Business and government: the positioning battle for Putin’s second term


In the lead-up to President Vladimir Putin’s fifth annual address to the Federal Assembly, the Vremya Novostei newspaper, known for its loyalist attitude to the regime’s actions, decided to attempt an analysis of progress on objectives set out in last year’s address.

This turned out to be somewhat difficult: it turns out that the officials who wrote the speech were far-sighted enough to omit any specific deadlines for its objectives. The only exception was the goal of doubling the GDP by 2010. Thus, an assessment of the effectiveness of Putin’s 2003 address will only be possible after Putin is out of office.

All the same, Vremya Novostei was cautiously optimistic: “According to most experts, despite the widespread doubts and criticism regarding the ‘doubling’ slogan, this objective still remains achievable.” Calculations done by economists show that in order to achieve this goal, Russia’s GDP growth must be no less than 7% a year from now until 2010. Last year’s growth was 7.3%. The Economic Development and Trade Ministry’s forecast for this year is a more restrained 6.4%, but it’s already known that this forecast will be adjusted upwards at a Cabinet meeting on June 10. So all is going well here.

Vremya Novostei points out that another of the president’s ideas, more understandable for the electorate – halving the number of people living below the poverty line (from the current 24% to 12%) – was expressed only this spring at a joint collegium of the Economic Development and Trade Ministry and the Finance Ministry. Thus, it would be premature to require a progress report on this objective.

Actually, the president has mentioned fighting poverty in all his annual addresses, starting from the first. Nevertheless, there have been no noticeable achievements in this area. So far, only the number of the rich has doubled in Russia – or, more precisely, the super-rich. According to Forbes magazine, this year Russia’s number of billionaires in dollar terms has reached 36. Last year there were only 17 of them.

Thus, as the Argumenty i Fakty weekly has calculated, Russia now has the world’s third-highest number of billionaires (after the United States and Germany).

Vremya Novostei notes: “True, the picture is somewhat spoiled by the fact that Russia’s richest citizen {also according to Forbes), Mikhail Khodorkovsky, is not currently in a position to increase his wealth.”

Yezhenedelnyi Zhurnal says: “What brilliant timing – the president’s annual address to the Federal Assembly (essentially his address to the nation) will be delivered the day after Mikhail Khodorkovsky’s trial begins.”

And Yezhenedelnyi Zhurnal goes on to say that if the address includes a mention of possible prison terms for Khodorkovsky (something like “ten years seems a bit excessive to me, but eight would be just right”), that wouldn’t be surprising. “Because we know perfectly well that President Putin has certainly said those words already, somewhere or other. And those for whom his words were intended have heard him out, hiding their eyes and their smiles, and bowed and scraped, and hurried out of the office, running to carry out the monarch’s will.” If the president decides to make his viewpoint public, Yezhenedelnyi Zhurnal says this “would mean only one thing: he trusts his people completely, and he has nothing to hide from the people. And the people will appreciate that. And if, God willing, the sentence suddenly turns out to be more lenient, everyone will say: What a humane president we have.”

The Kremlin’s war on YUKOS is approaching its conclusion, says the Moskovskie Novosti weekly, and the regime “faces the inevitable question of what to do with Mikhail Khodorkovsky.”

On the one hand, the regime is being consistently hard-line in the YUKOS affair, and unsurprisingly, public opinion in Russia is not on the side of the oligarchs. Even big business isn’t trying to stand up for one of its fellows who has fallen out of favor.

Moreover, says Moskovskie Novosti, “the business community has always rather disliked Khodorkovsky.” The reasons for this dislike are obvious: “He crossed many people by fighting for the law on production sharing agreements.” And it was inevitably annoying when Khodorkovsky not only took his company to the international level, but was even accepted as an equal in the West.

Most importantly, he didn’t consider it necessary to conceal his political ambitions – and in the opinion of the business community, this placed all of them at risk.

An anonymous source from the Russian Union of Industrialists and Entrepreneurs (RUIE) Bureau told Moskovskie Novosti: “For big business, the Khodorkovsky story is a test of class solidarity. Alas, we’ve failed the test. We knew that someone was bound to be arrested, as a lesson for all. And when they came for Khodorkovsky, many of us breathed a sigh of relief.”

But that is the internal side of the coin, so to speak. There is also an outward side: in June, President Putin will meet with other world leaders at the G8 summit. And Western leaders might inform the Russian president of their dissatisfaction with how Russia’s authorities treat the companies they dislike. The establishment in the United States and Western Europe has long been certain that the YUKOS affair is political.

Sabine Leutheuser-Schnarrenberger, a representative of the Parliamentary Assembly of the Council of Europe (PACE), came to Moscow early this week especially to study the YUKOS situation.

Walter Schwimmer, secretary general of the Council of Europe, told Nezavisimaya Gazeta that Leutheuser-Schnarrenberger has been sent to Moscow especially to “get a picture of the situation as it really is, rather than judging it by rumors and newspaper articles.”

And PACE sources told Moskovskie Novosti that the PACE only appoints special rapporteurs on specific issues in exceptional cases, when there are “substantial grounds to doubt that the legal standards of the Council of Europe are being observed.”

Sabine Leutheuser-Schnarrenberger intends to make her report available for “the broader public” to assess: “And if it is established that human rights were violated in the course of the investigation, we hope that my work will also be taken into consideration in Moscow.” But she also noted that it is not part of her duties to study the details of the criminal charges against YUKOS executives.

At any rate, it won’t be possible to arrange a quiet ending to the Khodorkovsky story, so it is in Putin’s interests to bring the YUKOS saga to a conclusion as soon as possible.

According to Moskovskie Novosti, there are two options for solving the problem. “The first option is to convict Khodorkovsky and shut down his company, having proved in court that it has sunk deep into financial machinations.” Moskovskie Novosti points out that everyone in Russia is morally prepared for such an outcome, so this decision wouldn’t raise a new wave of outrage.

The second option is “to make a kingly gesture and release Khodorkovsky – by giving him a token prison sentence, for example.” The prisoner himself has prepared the ground for this with his two open letters, which many observers viewed as confessions.

Moskovskie Novosti considers that the president still hasn’t made up his mind – judging by the very contradictory rumors being spread by the Kremlin. According to Moskovskie Novosti, the most provocative of these rumors is the following leak: “Khodorkovsky won’t be released from jail, and despair will drive him to attempt suicide.” But Khodorkovsky’s lawyers have all denied this rumor, maintaining that he is stoically enduring all the hardships of imprisonment.

According to Moskovskie Novosti, the former oligarch’s opponents are spreading these rumors in the hope that the YUKOS people will lose their nerve and agree to any and all terms. However, as yet this doesn’t seem likely.

On the other hand, the proponents of resolving the problem by force – “Prosecutor General Ustinov’s group” – has long been trying to persuade the president that it’s impossible to reach a compromise with YUKOS. Then the only option would be the principle of “if the enemy doesn’t surrender, he must be destroyed.”

Moskovskie Novosti claims that quite a few people are in favor of this option – including Finance Minister Alexei Kudrin. His priority is to make an example of YUKOS, in order to intimidate other oligarchs. In the event that Kudrin, who is responsible for tax collection, fails to meet budget revenue targets, he would then have a pretext to address the business community: “Help us out by contributing some money, or you’ll meet the same fate as Khodorkovsky.”

Yezhenedelnyi Zhurnal notes: “Regardless of the outcome in the cases of Platon Lebedev and Mikhail Khodorkovsky, it’s safe to say that one participant in the process has come out a winner. That participant is the Prosecutor General’s Office, which has been transformed (in public opinion, at least) from one of the least influential security and law enforcement bodies into a powerful punitive mechanism capable of crushing anyone the Kremlin wants crushed. Even an ultra-loyalist oligarch like Potanin – no matter what he does, like buying the Black Square painting by Malevich and returning it to Russia, or sponsoring the TsSKA basketball club – has no guarantees at all that they won’t come for him tomorrow, demanding that he hand over all his assets.”

More precisely, says Yezhenedelnyi Zhurnal, the question of whether they will come for him or not is no longer an issue: “A different dilemma is now on the agenda: whether he has a month left, or a year.”

Meanwhile, the Prosecutor General’s Office has gained a powerful ally: Sergei Stepashin, head of the Auditing Chamber, who has decided to go after yet another oligarch: Roman Abramovich, governor of Chukotka.

But Abramovich, who now owns the Chelsea Football Club, has done all he can to avoid finding himself in Khodorkovsky’s situation: according to Yezhenedelnyi Zhurnal the “British billionaire of Russian origin” hasn’t been seen in Russia since March, when the Taxes and Duties Ministry accused the Sibneft oil company of failing to pay around $1 billion in taxes for 2000-01.

What’s more, Abramovich is the only Russian oligarch who has managed to sell off practically all his Russian assets; he has even sold his stake in Sibneft twice – first to YUKOS, and then, with the Kremlin’s blessing, to Total (France).

And this, says Yezhenedelnyi Zhurnal, is convincing evidence that the time for a dialogue between business and government is over: “The game-playing has ended. The oligarchs might as well disband the ‘labor union’ they formed at the start of Putin’s first term in order not to visit the Kremlin one by one. These days, the regime prefers to deal with business ‘via an intermediary in the form of the Prosecutor General’s Office.'”

Yulia Latynina, an observer for Novaya Gazeta, says Stepashin’s move against Abramovich will hit the residents of Chukotka rather than the governor of that region. Latynina is sure that “there is no threat to Abramovich from the Kremlin.”

Abramovich is safe from falling out of favor with the authorities; according to Latynina, the following facts serve as evidence of that: “Although he was Khodorkovsky’s partner, for some reason Abramovich never discussed the unfairness of the charges against Khodorkovsky with President Putin. But after Khodorkovsky was imprisoned, Abramovich and the president did discuss the issue of taking over control of his company.”

And when Khodorkovsky refused to hand over his company to Abramovich, the tax inspectorate accused YUKOS of failing to pay $3 billion in taxes. Thus, says Latynina, the tax inspectorate’s current attacks on the governor of Chukotka are a “smokescreen” necessary to “avoid the prospect of being required by courts in the West to pay billions of dollars in damages for collaborating in the state’s racketeering activities aimed at YUKOS.”

There is already a precedent. Last week, after considering the case of “Vladimir Gusinsky versus Russia,” the European Court found Russia guilty of violating the media magnate’s rights and liberties. It ordered Russia to pay Gusinsky 88,000 euro in compensation for his legal costs.

Nezavisimaya Gazeta stresses that Gusinsky, who complained to the Strasbourg court that his arrest in June 2000 was unlawful, has become the first Russian oligarch to be taken under the protection of an international court. And Nezavisimaya Gazeta notes that Russia is obliged to comply with European Court decisions, since it has signed the European Convention on Human Rights.

Meanwhile, the Gazeta newspaper considers that the European Court’s decisions are much more significant for some other cases, since the practice of legal precedents is used in Strasbourg. “Therefore, similar appeals from Khodorkovsky and Lebedev would also be upheld.”

Indeed, the European Court’s ruling in the Gusinsky case does sound like a condemnation of those who are persecuting YUKOS: “Depriving the Plaintiff of his liberty was used as a business negotiation strategy. Public law institutions such as criminal prosecution and pre-trial detention should not be used for those purposes.”

So now, even though it wouldn’t be difficult to convict Khodorkovsky in Russia (as Yulia Latynina puts it, the state might find him guilty of anything at all: “keeping breeding sows in improper conditions, violating environmental standards at oil wells, or forming a criminal group for the purpose of privatizing enterprises”), the real problem lies elsewhere. “The Russia state has fallen into a trap: the worse Khodorkovsky is treated in Russia, the greater the compensation that might be awarded by a court in the West.” The Strasbourg court’s decision might not only be a blow to Russia’s prestige, but to its budget as well.

Lawyer Nikolai Gagarin told Gazeta: “The Russian elite still doesn’t understand that this is a decision made by the world’s judicial community. Members of the Russian elite don’t even bother to meet with those people, believing such meetings to be pointless in political terms. But later on, it won’t even be necessary to bring down another Iron Curtain. The judicial community will do that for them.”

Kommersant reports that the Strasbourg court is now due to consider complaints from another out-of-favor oligarch, Boris Berezovsky, as well as Anatoly Bykov, former co-owner of the Krasnoyarsk Aluminum Plant, and – of course – the lawyers of YUKOS. Kommersant explains that appealing to Strasbourg is a last resort in the event that all opportunities for legal defense in a nation which is a signatory to the European Convention on Human Rights have been exhausted. “In view of this, the determination of Russian courts to reject appeals in cases involving business conflicts, as fast as possible and on formal pretexts, offers a good argument for potential complaints to Strasbourg. And the practice of irregular arrests of business executives who are out of favor – which has led to Anatoly Bykov, Vladimir Gusinsky, and Yakov Goldovsky spending time in prison – practically always violates Article 5 of the Convention, which sets out the lawful grounds for arrests.” Gusinsky won his case by focusing on that article.

As Yulia Latynina puts it, Russian justice has turned out to be “non-convertible.”

Kommersant reports that 8,000 cases from Russia are now awaiting the Strasbourg court’s consideration, and no fewer than 500 of them involve business disputes. “Therefore, over the next two or three years Russia as a state can expect a multitude of court rulings, since it is rare for a case involving a conflict between business and government to be viewed according to the letter of Russian law.”

Novaya Gazeta points out that the Auditing Chamber’s efforts will not only provide Roman Abramovich with an alibi to use in Western courts, but “a pretext to leave Chukotka, which he has grown tired of.”

After all, says Novaya Gazeta, “out of the whole crowd of Russia’s regional leaders – sweaty, dirty, with their snouts in the trough of state funds,” the authorities have chosen to deliver a public whipping to “the only governor who makes a contribution instead of stealing, and does this without publicity,” apparently because the example of Khodorkovsky makes him fearful of displaying any unconventional behavior likely to draw the Kremlin’s attention, which can be a health hazard.

Sergei Ryabukhin from the Auditing Chamber has stated that the Chukotka autonomous district is essentially bankrupt: its debts are 2.4 times greater than its revenues. The Vedomosti newspaper considers this laughable. Vedomosti says: “That might give the impression that Abramovich has looted Chukotka. Not so. When the new governor took office in 2000, his region’s state debts were 14 times greater than revenues. So in budgetary terms, the experiment Abramovich has carried out on the region and its people may be considered successful: revenues are rising, while debts are being paid off and decreasing.”

In the opinion of Vedomosti, Sergei Stepashin’s comment that Abramovich “is a nice guy, but he shouldn’t be a governor” since “a region and its people should not be used for experiments” doesn’t stand up to criticism.

In an editorial, Vedomosti notes: “It’s hard to say whether Roman Abramovich is a nice guy. Unlike Stepashin, we know too little about the owner of Chelsea. But he is a good governor, as any resident of Chukotka would agree.”

According to Vedomosti, which quotes a source from the government of Chukotka, investors have already contributed around 14.1 billion rubles to the regional budget. “True, they have also received tax breaks to the value of 28 billion rubles, and in theory that money might have gone to the budgets of other regions. But a good regional leader need not be concerned about the welfare of the nation as a whole – that is the business of a good Duma, a good government, and a good president. Yet they have passed the laws that made it possible to create domestic tax havens in Russia: the laws Abramovich has used so skilfully.”

Thus, says Vedomosti, it’s possible to agree with Stepashin on another point: “Abramovich is too rich, too keen on football, and too well-dressed to be considered a good governor by people who are not residents of Chukotka. For a regional leader, buying the Chelsea Football Club is equivalent to getting married in a palace. It’s not a crime, but it is unseemly. It provokes anger, envy, and unnecessary gossip.”

This has been a lesson for Abramovich, and next year, once he is no longer governor, the money he might have spent on Chukotka will be spent on the Chelsea team instead.

And Novaya Gazeta says this is an obvious lesson for all the other oligarchs: “If you have some money to spare, don’t spend it on helping the poor.” Spend it on yourself, but without any excessive publicity. As a last resort, buy some Faberge eggs for the Russian state.

Yulia Latynina suggests another infallible option: building a ski resort for the Russian president.