Alternative Insight

Putin is no Rasputin

Returning Russia to being a World Power

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The consensus is that Russian President Putin has been dealt a bad hand and therefore cannot succeed in rehabilitating a debilitated and economically reduced nation. Nevertheless, the Russian president is a clever diplomat who keeps his cards close to the vest, doesn't show his true feelings and has a few trump cards for returning Russia to being a world power. His designs and strategies for rebuilding Russia deal from nationalism, which means diminishing foreign influences and not following the dictates of other world powers. By presenting a strong counter thrust to the aggressive tactics of the United States that have threatened the world with perpetual conflagrations, Putin's Russia can contribute to world stability.

Putin has obvious and hidden strengths to make Russia a major power.

Obvious Strengths
The expanding global system will expand markets. However, severe competition and the increased costs for energy and raw materials will limit the profits in manufactured goods. Russia has the energy and raw materials: abundant cement, iron, coal, petroleum, natural gas, and minerals. The ever growing demand for the limited and declining resources will generate increasing revenue for Russia and give that nation an economic advantage that can be translated into a political advantage. The world needs the Russia that it previously ignored.

As one example, Japan wants a 2,300-mile pipeline from the Siberian oil fields to the Siberian coast. China wants a 1,400-mile Siberian pipeline that goes south to China's northeastern city Daqing. Japan has offered to finance the $5 billion pipeline, develop the Siberian oil fields for $7 billion and subsidize other Russian projects for an additional $2 billion.

The power that Putin's new Russia will derive from its economic advantage is complemented by the military strength of its nuclear capability, an immense arsenal of nuclear bombs and land, sea and air systems for delivering the bombs to any place in the world. Russia's nuclear weapons can neutralize U.S. military power. Moscow's one-two punch will attract nations that fear U.S. military might and its global reach. Nations that desire an umbrella of security for sovereign survival and need a rainfall of vital resources for economic survival will partner with Putin's new Russia.

Hidden strengths
Putin's greatest strength is his almost total support by the Russian people. His "managed democracy" of quasi-liberal economics and dictatorial politics echoes well for a people that have supported cooperative enterprises and tolerated some autocratic rule. His comments have a pleasant ring for a deprived people. The Russian president said at a recent conference"All decisions in this sphere, and also State Duma debates, should seek to improve the life of citizens and make the system more socially balanced and fair." He then raised budget allowances to WWII veterans by 20 times and by ten times for the disabled.

Although, the Russian liberal parties complained that "excessive use of administrative resources in the electoral campaigns led to a distortion of the final results of the Duma election," (what else is new?) Putin's United Russia Party received 37% of the vote, far more than the next vote-getter, the Communist Party, which received 12.7%. In the Presidential election, Vladimir Putin received an overwhelming 72.1% of the vote.

Nothing succeeds like success and Putin can show success. With the high oil prices working in his favor, the economic statistics reflect a dynamic growth in Russia's GDP since he entered office. And that's not all.

Many of Putin's economic reforms are impressive. Since becoming president, he and the pro-Putin Duma have passed into law a series of fundamental reforms, including a flat income tax of 13 percent, a reduced profits tax, and new land and legal codes. Under Putin, the Russian government has balanced the budget several years in a row and now no longer relies on Western loans for support.

In parallel with these reforms, Russia's economy has boomed. Sparked by the devaluation of the ruble in 1998 and then rising oil prices, the economy has grown every year since 1999. Foreign direct investment hit an all time high in 2003, hard currency reserves are bursting, inflation is modest and real per capita incomes have grown by more than a third in four years.
The Putin Paradox by Michael McFaul, Center for American Progress, June 24, 2004,

Putin's heavy handed tactics have demolished his opposition, subdued media attacks against him and transgressed some democratic procedures and provoked criticism. Actually, in many western countries, especially Latin American, and at times, the United States (Nixon and his Watergate, President George W. Bush and his Patriot Act, even revered FDR and his constitutional neglects, the CIA and its assassinations ) Putin's tactics would be challenged but would be considered less extreme measures. His present exceptions come from his treatment of the oligarchs, those who took advantage of Russia's decade of "crony capitalism" to enrich themselves at the expense of the entire country. There might be more to this confrontation than is readily apparent.

The Attack on the Oligarchs
It was inevitable that those who had gained excessive wealth and power from a system, in which most had little, would someday have to return much of their wealth to the community and be stripped of their power. So, what's the problem?

Although the complete facts are not available to those outside the inner confines of the Kremlin, Putin's wrath with the oligarchs transcends their financial ransacking of the country. It includes transfers of assets to foreign sources. It's noteworthy that Putin arrested Mikhail Khodorkovsky when Chevron Oil announced it was prepared to purchase twenty-five percent of Khodorkovsky's company, Yukos oil. Add Roman Abramovich's (Sibneft oil's major shareholder) transfer of Russian assets to buy a foreign football club, Britain's Chelsea soccer team, which would irk any nationalist.

Putin might be proceeding against the oligarchs for several reasons:

• He wants to right a wrong, which is the diversion of national resources and wealth into the hands of a few. It has been reported that Putin privately met the oligarchs shortly after coming to power and promised that if they paid their taxes and stayed out of politics the state would not "revisit" the illicit origins of their fortunes. He has arrested Khodorkovsky for violating the pact.
• He sees the opportunity to seize the assets of the industries owned by the oligarchs and return these assets to the state. Many companies have found loopholes in the tax laws and used them to avoid taxes. The favorite loophole is to incorporate companies in provinces that have special tax breaks. By demanding that Yukos pay $3.5 billion in back taxes, (since raised to $7.5 billion) while Yukos only has $1 billion in its treasury, will bring Yukos close to bankruptcy and force Yukos to sell off assets to raise capital. The state can capture Yukos' assets and own a large percentage of Yukos.
• He fears the oligarchs might sell the natural resources of his country to foreign corporations or governments that Putin does not favor. During Yeltsin's reign, capital fled Russia in huge amounts. Roman Abramovich, oil giant Sibneft's major shareholder, and Boris Berezovsky, who once controlled automobile factories, media, banks, airlines and oil firms, transferred wealth to other countries, notably Great Britain. Boris Berezovsky, who uses a new name, Platon Ilyich Yelenin, while traveling outside of Russia, has been granted political asylum in Britain. Vladimir Gusinsky, the founder of independent NTV network in 1993, invested in Israel and sought asylum for awhile in Israel after being indicted for fraud. Several of Khodorkovsky's associates have fled to Israel. Agence France-Presse, November 03, 2003 reported that control of Mikhail Khodorkovsky's shares in the Russian oil giant Yukos have passed to British banker Jacob Rothschild, under a deal concluded prior to Khodorkovsky's arrest.
• He fears that, since several of the oligarchs are of the Jewish faith, it is possible that Israel might try to influence them to obtain special consideration, especially in the purchases of gas and oil. Putin is more aligned with the Arab nations and any special consideration to Israel would be against his foreign policy and disturb his relations with Arab leaders.
• He realizes wealth generates more wealth and power and the concentration of wealth in the hands of a few will, sooner or later, means a transfer of power to those who have gathered the wealth. Forbes magazine estimates that the 100 richest Russian oligarchs have a combined wealth amounting to twenty-five percent of their country’s GDP. All the billionaires in America combined only represent 6% of GDP. Putin must halt the concentration of wealth before political power shifts to those who have economic power and before the shift cannot be easily reversed.

The attacks on Putin, inside and outside of Russia, might be organized by the oligarchs and their associates. By reigning in the oligarchs, Putin will be able to control a source of dissent and political competition. He can then reconstruct Russia in accord with his designs. To make Russia an international power, he will need international friends. He can find them in the growing Asian powerhouses - China and India.

The Asian Connection
China and India have always been suspicious of a western world, whose imperialism ransacked the two countries. India was one of the non-aligned nations throughout the Cold War. Russia, China and India uphold the use of the United Nations Security Council in resolution of international disputes and support the principle of non-interference in the internal affairs of sovereign states. All three were against the U.S. invasion of Iraq. Together, they can provide an opposition to U.S. unilateral and pre-emptive actions and create a bamboo curtain that prevents U.S. influence, that now extends deep into the Arab world, from entering Asia central. Apart from shared concerns about US dominance extending throughout the world, Russia, China and India share other concerns. They contend with militant Islamic groups, share transgressed borders and need stability in Central Asia.

A North-South alliance is developing between China, India and Russia. Some news reports:

Ex-foreign minister of Russia Yevgeny Primakov coined the formula of "Russia-India-China strategic triangle" in 1998. Earlier this year, the Russian foreign minister Igor Ivanov was quoted by 'The Hindu' as saying "Trilateral interaction is important for global stability…Dialogue between Beijing, Delhi and Moscow will be carried forward".

The three countries, dubbed the future 'locomotives of world growth', were brought together by a common desire to challenge unfettered American hegemony. They also faced a common adversary in Central Asia: terror that fueled secessionist movements in Kashmir (India), Chechnya (Russia) and Xinjiang (China). The three foreign ministers have already met twice and now plan to summit together at Russia in a move sure to give a boost to trilateral cooperation. Economic factors like the need to evolve a strategy to counter globalization also forces marginalized economies to join hands.
Triangular Alliances Involving India, Rajesh Tembarai Krishnamachari,
South Asia Analysis Group, Paper no. 829, 03. 11. 2003

The presidents of China, Russia and four Central Asian nations met Thursday, June 17, 2004 to breathe life into a security alliance and open an anti-terrorism center, part of efforts by Beijing and Moscow to counter the U.S. military presence in the region. Burt Herman, AP

NEW DELHI, OCT 4, 2000: Giving a new thrust to defence ties, India and Russia today signed four major agreements for purchase of aircraft carrier Admiral Gorshkov, 310 frontline T-90 main battle tanks and licensed production in India of 140 multi-role SU-30 MKI jet fighters, estimated at over $3 billion.

During Putin's first term, China purchased billions of dollars of jet aircraft, missiles, submarines and armaments. Russia does not observe the European Union arms embargo on Beijing, and Moscow supplies more than 80 percent of the Asian country's imported arms. Russia also supplies technological-industrial assistance to China's defense industry, which produces Su-27 fighters under license from Russia.

With Russia's economy advancing and its military gaining additional capability, Putin has grown more confident to act independently.

Returning to be a World Power
Russia is acting fearlessly and independently. Putin did this when he refused an invitation to attend the NATO summit in Istanbul on June 28-29, 2004 and sent Foreign Minister, Sergei Lavrov, for a session of the NATO-Russia Council. In all Security Council meetings, Russia has voted without intimidation or fear of retaliation.

Russia remains a formidable military power. Russia's arms exports indicate it has desirable armaments in huge quantities. Russia delivered US$12.5 billion worth of arms from 1999-2002, exporting major quantities to India and China. Even Mexico is purchasing military equipment from Russia:

MEXICO CITY – President Vicente Fox says his country hopes to expand military cooperation with Russia, assembling some Russian helicopters here and importing a mixed civilian-military factory. AP, June 3, 2004

Russia is creating a viable and growing economy. Statistics are debatable, and in a country of high inflation and fluctuating currency, it is difficult to accurately describe the Gross Domestic Product (GDP). Nevertheless, statistics show Russia's economy growing at elevated rates. The Russian Economy Ministry claims the Gross Domestic Product, which calculates to between $400-$650 billion, grew 8.3 percent in January-February 2004 compared to the corresponding period last year. If the oil price remains close to $40 per barrel, the GDP will increase at a faster rate. Putin has a goal of doubling the Russian economy by 2010 and reducing inflation to 3%.The International Monetary Fund (IMF) has described the GDP goal as ambitious but attainable. The IMF has found the objective of bringing inflation to 3% a year to be realistic.

Russia is stabilizing its economic and social structures. An unstable world and a war in Chechnya that promotes terrorism handicap Putin's attempts to stabilize his nation.Terrorists and organized criminals are still active throughout Russia.

Note: Personnel positions, statements and facts are as known on July 1, 2004.

• Among the general public, there is not undue antagonism to the regime. Antagonism to the government occurs mostly from parties, groups and individuals that did well during the Yeltsin era and now feel they have been disenfranchised.
• The Finance Ministry expects a federal budget surplus of 58bn rubles (about $2bn), or 1.7 percent of the GDP (ED: according to the Finance Ministry), in the first quarter of 2004.
• Central Bank of Russia Chairman Sergei Ignatyev said that inflation has been lowered, growing at 5.3% in January-May 2004, against 7.1% in the same period last year.
• Investment adviser Moody raised Russia's long-term hard-currency rating to Baa3, which is investment level, from Ba2. Standard&Poor's and Fitch rate Russia a notch below investment grade.
• Russian Prime Minister Mikhail Kasyanov said at a recent government meeting that Russia’s public debt has dropped to 33 percent of GDP. In 1999, Russia's public debt was equal to the nation's GDP. Russia’s comparable public debt is much lower than European Union countries, where the lowest debt level is about 60 percent of the GDP.
• Putin has behaved diplomatically and established excellent relations with all the world's countries. Two countries with which he has tenuous relations are the United States of America and Israel. These tenuous relations could become more strained in the future.

The United States and Russia have differed in most aspects of their foreign policies. Moscow opposes America's present doctrines of pre-emption and unilateralism. In America's conflicts with Iran, Iraq, partly with North Korea and in the Middle East crisis between Israel and the Palestinians, Russia has taken contrary positions to those of the United States. The U.S. has been critical of Russia's arm sales to Iran and China and to its pre-war business dealings with Saddam Hussein's Iraq.

Russia is perturbed by America's reckless use of energy resources. The United States pursues oil and gas resources and agreements for pipelines to deliver the resources to ports. Many of the untapped resources are located in the former Soviet Republics that border on Russia and with which Moscow has much influence. Russia and U.S. interests could collide in the former Soviet Asian Republics.

Russia's military, still potent due mostly to its nuclear capability, poses a challenge to U.S. world hegemony. History shows that the two most militarily powerful nations confront each other more than cooperate with one another. At the moment they are trying to cooperate. Putin met with Bush on several occasions and each meeting hasn't had more results than having the two presidents agree to agree. President Bush's patronizing attitude towards President Putin ("He's a fellow I could spend quality time with.") couldn't have pleased Putin.

Israel and Russia also clash in vital policies. Russia has good relations with Arab countries, and Israel's conflict with Russia's friends polarizes the two countries. Russia has supported all UN resolutions that demand Israel's withdrawal from the occupied territories. Israeli deputy Prime Minister Ehud Olmert has been quoted: "Russia has stated unequivocally that it is categorically against the 'dividing wall' which is being built by Israel."

Iran is the flash point for Russia and Israel. Russia is comfortable to supply Iran with all of its needs in atomic energy development. Israel aggressively wants to prevent Iran from developing nuclear weapons that could counter Israel's nuclear weapons. Considering the extent of differences between Israel and Russia, it's hardly likely that the two nations will become amicable in the near future. Putin might even be amenable to having Iran develop the military power to neutralize Israel's perceived aggressive tactics in the Middle East.

Russia's other argument with Israel is related to the Yukos affair and to Mikhail Khodorkovsky. Three of the oligarch's associates - Leonid Nevzlin, Vladimir Dubov and Mikhail Brudno - fled to Israel and offered to surrender the major shareholders’ controlling stake in return for the release from jail of Khodorkovsky's key associate, Platon Lebedev, and Yukos’s former head of security, Alexei Pichugin. Putin can't be pleased with Israel allowing Russian fugitives a base of operations within its land.

Russia's ascent to again becoming a world power still has years to go. The trajectory of this ascent indicates conflicts with America and Israel. Are we witnessing a return to the Cold War or are we again in a Cold War, except that Americans and not Russians are in Afghanistan and Europeans side with Moscow and not Washington?

alternativeinsight
july, 2004

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