The 'Leader for Life' Governance Model
By Christopher Walker
With Russia's presidential election on March 2, "Operation Successor," the Kremlin's finely orchestrated plan to hand power to a dependable ally of Vladimir Putin, is reaching its crowning moment.
Two months ago, on December 10, Putin endorsed soft-spoken and uncharismatic First Deputy Prime Minster Dmitry Medvedev as his chosen successor. The next day, Medvedev made it known that he would support Putin becoming Russia's prime minister. Then, a week later, Putin completed the circle by agreeing to become prime minister if the 42-year-old Medvedev were elected president, an outcome that is effectively guaranteed in Russia's tightly controlled political system.
Putin had for some time coyly hinted that he would retain an influential role for himself, indicating on November 13 -- before December's parliamentary elections -- that a strong performance by the pro-Kremlin Unified Russia party would give him the "moral right" to keep a grip on power after he reached his constitutionally mandated two-term limit in 2008. Unified Russia unsurprisingly won a crushing victory on December 2 in what observers deemed to be patently unfair elections. This elaborate political choreography seems designed to craft a new and enduring role for Putin at the pinnacle of Russia's politics.
In his presidential news conference on February 14, 2008, Putin indicated his view on the matter, saying, "The premiership is not a transitional post." Speaking of the goals he set for Russia's development through the year 2020, Putin added, "If I can see that in this capacity [of prime minister] I can fulfill these goals, I will work as long as possible."
The Kremlin's succession rollout is noteworthy for its meticulousness, but Putin's project to retain political dominance represents part of a broader pattern in which the leaders of a regionally diverse and strategically relevant set of states are attempting to secure unchecked power. By pushing opposing voices to the sidelines and undercutting independent institutions, these rulers are doggedly pursuing a deeply illiberal model of governance: the leader for life.
A critical mass of "leaders for life" is entrenched in the former Soviet Union, where the prevailing method for retaining power has been the orchestration of referendums to lift constitutionally prescribed term limits.
For instance, Kazakh President Nursultan Nazarbaev, who has ruled that country since 1990, pushed through constitutional changes last August that exempt him from term limits. He had already extended his term through a referendum in 1995. On August 18, 2007, Nazarbaev's party won nearly 90 percent of the vote in parliamentary elections, sweeping all remaining opposition forces from the country's legislature. The constitutional changes in 2007 paved the way for Nazarbaev to remain in power indefinitely.
In Belarus, President Alyaksandr Lukashenka, who first came to power in 1994, engineered a vote in October 2004 that removed presidential term limits. Lukashenka went on to receive 83 percent of the vote in April 2006 elections that the OSCE's Office of Democratic Institutions and Human Rights deemed neither free nor fair. With restraints no longer in place, the Belarusian leader has signaled his intention to run again in 2011.
In Tajikistan, President Emomali Rahmon in 2003 pushed through a referendum that amended the constitution and opened the door for him to remain in power until 2020. Rahmon was head of state from 1992 to 1994, when he was elected president. A constitutional change in 1999, when he was reelected, increased presidential terms from five to seven years. In the 2006 presidential election, he was credited with 80 percent of the vote.
Uzbekistan's constitution currently states that the president is permitted to serve only two seven-year terms. President Islam Karimov, who assumed power as first secretary of the Uzbek Soviet Socialist Republic's Communist Party in 1989, was elected president of independent Uzbekistan in 1992. In 1995, Karimov extended his presidential term until 2000. He was reelected in 2000 for another five-year term, but prolonged it to seven years through a national referendum in January 2002.
While his peers in post-Soviet states have at least made the effort to hold managed referendums that would extend their terms, Karimov dispensed with such legal niceties and in December 2007 stood again for reelection, ignoring the constitutional prohibition. The Uzbek leader, whose regime has expunged independent news media and civil society, faced no genuine opposition in the poll (in fact, all three "challengers" endorsed his candidacy). In the end, he was credited with 90 percent of the vote.
Keeping It In The Family
Other leader-for-life systems feature a dynastic twist. Former Azerbaijani President Heydar Aliyev cleared the path for his son, Ilham, to carry on his legacy once the aging president proved too ill to rule himself. A 2002 referendum altered the presidential succession process so that the prime minister, rather than the speaker of parliament, would become acting president if the president resigned or became incapacitated. Ilham Aliyev was named prime minister soon thereafter. As Heydar Aliyev's health declined further in 2003, he withdrew his candidacy for reelection, allowing his son to coast to victory with 76 percent of the vote.
This phenomenon can be found beyond the former Soviet Union. In Syria, family rule has apparently been institutionalized. In Egypt and Libya, where the sitting leaders' tenures are measured in decades rather than years, conditions are also ripe for handing the presidency from father to son. In Cuba, a fraternal handoff of power is being completed.
Zimbabwe's Robert Mugabe, in power for nearly three decades, has presided over one of the most catastrophic societal implosions in recent history, and is now dragging what remains of his country into an economic, political, and social morass. According to government reports, Zimbabwe's annual inflation rate reached a mind-boggling 66,000 percent in December 2007, although some observers believe that this figure may understate the true magnitude of the problem. Mugabe, who turned 84 on February 21, is looking to secure a sixth term in office in elections to be held on March 29.
In December, Venezuelan President Hugo Chavez sought to push through a referendum on a new constitution that would have dramatically expanded his powers and done away with presidential term limits. This initiative was narrowly defeated. Chavez said after the vote, however, that his plans were only derailed "for now" and that his proposals to reform the constitution remained "alive." Despite growing public dissatisfaction with his rule, Chavez has stated his ambition to remain in power until 2050, when he will be 95 years old.
In Russia, the Kremlin's current succession gambit has largely adhered to the letter of the constitution, but the document's spirit is certainly being tested. Dmitry Medvedev is poised to assume the presidency, while Vladimir Putin will swap his current post for that of prime minister. The net result of this managed transfer of power is that there has been no meaningful debate of policy issues among a diverse range of political forces. The Russian public remains disconnected from the small elite that determines who holds and uses power.
Such controlled and insular politics clearly have profound drawbacks. The leader-for-life system creates a zero-sum, winner-takes-all approach to governing. And with unchecked power comes unchecked corruption. In fact, "hyper-corruption" is the soft underbelly of this model, in which accountability and transparency are all but nonexistent. It is no surprise that all of the countries in question are trapped at the bottom of Transparency International's Corruption Perceptions Index. For example, despite Putin's ambition to create a "dictatorship of law" and the prominence of anticorruption initiatives on the Kremlin's policy agenda, the scourge of corruption in Russia has grown in recent years. INDEM, a policy institute in Moscow, estimates that bribery and graft in Russia are now at the level of some $300 billion per year.
The oppressive dominance of the leaders for life smothers the institutions -- an independent judiciary, free media, and political opposition, among others -- that are essential not only for tackling massive corruption but also for improving the quality of public policy, thus preventing meaningful reform in the spheres of education, health, and public infrastructure.
For all of its obvious flaws, however, the leader-for-life phenomenon may have some staying power, especially in resource-rich states such as Russia, Azerbaijan, and Kazakhstan, where otherwise brittle regimes are cushioned by oil prices hovering around $100 per barrel. The fall of the Berlin Wall and the wave of democratization that washed across much of the globe in the last generation seemed to signal that life-presidencies had been cast onto the ash heap of history. Their survival suggests that this retrograde form of governance is more resilient than previously imagined.
(Christopher Walker is director of studies at Freedom House.)
Russians Voting In Presidential Poll Most Feel Is Already Decided
By Chloe Arnold
One woman casts her ballot at a polling station in Moscow
Muscovites trudged through freezing rain and slush today to vote in a controversial presidential election.
According to the ballot, they have a choice between four candidates -- Gennady Zyuganov, the leader of the Communist Party; the flamboyant Liberal Democratic Party boss Vladimir Zhirinovsky; the relatively unknown Andrei Bogdanov; and Dmitry Medvedev, whom Vladimir Putin has groomed as his successor.
In reality, the victory of Medvedev, who is also the chairman of Gazprom and a close friend of Putin, is virtually assured. He is widely expected to pick up at least 60 percent of the vote.
Russian election officials say turnout stood at 60 percent nationwide by early evening Moscow time. Officials said this was slightly higher than during parliamentary elections in December. In the Far Eastern electorates, where voting has now ended, high overall turnouts were given, including over 80 percent in Chukotka and more than 70 percent in Khabarovsk.
At polling station No. 159 in central Moscow, voting was brisk, though most people who turned up at what is ordinarily a school appeared to be over the age of 50. The number of young voters seemed to be slim. Security was high. There were two police officers outside the polling station and another three inside, checking voters’ bags and asking them to step through a metal detector.
The chairwoman of the local election commission refused to speak to RFE/RL, saying she was too busy, and would not comment on how many people had voted by midday. A long line of voters that spilled out into the corridor stamped their wet feet and waited to collect their ballot papers.
Most of those who spoke to RFE/RL afterward said they had voted for Medvedev, some more grudgingly than others.
“I voted for Medvedev because of all the candidates on offer, I think he has the most chance of winning,” one woman said.
“It’s a secret [whom I voted for]. A big secret," one man said. "Because if you don’t like the man you voted for, what’s the point of saying?”
“We voted for Medvedev. For Medvedev. Who else was there to vote for? There wasn’t anyone else!” a man and woman said.
“I voted for the only candidate, as I see it!" said one man. "I think it was relatively fair, because there were four candidates to choose from. But sadly there wasn’t anyone better to vote for than Medvedev. Sorry, but how many times can you vote for Zyuganov? If they’d put forward another candidate, maybe I might have considered voting for them. As for Bogdanov, he’s a nobody. And as for that pea-brain [Zhirinovsky], excuse me, but everyone is sick and tired of him.”
Medvedev himself voted at a Moscow polling station. "Spring is here," he told reporters, "even though it's raining. But it's already a new season, which is nice."
A relatively small number of voters told RFE/RL they hadn’t voted for Medvedev. One woman said she had voted -- as she always has -- for the Communists.
“I don’t know why. I think they’re decent people," she said. "Although it’s a difficult time [politically], they haven’t tuned their backs on their ideology. [As for Medvedev] I really don’t know about him, and what sort of a personality he has. It seems to me he’s just a lot of hot air, that he’s simply been installed in this position by someone else. There was a choice in these elections, but a lot of people doubt that they will be fair.”
Another woman said she had deliberately spoiled her ballot in protest at what she saw as an undemocratic vote. “I didn’t vote for anyone – no, no. Why would I have done?" she said. "I crossed all the names out [on my ballot paper]. That’s all. Because not one of them is worthy.”
Handful Of Observers
The Kremlin's opponents say voters have been denied a real choice because the biggest television stations slanted their coverage in Medvedev's favor and independent anti-Kremlin candidates were barred by authorities from running.
Election monitors say they are being hindered at some polling stations. Earlier today, Liliya Shibanova, director of Golos, an independent Russian monitoring body, said "violations have started already." She said monitors were refused access to polling stations "en masse" in the southern region of Astrakhan and to a lesser extent elsewhere, while authorities have relaxed some regulations to open the way for repeat voting. The poll observers also reported cases of workers being forced to vote.
"There was a choice in these elections, but a lot of people doubt that they will be fair.” -- Russian voter in Moscow
Only a handful of short-term observers from the Council of Europe are expected to monitor today’s voting, and they have already said the election is absent of any real choice. The Organization for Security and Cooperation in Europe, which normally sends hundreds of short- and long-term observers to elections in the region, refused to send monitors, citing irrevocable differences with Russia’s Central Election Commission.
Russians are voting across 11 time zones. Polls opened at 8 a.m. local time today in the eastern-most regions of Russia, including Vladivostok, where polling stations tempted first-time voters with teddy bears and baseball caps bearing Russian flags. Polls will close at 8 p.m. in the exclave of Kaliningrad.
Preliminary results are expected this evening. A final result is expected later in the week. In the unlikely event that none of the candidates wins more than 50 percent of the vote, the elections would go forward to a second-round run-off between the two candidates with the most votes.
(With material from wire-service reports)
Medvedev Election Greeted Coolly Abroad
International reaction to Dmitry Medvedev's election as president has been muted as figures show President Vladimir Putin's protege winning over 70 percent of the vote.
Critics have called the result a foregone conclusion, with no viable opposition figures allowed to register their candidacies and Putin's personal choice receiving the lion's share of media coverage.
Medvedev alluded to his close alliance with Putin's policies in a joint appearance at a rock concert in Red Square on election night, saying Russians "have a chance to continue developing as we have developed in the past years, strengthen stability, improve living standards, [and] move forward according to the plan that we have followed all these years," adding, "I'm confident this is the path we should choose."
Internationally, the perceived price of such continuity could be high in terms of Russia's democratic values.
Andreas Gross, the head of the Parliamentary Assembly of the Council of Europe (PACE) observer mission, which was one of the few international monitoring groups on hand for the March 2 vote, has questioned the nature of the process.
Gross told reporters in Moscow one day after the vote that the "democratic potential" of Russian voters had not been realized. "Equal access of the candidates to the media and the public sphere in general has not improved, putting into question the fairness of the election," he said.
British Member of Parliament Nigel Evans, a member of the PACE team, added that monitors felt that Medvedev would have won the election anyway, even without favorable treatment -- but not by such a wide margin.
Evans said Russian leaders should have more confidence in the electorate, and install a more open and democratic system.
Putin's eight years in office have coincided with economic growth and rising prosperity, much of it based on oil wealth.
But critics say those gains have helped to mask underlying failures, including backsliding on issues of democracy and rule of law.
A 'Mutilated' Democracy
In Washington, State Department Deputy Spokesman Tom Casey said the United States recognizes Medvedev as president-elect, and hopes that Russia and the United States can continue to cooperate closely on issues like counterterrorism and weapons proliferation.
As for the election itself, Casey said President George W. Bush and Secretary of State Condoleezza Rice have expressed their concerns about Russian democracy, and that Sunday's vote did nothing to allay these concerns.
"The election itself proceeded in a peaceful manner," Casey said. "In terms of what our concerns were in it, though, you've heard a lot of discussion in the run-up to that election about the openness of the process and the ability of people outside of the government candidates to make their voices heard."
Casey said the Council of Europe's election report reflected U.S. concerns.
In Europe, the media have given free rein to their feelings. Italy's "La Stampa" daily referred to Russian democracy as seen as "mutilated, or "even destroyed" under Putin. The German daily "Sueddeutsche Zeitung" wrote that the democratic process has been "emptied of all substance." Britain's "Financial Times" wrote that to view the Russian election as democratic would be "an insult to democracy."
Praise came from Belgrade -- which Russia has backed in its dispute with a number of Western countries over the independence of Kosovo -- with Serbia's pro-Russian Prime Minister Vojislav Kostunica saying Medvedev scored a "great victory." He offered his "warmest and friendliest congratulations."
Medvedev will be installed as president at a ceremony on May 17.
based on agency reports
The Kremlin's Evolving Foreign-Policy Stance
By RFE/RL analyst Victor Yasmann
Will Medvedev (left) continue Putin's foreign policies?
As Russia's presidential transition proceeds and it becomes increasingly clear the First Deputy Prime Minister Dmitry Medvedev will succeed President Vladimir Putin in the Kremlin, there has been considerable speculation about the future direction of Moscow's foreign policies. The question is particularly hotly debated in the former Soviet republics and in Central and Eastern Europe.
Some analysts have noted that Medvedev's public pronouncements to date have generally been less openly confrontational than those of Putin. Except for a few appearances intended for domestic consumption, Medvedev has avoided harshly anti-Western rhetoric and has generally come off as more conciliatory and more liberal than Putin.
Others, however, emphasize that Medvedev is Putin's handpicked successor. They argue that Putin does not intend to relinquish control and will remain the dominant player in the unfolding Medvedev-Putin tandem. They note as well that Medvedev has been chairman of the board of directors of the state-controlled Gazprom for the last four years, years in which that company has played a major role in implementing the Kremlin's policies vis-a-vis Russia's neighbors.
Focusing on foreign-policy issues does shed light on the question of why Medvedev was chosen as the heir apparent. Despite Putin's often harsh statements, one important thread of Russian policy abroad has been an effort to improve Russia's image internationally. Putin and the various elites of siloviki -- people connected with the military, police, and security organs -- that surround him are concerned with legitimizing their status and their assets in the West. They know that only people who are perceived in the West as "liberals" -- people like Medvedev -- can advance the interests of the new state megacorporations abroad and open up new international markets for Gazprom and other companies the Putin-era elites control. Only these "liberals" have a chance of attracting significant foreign investment to Russia. The siloviki need the cover these liberals provide, and Medvedev is seen as a reliable intermediary.
These economic goals, however, do not necessarily mean that Russia will renounce many of its assertive foreign-policy stances. The Kremlin may, however, seek opportunities to use changes in those positions as bargaining chips to advance the economic side of its agenda. To do this, however, Russia under Medvedev will likely continue confronting U.S. and European Union interests and extending its own zone of political and economic influence.
And the harsh rhetoric will likely continue, simply because the ruling elite in Moscow has come to believe that it gets results. Since Putin's notably belligerent anti-American speech in Munich in February 2007, Russia has rarely been far from the center of attention internationally. In this way, Russia is following the same policy as Iran and North Korea.
Of course, this does not mean a return to the Cold War, which was a unique product of a bipolar world and could not exist in today's much more complex international configuration. In addition, there are real limits to how far Russia can pursue its confrontational policies. Politically and militarily, Russia is much weaker than the Soviet Union was. In fact, it is in reality much weaker than the robust image it tries to project abroad.
In recent weeks, global increases in the prices of food commodities -- which specialists project as a long-term trend -- have revealed a new aspect of Russia's economic vulnerability. Russian media have reported that some of the country's largest cities import as much as 60 or 70 percent of the food they consume from abroad. Although Russia has substantial currency reserves to purchase such imports, the Kremlin would much rather spend those resources on its ambitious development projects.
Therefore, the confrontation between Russia and the West will continue to evolve along the lines of a "soft-power" conflict. Moscow will use its growing economic and financial power; its energy exports; and political, cultural, and informational resources to pressure former Soviet republics and to expand its geopolitical role across Eurasia.
End Of The Cold War
The Putin-Medvedev tandem is ideally suited for this kind of foreign policy. Putin's KGB specialization was "disinformation of the main enemy" -- meaning the United States. Russian pundits are fond of saying that Putin's political approach derives from his experience with as a black belt in judo; the word judo is Japanese for "the soft way."
At the same time, Medvedev is young and urbane, familiar with modern information technologies. He has presided over a national program to computerize the country's schools and has overseen plans to switch the country to digital television. He is a self-professed Internet addict.
No matter what Russian politicians and analysts might say, the United States remains the single most important foreign-policy focus for Russia. The tenor of those relations will only become clear after the U.S. presidential election in November. However, no matter who wins that contest, Moscow does not expect substantial improvements. So in the time remaining before the transition in Washington, Russia will continue its efforts to bolster its political, diplomatic, and military positions in anticipation of a long standoff.
As for the rest of the world, Russia under Medvedev will continue its Putin-era balancing act with the European Union, China, and the Islamic world.
In the short term, Russia's foreign policies will not change much. But a medium-term evolution is possible because Medvedev remains a largely unknown quantity in the political equation. Although he is not so far from the siloviki as the Kremlin's propaganda would have you believe, there are clear distinctions between him and Putin. Medvedev is a civilian, not a person who has been imbued with the KGB mind-set of "get it now at any price." And he is not a Cold War veteran -- and that could make a difference.
Political System Could Drag Economy Down
By RFE/RL analyst Robert Coalson
Can presumed President-in-waiting Dmitry Medvedev escape the shadow of Gazprom and other megacorporations?
President Vladimir Putin's two terms produced consistent, impressive economic growth. Putin leaves the presidency with the country's coffers filled, its debts paid down, and investment rising.
However, some economists are warning that the foundation of Russia's prosperity is shaky and that the government is in a poor position to cope with the changing circumstances brought on by a global downturn.
"We are absolutely unprepared for complications in the financial-economic environment," Unified Energy Systems head Anatoly Chubais, a Yeltsin-era first deputy prime minister overseeing the economy and privatization, said earlier this month.
Former presidential economic adviser Andrei Illarionov and economist Mikhail Delyagin are among those who have warned that Russia's economic growth -- driven exclusively by high global energy prices -- has not produced improvements in the country's infrastructure or even the seeds of economic diversification.
"In terms of GDP, we have passed France and Italy," Delyagin told the BBC recently. "But the size of our GDP is not determined by our development. It is determined by the global price of oil, first of all, and the price of our metals exports, secondly. This isn't our doing."
He added that the volume of goods transported by rail declined in 2007, which he attributed to the "degradation" of the infrastructure. He said the extent of Russia's paved-road system has fallen steadily over the last three years.
Prices, And Panic, Rising
Recent spikes in inflation have also caused considerable alarm and have spurred the government into action. A 2.3 percent rise in January was driven mostly by rises in the prices of basic foodstuffs, increases that directly and inordinately affect the poorest segments of Russian society. According to Rosstat, the cost of the government's standard basket of basic staples rose by 22.3 percent in 2007 on average, with even higher increases seen across the Far East.
The recent price increases have exposed a vulnerability that stems from Russia's dependence on imported foodstuffs and medicines. The government's response so far has been to compel wholesalers to freeze prices, although most experts see this as a stopgap solution designed to get the country peacefully through the political transition from Putin to his chosen successor, First Deputy Prime Minister Dmitry Medvedev.
Economists are all but unanimous in the opinion that the government's 2008 inflation target of 8.5 percent is unrealistic. Officials such as Central Bank First Deputy Chairman Aleksei Ulyukayev and Economic Development and Trade Minister Elvira Nabiullina have been deployed in recent days to assure the public, to quote Nabiullina, that "there is no need to carry out reforms with painful social consequences."
Although the Russian public is generally complacent, when the government reformed social benefits to the needy in 2005, thousands of pensioners and others poured into the streets around the country and called for Putin's resignation.
The government was deeply shaken by these rolling protests and has since been proactive in preventing similar situations from erupting -- mostly by co-opting or sidelining the leaders of the demonstrations. The Kremlin understands how thin a veneer of legitimacy is bestowed by the country's cynically managed election system.
"Our long-term goals must be understood by everyone, supported by all the citizens of the country," Putin said in a major policy speech on February 8. Political analyst Dmitry Oreshkin wrote this month that a "national" dialogue on the future of the country is essential. But given the regime's obsessive compulsion for control over the information space and its successful marginalization of independent thought in all areas, the conditions for such a dialogue are simply nonexistent in Russia today.Too Powerful?
While the new government's economic choices will be penned in on one side by its need to begin closing the country's appalling gap between rich and poor and to help the vast masses living in poverty, it will also be limited on the other hand by the new giants of the economy, the state-controlled megacorporations that have been formed aggressively over the last few years.
Even as the impoverished have been systematically deprived of their levers of influence on the government, these corporations have concentrated economic and political might to an extent that threatens to make rational economic planning impossible.
True, both Putin and Medvedev have spoken about the need to reduce the role of these companies. Medvedev told a business gathering in Krasnoyarsk this month that "the quality of the companies in which the state participates must be raised and bureaucrats must be removed from management organs."
But undoing these behemoths, which are headed by the most influential figures of Putin's inner circle -- including deputy presidential-administration head Igor Sechin, Russian Railways head Vladimir Yakunin, First Deputy Prime Minister Sergei Ivanov, Rostekhnologii head Sergei Chemezov, and others -- would seem a politically unlikely task. Even if all these people are dismissed from their government posts, their lobbying might within a cabinet headed by Putin will be formidable.
Rises in food prices have caused concern (ITAR-TASS)
However, there is plenty of reason to doubt the sincerity of Medvedev's criticism of the state corporations. Medvedev himself, after all, is the head of Gazprom's board of directors and has apparently had no problem with his dual role or that company's "quality." Moreover, he has overseen that company's aggressive expansion both domestically and abroad. This week he inked a deal with the Siberian Coal-Energy Company that would create a $20 billion joint venture that would control more than 50 percent of the country's electrical power plants and their supplies of coal and natural gas.
Revealingly, this joint venture would seem to fly in the face of the government's stated goal of privatizing the electricity-generating system and has been opposed by Unified Energy Systems head Chubais, former Economic Development and Trade Minister German Gref, and Energy and Industry Minister Viktor Khristenko. Analysts, not surprisingly, do not expect the government's Antimonopoly Service to block the controversial deal.Running Up A Tab
In April 2007, presidential economic adviser Arkady Dvorkovich broke ranks and publicly condemned the trend toward more megacorporation. He argued that they have so much political clout that even the Audit Chamber cannot monitor them and that their charters are constructed in ways that put them outside antimonopoly and other legislation. He said the firms have already been lobbying for tax concessions and said they are quick to use their political advantages to make up for their market shortcomings.
The power of these companies -- and the power of the government to resist them -- may be tested over the issue of corporate debt. Although Russia has dramatically paid down its state debt in recent years, it has accumulated a staggering corporate debt, estimated by the newsweekly "Itogi" at $423 billion. The lion's share of that debt is owed by state-controlled banks and state companies like Gazprom and Rosneft. Many of these companies have used their clout to have themselves placed on the government's list of "strategically vital" enterprises, meaning that the state guarantees their debts.
Such a guarantee makes it easier for these companies to attract credit in the West. Take the case of Rosneft. During the politically motivated takeover of the private Yukos, Rosneft -- whose chairman is Putin insider Sechin -- took loans of $22 billion to purchase Yukos's production assets. In all, the company's debt now stands at $27 billion, with payments of $5 billion due in mid-March. In January, Sechin lobbied the government to pay the debts, but was turned away.
On February 22, however, a consortium of leading Western financial institutions agreed to a $3 billion credit -- no doubt swayed, at least in part, by the company's standing with the government. Just as Western loans helped Gazprom take over the independent NTV in 2000-01, now they have helped in the dismemberment of Yukos. At the same time, Yukos's victimized Western shareholders seem unlikely to get any compensation for their losses. In December 2007, a U.S. court ruled that Russia has "sovereign immunity and therefore could not be tried in an American court."
Even the docile Federation Council has weighed in against the state corporations. The upper chamber issued a report on the legal framework of Russia this month that described the creation of such companies as "the trademark of Russian economic policy."
According to the report, the unregulated companies create "ideal conditions" for the transfer of state property to the private sector with "minimal financial gain" for the state. The report says that the charters of these companies mean that the common legal environment is being replaced by fragmented, exceptional frameworks. Speaking to gazeta.ru, INDEM foundation head Georgy Satarov said, "nothing more favorable to an explosion of corruption than the creation of state corporations has yet been conceived."
As Russia's post-Putin political transition unfolded through the Duma elections in December 2007 to the presidential election on March 2, market analysts were confident of one thing. For the foreseeable future, the safest investment bet in Russia is companies close to the government. But for the long term, all bets are off.