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Crisis equals opportunity. At least Vladimir Putin seems to think so. Remember the fall of 2004, when the crisis of the horrific Beslan school hostage taking and a spate of other terrorist incidents was deftly turned into an opportunity to eliminate direct representation in the Duma and the popular election of regional executive-branch heads?

So too the current economic crisis is an opportunity for some. Recently the indefatigable Paul Goble blogged about how Russian pawnshops are thriving in the hard times. In general, it seems to be a good time for moneylenders who have money.

And in Russia, that means the government. Today economist and former Duma Deputy Aleksei Mikhailov published on a stunning analysis of the way the government, particularly through the state corporation Vneshekonombank, is making hay. In fact, he predicts that when the dust settles, the current crisis will result in a redistribution of property "that is comparable in scale to what happened in the early 1990s."

Analysts including Vladimir Milov, Andrei Illarionov, and Mikhail Delyagin have been warning for some time now that Russian corporate debt to Western financial institutions is a major vulnerability. Now that the crisis has reduced the value of their shares, many companies are having trouble coming up with their loan payments -- which Mikhailov estimates total some $40 billion before the end of this year and another $110 billion in 2009. There are a lot of desperate borrowers out there. Mikhail Fridman's Alfa Group recently put up as collateral for a $2 billion loan a packet of shares in telecoms firm Vimpelkom that less than a year ago was valued at more than $20 billion.

Mikhailov analyzes the details of the crisis-response package enacted by the Russian government and concludes that the powers given to Vneshekonombank "clearly go beyond the scope of banking and open the field for making 'political' decisions about the fate of controlling stakes in major Russian enterprises." Such decisions might not necessarily involve nationalization (although they could), but could take the form of handing companies to selected individuals. The first major loan the bank extended after the crisis package was adopted was a $4.5 billion credit to Oleg Deripaska's RusAl group -- even though the regulations say the bank cannot lend more than $2.5 billion to any company or group of companies. Apparently, the big stake in Norilsk Nickel that Deripaska put up as collateral was too tempting.

It should be noted that the money Vneshekonombank is lending came directly from the National Welfare Fund. And that Prime Minister Vladimir Putin is head of the bank's oversight board, which held its most recent meeting on December 1.

And what are Vneshekonombank's conditions? First, it has the right to demand any collateral it likes and to demand additional guarantees (including "the guarantees of individual persons" -- broken kneecaps?) at any time. Second, the borrower cannot take any loans or issue any additional shares without Vneshekonombank's permission. That is, the bank could easily be in a position to decide whether the borrower can repay the loan or not and how. The borrower cannot sell any assets without the bank's permission. Representatives of the bank can be placed within the management of borrowing companies.

Another aspect of the crisis-response package that alarms Mikhailov is the utter lack of transparency. The bank is accountable to no one except its own oversight board, chaired by Putin. On November 21, the bank issued a typically informative press release: "The oversight board approved the participation of Vneshekonombank in the refinancing of a series of deals by enterprises in the metals-mining industry and microelectronics, whose activity is of important socioeconomic significance for the Russian Federation, for a total sum of $2 billion." Ten billion dollars have already been spent and another $40 billion is in the wings. And Putin knows where he can get more.

Looks like it is a good time to be running a pawnshop in Russia.

-- Robert Coalson

About This Blog

The Power Vertical
The Power Vertical

The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It offers Brian's personal take on emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or


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