The world outside our door...
Am I the only one who thinks Russia is getting ready for an express trip to hell in a hand-basket? Apparently a bunch of security-service and ex-KGB-types have formed a Junta and are now consolidating control by re-appropriating major assets. Not like I'm crying for the mafia types they're ripping off, but...
(Note: the information above has not been verified.)
STABILITY? WHAT STABILITY?
OCTOBER 29TH 2003
There is no shortage of theories about why Russia's president approved
the arrest of the country's richest man. Whatever the motive, the move
has unnerved investors
MOST observers at least agree on one thing now: that the prosecutors'
campaign against Russia's biggest oil company, Yukos, which culminated
at the weekend in the arrest of its boss and major shareholder, Mikhail
Khodorkovsky (pictured), had President Vladimir Putin's approval.
Nobody but he, it is generally assumed, could sanction the arrest of
the country's richest man and most public businessman. But Mr Putin is
unlikely to approve of the way in which the arrest has become something
of a political and macroeconomic crisis, leading to accusations of foul
play and shaking the Moscow stock exchange and the rouble. Indeed, the
affair has left a lot of investors feeling almost as uncomfortable as
Mr Khodorkovsky.
Since the first arrest of a Yukos shareholder, Platon Lebedev, in July,
followed by a series of investigations into misdeeds at Yukos and
related companies, Moscow has been awash with conspiracy theories about
the motive behind it all. Mr Khodorkovsky was clearly a threat to the
power both of the state itself and of people linked to state-owned
businesses. He reputedly used his lobbying power in parliament to block
a draft law on oil-industry taxation, had spoken out against the
government's policy on pipelines, alleged that there were corrupt deals
in state firms in a public meeting with Mr Putin, and hinted at
political ambitions in the future.
But was the campaign against Yukos initiated by Mr Putin, in response
to Mr Khodorkovsky's increasing political influence? Or was it, as
Yukos itself has repeatedly alleged, the work of a group of Kremlin
cronies, most from a security-service background, fighting for control
against another Kremlin clan close to big business? Was the ultimate
goal to confiscate Mr Khodorkovsky's wealth, to put out his political
fire, or just to carve off a slice of the empire that he has built up
since acquiring state assets for a song in the 1990s, as several other
top "oligarchs" did? Was it an attempt to scare foreign companies away
from buying a stake in Yukos--both ExxonMobil and ChevronTexaco have
been discussing just such a move--so that Russian oil would remain in
Russian hands? Or was it merely an attempt to get rid of Mr
Khodorkovsky himself before they buy, since with a big foreign partner
he would be virtually untouchable?
The most probable explanation is some mixture of them all. Mr
Khodorkovsky had made more than enough enemies to get into trouble. All
the same, some think that Mr Putin, like Henry II asking who would rid
him of the meddlesome priest Thomas a Becket, may have authorised the
investigations into Yukos without realising what they might lead to. Or
he may simply have thought that Mr Khodorkovsky would do the rational
thing and back down. Instead, however, the oil baron went on making
speeches about his persecution, buying a newspaper (oligarch-controlled
media companies are one of Mr Putin's great bugbears) and continuing to
use his political influence: earlier this month, no less than 101
members of the Duma, the lower house of parliament, signed a letter to
the chairman of the court that is investigating Yukos, complaining
about the alleged mistreatment of one of the suspects. Alexander
Voloshin, the Kremlin's chief of staff and no friend of the
secret-service clan that has been out to get Mr Khodorkovsky, has
apparently tendered his resignation over the oil man's arrest, though
the Kremlin has not confirmed this.
On the face of it, the hounding of Mr Khodorkovsky is similar to the
campaigns against Vladimir Gusinsky and Boris Berezovsky, two other
magnates who were stripped of most of their assets and chased out of
Russia three years ago. Then, too, Mr Putin feigned distance from the
affair; but it became clear that the two men, both of them close
advisers to Mr Putin's predecessor, Boris Yeltsin, were being punished
for refusing to stick to the terms of Mr Putin's bargain with the
oligarchs to stay out of politics. After they left, those businessmen
who kept to the rules were free to keep increasing their wealth.
There has, predictably, been an outcry about the damage that Mr
Khodorkovsky's arrest could do to investor confidence. The Russian
stockmarket, and Yukos in particular, crashed within the first few
minutes of trading on Monday. The RTS stock index regained some of its
lost ground by the close (though on Wednesday Yukos shares dipped again
on news that prosecutors were seeking to have another big Yukos
shareholder, Vasily Shakhnovsky, stripped of his parliamentary immunity
so he can face charges of tax evasion). Popular as Yukos had been among
investors, plenty of other companies are doing well, and even Yukos may
well survive the excision of its top managers only slightly bruised.
The group's new chief operating officer, Steven Theede, is minding the
store in Mr Khodorkovsky's absence, and Standard & Poor's, a
credit-rating agency, was quick to say that it does not think the
company's creditworthiness has fallen.
Meanwhile, for foreigners who do business in Russia, Mr Khodorkovsky's
arrest is unnerving but it will not necessarily change their views;
most already know that their best protection is still not the law but
their KRYSHA, or "roof"--a well-connected power broker. Mr Putin, the
best-connected power broker of them all, said on Monday that he would
not enter into any bargains to limit the Yukos investigation, but
neither would he extend it into a broader campaign against those who
got rich in the 1990s. He called for an end to "all speculation and
hysteria" about the arrest.
Hysterical or not, some rich Russians do now feel their country a less
safe place to be rich in. The net capital inflows that drove up the
stockmarket earlier this year have turned into net capital flight since
Mr Lebedev's arrest. A few oligarchs, such as Roman Abramovich, the oil
magnate who bought Chelsea football club, have been steadily selling
off their Russian assets. Others have simply left: Leonid Nevzlin, one
of Mr Khodorkovsky's associates, recently applied for Israeli
citizenship. The oligarchs' money had a big role to play in building up
Russia's economy; an important source of the growth that Mr Putin
desperately wants is going to be lost.
And while the purges of Mr Gusinsky and Mr Berezovsky might have been
excused as a new president's house-cleaning and a way to bring some
stability after the chaotic Yeltsin years, the attack on Mr
Khodorkovsky shows that stability is somewhat illusory. Though the laws
and conditions for investment have improved greatly in the past few
years, there remains an underlying conflict between capital and the
state, a by-product of Russia's enormous concentration of wealth.
Economic reform will not solve that; only economic diversification, a
much slower process, will.
See this article with graphics and related items at http://www.economist.com/agenda/displayStory.cfm?story_id=2170839
On an unrelated note, has everyone stopped posting on LJ, or have you just blocked me from viewing their journals?--I'm looking at you Avironeur, Jake, and Bob...
(Note: the information above has not been verified.)
STABILITY? WHAT STABILITY?
OCTOBER 29TH 2003
There is no shortage of theories about why Russia's president approved
the arrest of the country's richest man. Whatever the motive, the move
has unnerved investors
MOST observers at least agree on one thing now: that the prosecutors'
campaign against Russia's biggest oil company, Yukos, which culminated
at the weekend in the arrest of its boss and major shareholder, Mikhail
Khodorkovsky (pictured), had President Vladimir Putin's approval.
Nobody but he, it is generally assumed, could sanction the arrest of
the country's richest man and most public businessman. But Mr Putin is
unlikely to approve of the way in which the arrest has become something
of a political and macroeconomic crisis, leading to accusations of foul
play and shaking the Moscow stock exchange and the rouble. Indeed, the
affair has left a lot of investors feeling almost as uncomfortable as
Mr Khodorkovsky.
Since the first arrest of a Yukos shareholder, Platon Lebedev, in July,
followed by a series of investigations into misdeeds at Yukos and
related companies, Moscow has been awash with conspiracy theories about
the motive behind it all. Mr Khodorkovsky was clearly a threat to the
power both of the state itself and of people linked to state-owned
businesses. He reputedly used his lobbying power in parliament to block
a draft law on oil-industry taxation, had spoken out against the
government's policy on pipelines, alleged that there were corrupt deals
in state firms in a public meeting with Mr Putin, and hinted at
political ambitions in the future.
But was the campaign against Yukos initiated by Mr Putin, in response
to Mr Khodorkovsky's increasing political influence? Or was it, as
Yukos itself has repeatedly alleged, the work of a group of Kremlin
cronies, most from a security-service background, fighting for control
against another Kremlin clan close to big business? Was the ultimate
goal to confiscate Mr Khodorkovsky's wealth, to put out his political
fire, or just to carve off a slice of the empire that he has built up
since acquiring state assets for a song in the 1990s, as several other
top "oligarchs" did? Was it an attempt to scare foreign companies away
from buying a stake in Yukos--both ExxonMobil and ChevronTexaco have
been discussing just such a move--so that Russian oil would remain in
Russian hands? Or was it merely an attempt to get rid of Mr
Khodorkovsky himself before they buy, since with a big foreign partner
he would be virtually untouchable?
The most probable explanation is some mixture of them all. Mr
Khodorkovsky had made more than enough enemies to get into trouble. All
the same, some think that Mr Putin, like Henry II asking who would rid
him of the meddlesome priest Thomas a Becket, may have authorised the
investigations into Yukos without realising what they might lead to. Or
he may simply have thought that Mr Khodorkovsky would do the rational
thing and back down. Instead, however, the oil baron went on making
speeches about his persecution, buying a newspaper (oligarch-controlled
media companies are one of Mr Putin's great bugbears) and continuing to
use his political influence: earlier this month, no less than 101
members of the Duma, the lower house of parliament, signed a letter to
the chairman of the court that is investigating Yukos, complaining
about the alleged mistreatment of one of the suspects. Alexander
Voloshin, the Kremlin's chief of staff and no friend of the
secret-service clan that has been out to get Mr Khodorkovsky, has
apparently tendered his resignation over the oil man's arrest, though
the Kremlin has not confirmed this.
On the face of it, the hounding of Mr Khodorkovsky is similar to the
campaigns against Vladimir Gusinsky and Boris Berezovsky, two other
magnates who were stripped of most of their assets and chased out of
Russia three years ago. Then, too, Mr Putin feigned distance from the
affair; but it became clear that the two men, both of them close
advisers to Mr Putin's predecessor, Boris Yeltsin, were being punished
for refusing to stick to the terms of Mr Putin's bargain with the
oligarchs to stay out of politics. After they left, those businessmen
who kept to the rules were free to keep increasing their wealth.
There has, predictably, been an outcry about the damage that Mr
Khodorkovsky's arrest could do to investor confidence. The Russian
stockmarket, and Yukos in particular, crashed within the first few
minutes of trading on Monday. The RTS stock index regained some of its
lost ground by the close (though on Wednesday Yukos shares dipped again
on news that prosecutors were seeking to have another big Yukos
shareholder, Vasily Shakhnovsky, stripped of his parliamentary immunity
so he can face charges of tax evasion). Popular as Yukos had been among
investors, plenty of other companies are doing well, and even Yukos may
well survive the excision of its top managers only slightly bruised.
The group's new chief operating officer, Steven Theede, is minding the
store in Mr Khodorkovsky's absence, and Standard & Poor's, a
credit-rating agency, was quick to say that it does not think the
company's creditworthiness has fallen.
Meanwhile, for foreigners who do business in Russia, Mr Khodorkovsky's
arrest is unnerving but it will not necessarily change their views;
most already know that their best protection is still not the law but
their KRYSHA, or "roof"--a well-connected power broker. Mr Putin, the
best-connected power broker of them all, said on Monday that he would
not enter into any bargains to limit the Yukos investigation, but
neither would he extend it into a broader campaign against those who
got rich in the 1990s. He called for an end to "all speculation and
hysteria" about the arrest.
Hysterical or not, some rich Russians do now feel their country a less
safe place to be rich in. The net capital inflows that drove up the
stockmarket earlier this year have turned into net capital flight since
Mr Lebedev's arrest. A few oligarchs, such as Roman Abramovich, the oil
magnate who bought Chelsea football club, have been steadily selling
off their Russian assets. Others have simply left: Leonid Nevzlin, one
of Mr Khodorkovsky's associates, recently applied for Israeli
citizenship. The oligarchs' money had a big role to play in building up
Russia's economy; an important source of the growth that Mr Putin
desperately wants is going to be lost.
And while the purges of Mr Gusinsky and Mr Berezovsky might have been
excused as a new president's house-cleaning and a way to bring some
stability after the chaotic Yeltsin years, the attack on Mr
Khodorkovsky shows that stability is somewhat illusory. Though the laws
and conditions for investment have improved greatly in the past few
years, there remains an underlying conflict between capital and the
state, a by-product of Russia's enormous concentration of wealth.
Economic reform will not solve that; only economic diversification, a
much slower process, will.
See this article with graphics and related items at http://www.economist.com/agenda/displayStory.cfm?story_id=2170839
On an unrelated note, has everyone stopped posting on LJ, or have you just blocked me from viewing their journals?--I'm looking at you Avironeur, Jake, and Bob...