When All Else Fails, Nationalize Industry

The Western reading of Vlad Putin and Russia (and vice versa) has become so defracted by the lens of international political gamesmanship vis-à-vis one another that it seems difficult to arrive at an opinion about Russia without first staking a domestic political position. A principal example of this effect has been made clear in reactions to the Ukrainian election/Orange Revolution: political and media bodies (e.g., the Guardian's Jonathan Steele) have accused America of meddling on behalf of the opposition candidate in a way equal to the Russians on behalf of the incumbent.

This is far-fetched and absurd. First of all, the bodies engaged in on-the-ground democracy promotion in Ukraine (and elsewhere) hail from across the globe, not just the United States. More importantly, the Ukrainian incumbent party/candidate (Viktor Yanukovich) stole the election—with Russia's help. No doubt they will try to do so again on today's third-round election. Putin's defense of his support for Yanukovich, i.e., the United States will keep advocating elections until it gets the results it wants, is laughable. We've made clear that we'll push to restart the game until Russia (and Ukraine) stops cheating.

But worse news in Russia has yet emerged, for which I can imagine there are no apologists in the West. In brief: In October 2003, Putin arrested one of the nation's principal oligarchs, Mikhail Khodorkovsky, the CEO of a major private oil company, Yukos, for ambiguous charges regarding back taxes. Massive back taxes—in the neighborhood of $30 billion. The state announced an auction of a majority production unit within Yukos; at the same time (just this month), Yukos made an eleventh-hour emergency bankruptcy protection filing with U.S. courts, which decided for a stay in the auction and that Western financiers would likely be left holding the bill if Yukos were declared bankrupt.

After Russia announced its intention to go ahead with the auction, Western banks saw the writing on the wall. In a coordinated effort, Deutsche Bank, ABN Amro, BNP Paribas, Calyon, Dresdner Kleinwort Wasserstein, and J.P. Morgan froze a line of credit for Russia’s state-controlled gas monopoly, Gazprom. A massive line of credit, too—nearly $10 billion. The Kremlin was effectively blocked from participating in the auction.

So it seemed, anyway. When the auction was held, a previously unknown company, Baikal Finance Group, assembled the enormous $9 billion winning bid. Investors have not had to wait a week to see the worst come to pass: Baikal announced on Thursday that it is selling all its Yukos holdings to Rosneft, a state-owned company, which in turn is being bought by Gazprom. No sale amounts associated with these purchases have been divulged. It likely qualifies as the most significant state shell game in the history of democracy.

Coupled with Freedom House's decision to downgrade Russia's civic and economic liberty status to "not free," the long-term outlook for democracy in Russia is grim. As Russia's sphere of influence crumbles, with former satellites spurring the hub in favor of state nationalism, democracy, and/or the West, the Kremlin has become increasingly frantic. Putin sounds irrational in his characterization of 90s privatization, the Orange Revolution, the West, and even ostensibly neutral figures such as Poland.

Yet the White House has brought no pressure to bear against the Kremlin. A Dallas Morning News editorial captures the urgent need for a change of heart in DC:

Mr. Bush, who is scheduled to meet face-to-face with Mr. Putin in February, must make clear that the Russian leader is crippling the country's reforms and draining U.S. patience. If Mr. Putin truly embraces democratic and free market principles, he must protect property rights, defend the rule of law, tolerate dissent and give foreign investors a reason to believe in Russia's future. The United States placed a heavy bet on Mr. Putin being a new breed of Russian leader, one who understood the fallacies of his nation's past and who embraced the promises of political reform and free markets. So far, it's been a misplaced bet.

I don't imagine we'll hear much more than lip service in the way of political pressure from President Bush, who, for all his unilateral bluster, has too great a need for an international ally to condemn Putin in the terms Putin deserves. And, tit-for-tat, Putin has avoided the mention of the United States by name even while condemning in harsh terms Western interventionism, and he has emphasized his pleasure with his relationship with President Bush. There is certainly a limit to the degree to which the two men can serve as a crutch for one another, and that may come for both in 2008:

[In a televised address, Putin] also indulged in jokes. By law Mr. Putin is limited to two consecutive terms, and he is serving the first year of his second term now. The possibility of a third term, either through a change in Russia's Constitution for the 2008 race or a return to politics in 2012, has been a source of steady speculation. Asked directly whether he would run again in 2012, he said: "Why not in 2016? I still hope to be fit."

He added, somewhat cryptically, "I do think about how we will negotiate the landmark of 2008."

Don't we all.

Posted by Kriston at December 26, 2004 12:36 PM