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Russia Report: March 29, 2006

29 March 2006, Volume 6, Number 7
U.S. Secretary of State Condoleezza Rice has said the United States will seek explanation from Moscow about Russia allegedly passing information to Saddam Hussein. A recent Pentagon report claims that Russia leaked information on U.S. military plans during the 2003 invasion of Iraq. Some U.S. analysts downplay those allegations. But in Russia, the report is viewed by many as the latest setback in deteriorating bilateral relations.

According to the report, released last week by the Pentagon, two Iraqi documents seized in 2003 indicate that Russia tipped off Hussein on U.S. troop movements in the early days of the U.S.-led invasion of Iraq.

The report claims Moscow obtained battlefield intelligence from sources inside the U.S. military's central command headquarters in Qatar. The intelligence was allegedly channeled through Russia's ambassador in Baghdad.

Speaking on U.S. television on March 26, Rice expressed concern about the Pentagon's findings and said Russia should "take that very seriously as well."

She said the Bush administration intended to take up the issue with Moscow.

"We will most certainly raise it with the Russian government," Rice said. "I have said several times [that] it is a serious matter, but I don't want to jump out ahead and start making accusations about what the Russians may or may not have known. This is something in a relationship that we have with the Russians that really is candid and where we do talk about difficult things all the time, where I think we will be able to talk about this and talk about it honestly."

Rice said Washington was open to the possibility that Russian intelligence passed the information to Iraq without Moscow's knowledge or other involvement. The Bush administration, she said, will therefore take what she described as "a real hard look" at the documents before questioning Russia. But Rice added that the report, if true, would be "very worrying."

Some U.S. observers, however, say no one should find it odd that Russian intelligence would provide strategic intelligence to the Iraqi government.

James Goldgeier, a professor of political science and international affairs at George Washington University in Washington, D.C., says it is common knowledge that Russia has helped Iraq both militarily and financially over the years, and notes that Hussein's government had a large outstanding debt to Moscow before the war.

Goldgeier plays down the political impact of the Pentagon report, describing the U.S. response as moderate.

"If the Russians did help the Iraqis in a way that may have cost American casualties, then the United States has to take that very seriously," Goldgeier said. "But I think, actually, the response has not been particularly dramatic. The implication [of the U.S. response] is that Russian intelligence officers [were] acting in ways that the Russian government should look into. But there's been no [U.S.] effort to beat up the Russian government itself."

Russia, however, has so far shown little inclination to be, as Rice hoped, "candid" with the United States about its intelligence activities at the start of the Iraq war.

Russia's Foreign Intelligence Service has dismissed the accusations as "groundless" and refused further comment.

Foreign Minister Sergei Lavrov said on March 27 that Washington had "hidden political motives" for publishing the report now. On March 28, Defense Minister Sergei Ivanov called the spying allegations "nonsense."

Dmitry Trenin, a foreign policy expert at the Carnegie Center in Moscow, predicts the Russian authorities will eventually react by crying foul over the timing of the report. It comes just months before Russia holds its first summit of the G-8 group of industrialized nations in July.

"I am not expecting any declaration from Moscow other than a debate on the fact that the revelation of this information, three years after the beginning of the operation in Iraq, is a way of discrediting Russia in the year during which it heads the G-8," Trenin said. "I think this will mark yet another chill in Russian-U.S. relations."

Rice, who served as Bush's national-security adviser at the start of the Iraq war, said she knew nothing of the Pentagon report at the time.

While Rice's public statements on the report have been carefully worded, news that Russia could have deliberately put U.S. troops at risk has generated more passionate reactions in Congress.

Republican Senator Pat Roberts (Kansas), who heads the Senate Intelligence Committee, said he was not surprised that Russia may have been spying.

"I don't want to cause a major flap here," he said, "but that's what they do."

Some of the toughest comments came from Democratic Senator Ted Kennedy (Massachusetts), who urged the Bush administration to review its ties with Moscow and boycott the G-8 summit this summer if the allegations are confirmed.

Ties between U.S. President George W. Bush and his Russian counterpart Vladimir Putin remain cordial, but Washington has voiced concern at Moscow's foreign policy, which it seems to regard as increasingly hostile to U.S. interests.

Trenin sees the Pentagon report as a sign that Russian-U.S. ties are worsening.

He says Russia's efforts to reclaim its Soviet-era global clout are threatening to set the country on a serious collision course with the United States and Europe.

"The Russian leadership has already officially declared that it will follow its own foreign policy course, independently from the United States and Europe," Trenin said. "Russia is demonstratively working toward rapprochement with China. So the crack that appeared a long time ago in relations between Russia and the West is extending, and it can eventually turn into a precipice, into a rupture, into the onset of a new era in relations between Russia and the West."

The Pentagon's report is the latest in a series of U.S. reports sharply denouncing Russian internal and foreign policy.

The Council on Foreign Relations, a New York-based think tank, issued a paper on March 5 describing Putin's regime as increasingly authoritarian and urging the White House to stop regarding Russia as a strategic partner.

A few days later, the U.S. State Department, in its annual human rights report, slammed Russia for backsliding on democracy.

And on March 16, the White House riled Moscow by publishing a new "National Security Strategy." The paper criticizes Russia's democracy record and its foreign policy in Asia and the Middle East. (Claire Bigg and Andrew Tully)

Thousands -- if not millions -- of pages have been written about Russian President Vladimir Putin, but little has been said about the dissertation he wrote in the mid 1990s for his candidate's degree in economics. Recently, a panel of scholars at the Washington-based Brookings Institute shined a spotlight on this little-known document.

"Let me just make a flat statement about the quality of the dissertation," Clifford Gaddy, an economist at the Brookings Institute and a longtime specialist in the Soviet Union, told a March 24 conference. "It is very poor. It is poorly organized. It is poorly written. It is poorly researched. Its contents are second rate. And in terms of content and structure, this is not a Ph.D dissertation, would not qualify as a Ph.D dissertation at any first, second, or third rate university in the United States."

Gaddy has read the over 200-page-long dissertation with the title "Strategic Planning Of The Reproduction Of The Resource Base." Putin received his candidate's degree in economics from the St. Petersburg Mining Institute in 1997. `

During his study, Gaddy noted a certain unevenness in style -- almost as if certain passages had been written by different people. In Chapter Two, he noticed a citation for a U.S. textbook called "Strategic Planning And Policy" by William King and David Cleland. He obtained a copy of the book in its Russian translation and began to compare its contents with the dissertation.

"I calculate that there are more than 16 pages worth of text taken verbatim from King and Cleland," Gaddy said. "Also a number of the figures. There are six -- at least six -- diagrams and tables lifted directly or slightly modified from King and Cleland with no attribution whatever."

That doesn't mean necessarily that Putin is a plagiarist himself. It is possible that he purchased his dissertation -- a not uncommon practice among Soviet-era officials -- and didn't review it very closely. Putin was allegedly writing his dissertation while he was working as the deputy mayor of Russia's second largest city, St. Petersburg.

"It's very clear he never wrote the thing in the first case," Gaddy charged. "This is a clear diploma-mill-type operation. This is a dissertation, paid for, made-to-order."

The Brookings scholars also noted that Putin rarely cites his academic background in economics.

"Even Vladimir Putin himself doesn't reference or cite his own dissertation," said Igor Danchenko, a senior research assistant at Brookings. "This fact is also omitted in his famous book of interviews, "In The First Person," which most of us read a long time ago. Moreover, Putin seems to evade questions about his dissertation. He [has] never openly said that he has a degree in economics."

The questions about his dissertation could provide some uncomfortable moments for Putin during the G-8 summit in July. After all, one of the agenda items he selected for that meeting is higher education.

However, it is unlikely that there will be an outcry from the Russian public against Putin for buying a shoddy dissertation. Scholars on the Brookings panel recalled that there was a long tradition in the Soviet Union of writing dissertations for other people. Andrei Piontkovsky, a Russian political commentator and a visiting fellow at the Hudson Institute, confessed that when he was younger, he participated in the "collective writing of several dissertations." He added, however, that the quality of the dissertations was much higher than that of Putin's. (Julie A. Corwin)

Russia is awash in oil and gas revenues, with tens of billions of dollars in energy windfalls pouring into the state coffers every year. Yet, at least every fourth Russian lives below the poverty line -- and the wealth gap is steadily widening. This is fuelling growing calls for the government to put more of the oil money into the hands of the population. But many economists say this is not necessarily a good idea.

Russia is the world's largest exporter of natural gas and the second largest oil exporter, trailing only Saudi Arabia. Over the past few years, Russia has been reaping the benefits of record-high oil and gas prices -- in 2005, its oil export revenues topped $100 billion.

But for the bulk of Russians, this wealth has failed so far to translate into higher living standards.

Various polls show that the gap between Russia's rich and poor is actually growing. While Russia's billionaires have considerably increased their fortunes in 2005, according to "Forbes" magazine, an estimated 25 to 30 percent of Russians continue to live below the poverty line.

The pressure is therefore growing on the government to spend more of its energy revenues on social needs such as education, housing, and welfare.

More and more Russians are urging the government to reach into its stabilization fund, set up two years ago to store up some of the country's oil income. The fund is reportedly worth $55 billion.

But some economists warn against the dangers of freely tapping into these savings.

Yevgeny Gavrilenkov is a chief economist at Troika Dialogue, a Moscow brokerage firm: "I think that squandering this money is extremely inefficient and dangerous. This will push inflation even higher. Besides, the government has not come up with more efficient ways of distributing this money, and I'm not sure it will. So right now, in the current historical situation, it is therefore more advisable to accumulate these revenues than to spend them."

Russia's energy revenues certainly helped the country out of the severe economic slump of the late 1990s. But the government's reluctance to spend its new accumulated wealth suggests the Kremlin's economists are aware that these funds pose as much risk as opportunity.

After striking oil, many countries -- Venezuela and Nigeria for instance -- developed high inflation, economic overstimulation, and increasing dependence on the oil sector at the expense of other industries. In some cases, the per capita income actually dropped.

One nation, however, has been able to avoid the problems that have befallen all other oil-rich countries: Norway.

To avoid destabilizing its economy, Norway established a special Petroleum Fund for its oil revenues. It also set up a fiscal rule stipulating that no more than a few percent of this money can be spent every year. Norway is currently the second-richest country in Europe after Luxembourg.

In some respects, Russia is following in Norway's footsteps. It has created a similar oil fund and, like Norway, has channeled much of it into early repayment of international debt. Last year alone (2005), Russia paid off debts worth some $20 billion.

But how, and in which quantities, Russia is planning to spend this fortune at home remains unclear.

Natalya Orlova, a chief economist at Alpha Bank, says Russia still lacks a clear strategy on how to convert the energy windfalls into higher living standards for the population.

The government, she says, is still wavering between two different approaches: "It [the money] can be used as in the Soviet Union in the 1970s, when this money from the sky was spent in the social sphere. There is another more complicated, lengthier option: finance investment and reduce the budget's [tax] income, temporarily replacing it with money from the stabilization fund, in order to give the economy more time to develop. All these strategies, in the end, correct social disparities and improve the social picture. But I would say that Russia has not yet chosen."

Russia has not taken any decisive steps in either direction so far. Spending in the social sphere has been sluggish. By contrast, expenditures for government, defense, law-enforcement, and security structures have increased sharply in recent years.

And while lowering the value-added tax (VAT) has been under discussion for about one year, talks have not materialized into concrete tax cuts.

The authorities have not done much either to develop investment -- both domestic and foreign.

At the beginning of the year, the government launched an investment fund that will directly finance a range of projects. But Orlova, despite applauding the move, says the sum allocated to the fund -- $2.5 billion -- is too small to bring significant change.

As for foreign investment, Russian President Vladimir Putin last year insisted he intended to retain -- and even extend -- the current policy of limiting foreign investment in a range of sectors, including natural resources.

Like Gavrilenkov, Orlova says Russia should focus on directing its oil savings towards consolidating the economy and generating stable, long-term benefits.

But she predicts that the government will not reveal its plans until the next presidential election campaign in 2008.

Being too cautious with the oil windfall also has its problems. It can become a source of public discontent -- even in Norway.

Bernt Aardal, the research director at the Institute for Social Research in Oslo, says Norwegians have been consistently demanding that more of the oil money flow their way: "There is a very heavy drive among Norwegians to increase the use of the oil money in order to solve a lot of social problems in Norwegian society, for instance in the health sector: improving hospitals, care for the elderly. There is widespread consensus in Norway that one should not use too much of it [the oil money], but the discussion is: what is too much?"

In Russia, the temptation to dig into the stabilization fund's tens of billions of dollars will likely be hard to resist.

Unlike Norway, almost all sectors are in dire need of funding, not least housing and health care, and the pressure to spend is already mounting from all sides. (Claire Bigg)