus bad news for Russia's future. But would it have been right to leave him and the other oligarchs who benefited obscenely from the flawed privatisations of the 1990s untouched? The best approach is not to reopen those dodgy privatisations, still less to fling more of the oligarchs in jail. Such measures now would serve only to create uncertainty and instability, the last things Russia needs. It would be better to be crystal clear, as Mr Putin and his advisers have not always been, that the privatisations of the past will not be unwound, and instead to offer the oligarchs some kind of amnesty in exchange for a financial settlement. Then the oligarchs' business empires, and indeed the entire Russian economy, should be opened up to more competition and deregulation. The same remedy should be applied to the country's biggest state-owned firm, the gas company Gazprom.

Mr Putin may have one more chance, after he wins next March's presidential election, to take such a path of reform. He could take on the Gazprom empire by privatising it. He could cut through Russia's stifling array of regulations and corrupt bureaucrats. And he could press ahead with the country's negotiations to enter the World Trade Organisation, even though that will mean prising open sensitive and hitherto protected industries.

Sadly, all the signs are that, once back in office, he will do none of these things. Autocrats always like to talk up their ability to deliver growth and stability. Now and then it is even true. But in Russia they have invariably produced stagnation and, ultimately, instability. This week's arrest of Mr Khodorkovsky brings closer to fruition the bleak prediction that these are what Mr Putin, too, will leave behind.

[Black Baron]

Putin Vseya Rusi.

Those that know russian will understand.


translation-Putin of all russia, aka Tzar of all russia.

He is a kgb former man, what did we expect? there was no democraty in russia, not ever and will not be for another generation at the very least.

[Donut]

The man Putin should lock up is Roman Abramovich! He's the one that wastes his money.

[ 11-06-2003, 11:06 AM: Message edited by: Donut ]

[pritchke]

I don't know it is hard to say if I believe this story or not. A lot of business in Russia is corrupt although the article does not mention this. So it seems to only be trying to paint Putin as a villain and not telling the whole truth about business in Russia. Especially in the resource industries. Our North American lawyers are saints in comparison. Many former or current Russian mafia still control much of the wealthy businesses. So I for one will not rule out corruption although it is getting better. But if you do business in Russia be warned you could lose your shirt and more.

[ 11-06-2003, 11:42 AM: Message edited by: pritchke ]