feel much better in a world dominated by the United States as a single
superpower. The KGB and its successors - Putin's former long-term
employers - actually engineered Russia's opening to the West and the
president's meteoric ascendancy. And no one in the army seriously
disputes the need for reform, professionalization and merciless
trimming of the bloated corps.
Reforms - of the military, Russia's decrepit utilities, dilapidated
infrastructure and housing, inflated and venal bureaucracy, corrupt
judiciary and civil service, choking monopolies and pernicious banking
sector - depend on the price of oil. Russia benefited mightily from the
surge in the value of the "black gold". But the windfall has helped
mask pressing problems and allowed timid legislators and officials to
postpone much needed - and fiercely resisted - changes.
Russia's "economic miracle" - oft-touted by the "experts" that brought
you "shock therapy" and by egregiously self-interested, Moscow-based,
investment bankers - is mostly prestidigitation. As the European Bank
for Reconstruction and Development (EBRD) correctly noted in November,
Russia's 20 percent growth in the last three years merely reflects
enhanced usage of capacity idled by the ruination of 1998.
Neutering the positive externality of rising oil prices, one is left
with no increase in productivity since 1999. Industrial production -
outside the oil sector - actually slumped. As metropolitan incomes
rise, Russians revert to imports rather than consume shoddy and shabby
local products.
This, in turn, adversely affects the current account balance and the
viability of local enterprises, some of which are sincerely attempting
to restructure. According to Trud, a Russian business publication, two
fifths of the country's businesses are in the red. Russia's number of
small and medium enterprises peaked at 1 million in 1995-6. They employ
less than one fifth of the workforce (compared to two thirds in the
European Union and in many other countries in transition).
Thus, falling oil prices - though detrimental to Russia's ability to
repay its external debt and balance its budget - are a blessing in
disguise. Such declines will force the hand of the Putin administration
to engage in some serious structural reform - even in the face of
parliamentary elections in 2003 and presidential ones the year after.
Russians - wrongly - feel that their standard of living has stagnated.
Gazeta.ru claims that 39 million people are below the poverty line.
Many pensioners survive on $1 a day. In truth, real income per capita
is actually up by more than 8 percent this year alone. Income
inequality, though, has, indeed, gaped.
Responding to these concerns, though, in a "coattails" effect, the
president is expected to carry pro-Kremlin parties back into power in
2003 - a modicum of elections-inspired bribing is inevitable. State
wages and pensions will outpace inflation. The energy behemoths - major
sources of campaign financing - will be rewarded with rises in tariffs
to match cost of living increases.
Russia faces more than merely a skewed wealth distribution or
dependence on mineral wealth. Its difficulties are myriad. On cue from
Washington, it is again being hyped in the Western press as a sure-fire
investment destination and a pair of safe geostrategic hands. But the
dismal truth is that it is a third world country with first world
pretensions (and nuclear weapons). It exhibits all the risks attendant
to other medium-sized developing countries and emerging economies.
External debt repayments next year will exceed $15 billion. It can
easily afford them with oil prices anywhere above $20 and foreign
exchange reserves the highest since 1991. Russia even prepaid some of
its debt mountain this year. But if its export proceeds were to decline
by 40 percent in the forthcoming 3-4 years, Russia will, yet again, be
forced to reschedule or default. Every $1 dollar decline in Ural crude
prices translates to more than $1 billion lost income to the government.
Russia's population is both contracting and ageing. A ruinous pension
crisis is in the cards unless both the run-down health system and the
abysmally low birthrate recover. Immigration of ethnic Russians from
the former republics of the USSR to the Russian Federation has largely
run its course. According to Pravda.ru, more than 7 million people
emigrated from the Federation in the last decade.
Russia's informal sector is a vital, though crime-tainted, engine of
growth. Laundered money coupled with reinvested profits - from both
legitimate and illicit businesses - drive a lot of the private sector
and underlie the emergence of an affluent elite, especially in Moscow
and other urban centers. According to the Economist Intelligence Unit,
Goskomstat - the State Statistics Committee - regularly adjusts the
formal figures up by 25 percent to incorporate estimates of the black
economy.
Russia faces a dilemma: to quash the economic underground and thus
enhance both tax receipts and Russia's image as an orderly polity - or
to let the pent-up entrepreneurial forces of the "gray sectors" work
their magic?
Russia is slated to join the World Trade Organization in 2004. This
happy occasion would mean deregulation, liberalization and opening up
to competition - all agonizing moves. Russian industry and agriculture
are not up to the task. It took a massive devaluation and a
debilitating financial crisis in 1998 to resurrect consumer appetite
for indigenous goods.
Farming is mostly state-owned, or state-sponsored. Monopolies,
duopolies and cartels make up the bulk of the manufacturing and mining
sectors - especially in the wake of the recent tsunami of mergers and
acquisitions. The Economist Intelligence Unit quotes estimates that 20
conglomerates account for up to 70 percent of the country's $330
billion GDP. The oligarchs are still there, lurking. The banks are
still paralyzed and compromised, though their retail sector is
reviving.
Russians are still ambivalent about foreigners. Paranoid xenophobia was
replaced by guarded wariness. Recently, Russia revoked the fast track
work permit applications hitherto put to good use by managers, scholars
and experts from the West. Foreign minority shareholders still complain
of being ripped-off by powerful, well-connected - and minacious -
business interests.
With the bloody exception of Chechnya, Putin's compelling personality
has helped subdue the classic tensions between center and regions. But,
as Putin himself admitted in a radio Q-and-A session on December 19,
this peaceful co-existence is fraying at the edges.
The president will try to reach a top-down political settlement in the
renegade province prior to the 2004 elections, but will fail. Reform is
anathema to many suborned governors of the periphery and the Kremlin's
miserly handouts are insufficient to grant it a decisive voice in
matters provincial. Devolution - a pet Putin project - is more about
accepting an unsavory reality than about re-defining the Russian state.
The economic disparity between rural and urban is striking. The
Economist Intelligence Unit describes this chasm thus:
"The processing industry is concentrated in the cities of Moscow, St
Petersburg, Yekaterinburg and Nizhny Novgorod. These larger cities have
managed the transition relatively well, as size has tended to bring
with it industrial diversity; smaller industrial centers have fared far
worse. The Soviet regime created new industrial centers such as Tomsk
and Novosibirsk, but Siberia and the Russian Far Eastern regions remain
largely unindustrialised, having traditionally served as a raw
materials and energy base. Owing to the boundless faith of Soviet
planners in the benefits of scale, one massive enterprise, or a small
group of related enterprises, often formed the basis for the entire
local economy of a substantial city or region. This factor, compounded
by the absence of unemployment benefits, makes the closure of bankrupt
enterprises a politically difficult decision."
The politically incorrect truth is that Russia's old power-structure is
largely intact, having altered only its ideological label. It is as
avaricious, nefarious and obstructive as ever. Nor does the Russian
state sport any checks and balances. Its institutions are suspect, its
executive untouchable, its law enforcement agencies delinquent.
Russians still hanker after "men of iron" and seek tradition rather
than innovation, prefer unity to pluralism, and appreciate authority
more than individualism. Russia - a ramshackle amalgamation of
competing turfs - is still ill-suited for capitalism or for liberal
democracy, though far less than it was only ten years ago.
Conspicuous consumption of imported products by vulgar parvenus is no
substitute to true modernity and a functioning economy. Russia is
frequently praised by expats with vested interests and by international
financial institutions, the long arms of its newfound ally, the United
States.
But, in truth, "modern", "stable", Russia is merely a glittering veneer
beneath which lurk, festering, the old ills of authoritarianism,
lawlessness, oligarchy, aggression, ignorance, superstition, and
repression mingled with extremes of poverty and disease. Here is one
safe prediction: none of these will diminish next year.
Russia Straddles the Euro-Atlantic Divide
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Also Read
The Janus Look
Russia's Second Empire
Russian Roulette - The Security Apparatus
Russia as a Creditor
Let My People Go - The Jackson-Vanik Controversy
The Chechen Theatre Ticket
Russia's Israeli Oil Bond
Russia's Idled Spies
Russia in 2003
Russian President Vladimir Putin warned on Tuesday, in an interview he
granted to TF1, a French television channel, that unilateral
American-British military action against Iraq would be a "grave
mistake" and an "unreasonable use of force". Russia might veto it in
the Security Council, he averred.
In a joint declaration with France and Germany, issued the same day, he
called to enhance the number of arms inspectors in Iraq as an
alternative to war.
Only weeks ago Russia was written off, not least by myself, as a
satellite of the United States. This newfound assertiveness has
confounded analysts and experts everywhere. Yet, appearances aside, it
does not signal a fundamental shift in Russian policy or worldview.
Russia could not resist the temptation of playing once more the
Leninist game of "inter-imperialist contradictions". It has long
masterfully exploited chinks in NATO's armor to further its own
economic, if not geopolitical, goals. Its convenient geographic sprawl
- part Europe, part Asia - allows it to pose as both a continental
power and a global one with interests akin to those of the United
States. Hence the verve with which it delved into the war against
terrorism, recasting internal oppression and meddling abroad as its
elements.
As Vladimir Lukin, deputy speaker of the Duma observed recently,
Britain having swerved too far towards America - Russia may yet become
an intermediary between a bitterly disenchanted USA and an irked Europe
and between the rich, industrialized West and developing countries in
Asia. Publicly, the USA has only mildly disagreed with Russia's
reluctance to countenance a military endgame in Iraq - while showering
France and Germany with vitriol for saying, essentially, the same
things.
The United States knows that Russia will not jeopardize the relevance
of the Security Council - one of the few remaining hallmarks of past
Soviet grandeur - by vetoing an American-sponsored resolution. But
Russia cannot be seen to be abandoning a traditional ally and a major
customer (Iraq) and newfound friends (France and Germany) too
expediently.
Nor can Putin risk further antagonizing Moscow hardliners who already
regard his perceived "Gorbachev-like" obsequiousness and far reaching
concessions to the USA as treasonous. The scrapping of the Anti
Ballistic Missile treaty, the expansion of NATO to Russia's borders,
America's presence in central Asia and the Caucasus, Russia's "near
abroad" - are traumatic reversals of fortune.
An agreed consultative procedure with the crumbling NATO hardly
qualifies as ample compensation. There are troubling rumblings of
discontent in the army. A few weeks ago, a Russian general in Chechnya
refused Putin's orders publicly - and with impunity. Additionally,
according to numerous opinion polls, the vast majority of Russians
oppose an Iraqi campaign.
By aligning itself with the fickle France and the brooding and
somnolent Germany, Russia is warning the USA that it should not be
taken for granted and that there is a price to pay for its allegiance
and good services. But Putin is not Boris Yeltsin, his inebriated
predecessor who over-played his hand in opposing NATO's operation in
Kosovo in 1999 - only to be sidelined, ignored and humiliated in the
postwar arrangements.
Russia wants a free hand in Chechnya and to be heard on international
issues. It aspires to secure its oil contracts in Iraq - worth tens of
billions of dollars - and the repayment of $9 billion in old debts by
the postbellum government. It seeks pledges that the oil market will
not be flooded by a penurious Iraq. It desires a free hand in Ukraine,
Armenia and Uzbekistan, among others. Russia wants to continue to sell
$4 billion a year in arms to China, India, Iran, Syria and other
pariahs unhindered.
Only the United States, the sole superpower, can guarantee that these
demands are met. Moreover, with a major oil producer such as Iraq as a
US protectorate, Russia becomes a hostage to American goodwill. Yet,
hitherto, all Russia received were expression of sympathy, claimed
Valeri Fyodorov, director of Political Friends, an independent Russian
think-tank, in an interview in the Canadian daily, National Post.
These are not trivial concerns. Russia's is a primitive economy, based
on commodities - especially energy products - and an over-developed
weapons industry. Its fortunes fluctuate with the price of oil, of
agricultural produce and with the need for arms, driven by regional
conflicts.
Should the price of oil collapse, Russia may again be forced to resort
to multilateral financing, a virtual monopoly of the long arms of US
foreign policy, such as the International Monetary Fund (IMF). The USA
also has a decisive voice in the World Trade Organization (WTO),
membership thereof being a Russian strategic goal.
It was the United States which sponsored Russia's seat at table of the
G8 - the Group of Eight industrialized states - a much coveted
reassertion of the Russian Federation's global weight. According to
Rossiiskaya Gazeta, a Russian paper, the USA already announced a week
ago that it is considering cutting Russia off American financial aid -
probably to remind the former empire who is holding the purse strings.
But siding with America risks alienating the all-important core of
Europe: Germany and France. Europe - especially Germany - is Russia's
largest export destination and foreign investor. Russia is not
oblivious to that. It would like to be compensated generously by the
United States for assuming such a hazard.
Still, Europe is a captive of geography and history. It has few
feasible alternatives to Russian gas, for instance. As the recent $7
billion investment by British Petroleum proves, Russia - and, by
extension, central and east Europe - is Europe's growth zone and
natural economic hinterland.
Yet, it is America that captures the imagination of Russian oligarchs
and lesser businesses.
Russia aims to become the world's largest oil producer within the
decade. With this in mind, it is retooling its infrastructure and
investing in new pipelines and ports. The United States is aggressively
courted by Russian officials and "oiligarchs" - the energy tycoons.
With the Gulf states cast in the role of anti-American Islamic
militants, Russia emerges as a sane and safe - i.e., rationally driven
by self-interest - alternative supplier and a useful counterweight to
an increasingly assertive and federated Europe.
Russia's affinity with the United States runs deeper that the
confluence of commercial interests.
Russian capitalism is far more "Anglo-Saxon" than Old Europe's. The
Federation has an educated but cheap and abundant labor force, a patchy
welfare state, exportable natural endowments, a low tax burden and a
pressing need for unhindered inflows of foreign investment.
Russia's only hope of steady economic growth is the expansion of its
energy behemoths abroad. Last year it has become a net foreign direct
investor. It has a vested interest in globalization and world order
which coincide with America's. China, for instance, is as much Russia's
potential adversary as it is the United State's.
Russia welcomed the demise of the Taliban and is content with regime
changes in Iraq and North Korea - all American exploits. It can - and
does - contribute to America's global priorities. Collaboration between
the two countries' intelligence services has never been closer. Hence
also the thaw in Russia's relations with its erstwhile foe, Israel.
Russia's population is hungry and abrasively materialistic. Its robber
barons are more American in spirit than any British or French
entrepreneur. Russia's business ethos is reminiscent of 19th century
frontier America, not of 20th century staid Germany.
Russia is driven by kaleidoscopically shifting coalitions within a
narrow elite, not by its masses - and the elite wants money, a lot of
it and now. In Russia's unbreakable cycle, money yields power which
leads to more money. The country is a functioning democracy but
elections there do not revolve around the economy. Most taxes are
evaded by most taxpayers and half the gross national product is anyhow
underground. Ordinary people crave law and order - or, at least a
semblance thereof.
Hence Putin's rock idol popularity. He caters to the needs of the elite
by cozying up to the West and, in particular, to America - even as he
provides the lower classes with a sense of direction and security they
lacked since 1985. But Putin is a serendipitous president. He enjoys
the aftereffects of a sharply devalued, export-enhancing,
imports-depressing ruble and the vertiginous tripling of oil prices,
Russia's main foreign exchange generator.
The last years of Yeltsin have been so traumatic that the bickering
cogs and wheels of Russia's establishment united behind the only
vote-getter they could lay their hands on: Putin, an obscure politician
and former KGB officer. To a large extent, he proved to be an agreeable
puppet, concerned mostly with self-preservation and the imaginary
projection of illusory power.
Putin's great asset is his pragmatism and realistic assessment of the
shambles that Russia has become and of his own limitations. He has
turned himself into a kind of benevolent and enlightened arbiter among
feuding interests - and as the merciless and diligent executioner of
the decisions of the inner cabals of power.
Hitherto he kept everyone satisfied. But Iraq is his first real test.
Everyone demands commitments backed by actions. Both the Europeans and
the Americans want him to put his vote at the Security Council where
his mouth is. The armed services want him to oppose war in Iraq. The
intelligence services are divided. The Moslem population inside Russia
- and surrounding it on all sides - is restive and virulently
anti-American.
The oil industry is terrified of America' domination of the world's
second largest proven reserves - but also craves to do business in the
United States. Intellectuals and Russian diplomats worry about
America's apparent disregard for the world order spawned by the horrors
of World War II. The average Russian regards the Iraqi stalemate as an
internal American affair. "It is not our war", is a common refrain,
growing commoner.
Putin has played it admirably nimbly. Whether he ultimately succeeds in
this impossible act of balancing remains to be seen. The smart money
says he would. But if the last three years have taught us anything it
is that the smart money is often disastrously wrong.
Russia's Stealth Diplomacy
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Also Read
The Janus Look
Russia's Second Empire
Russia as a Creditor
The Chechen Theatre Ticket
Russia's Israeli Oil Bond
Russia's Idled Spies
Russia in 2003
Russia Straddles the Euro-Atlantic Divide
Russian Roulette - The Security Apparatus
Let My People Go - The Jackson-Vanik Controversy
Possibly irked by persistent American U-2 aerial spy missions above its
fringes, Russia fired yesterday, from a mobile launcher, a "Topol"
RS-12M Intercontinental Ballistic Missile (ICBM).
On Wednesday, Agriculture Minister Alexei Gordeyev, offered Iraq aid in
the form of wheat. The Russian Grain Union, the industry lobby group,
claims to have already provided the besieged country with half a
million tons of grain under the oil-for-food program.
Russia linked with Syria in declining to approve the new oil-for-food
draft resolution as long as it implied a regime change in Iraq. The
Duma - having failed to ratify a key nuclear treaty with the USA -
called to increase defense spending by at least 3.5 percent of gross
domestic product, or about $4 billion this year.
Only 28 percent of Russians polled now view the United States
favorably, compared with 68 percent a mere few months ago. A majority
of 55 percent disapprove of the USA in a country that was, until very
recently, by far the most pro-American in Europe. A Russian telecom,
Excom, is offering unlimited free phone calls to the White House to
protest U.S. "aggression".
Washington, on its part, has accused the Russian firm, Aviaconversiya,
of helping Iraqi forces to jam global positioning system (GPS) signals.
Other firms - including anti-tank Kornet missile manufacturer, KBP Tula
- have also been fingered for supplying Iraq with sensitive military
technologies.
These allegations were vehemently denied by President Vladimir Putin in
a phone call to Bush - and ridiculed by the companies ostensibly
involved. Russia exported c. $5 billion of military hardware and
another $2.6 billion in nuclear equipment and expertise last year,
mostly to India and China - triple the 1994 figure.
Russia and the United States have continually exchanged barbs over the
sale of fission technology to Iran. In retaliation, Atomic Energy
Minister, Alexander Rumyantsev, exposed an Anglo-German-Dutch deal with
the Iranians, which, he said, included the sale of uranium enrichment
centrifuges.
Is Putin reviving the Cold War to regain his nationalist credentials,
tarnished by the positioning, unopposed, of American troops in central
Asia, the unilateral American withdrawal from the Anti-Ballistic
Missile (ABM) treaty and the expansion of NATO and the European Union
to Russia's borders?
Or, dependent as it is on energy exports, is Russia opposed to the war
because it fears an American monopoly on the second largest known
reserves of crude? Russia announced on Thursday that it would insist on
honoring all prewar contracts signed between Iraq and Russian oil
companies and worth of billions of dollars - and on the repayment of
$8-9 billion in Iraqi overdue debt to Russia.
According to Rosbalt, every drop of $1 in oil prices translates into
annual losses to the Russian treasury of $2 billion. Aggregate
corporate profits rose in January by one fifth year on year, mostly on
the strength of surging crude quotes. The Economist Intelligence Unit
expects this year's GDP to grow by 3.8 percent. Foreign exchange
reserves are stable at $54 billion.