Happy Investors, No Trickle-Down Prosperity for Ordinary Russian

Ordinary Russians expect little joy from the president they will overwhelmingly endorse on Sunday, March 14. There are no secrets about Vladimir Putin‘s style of government. The new cabinet he confirmed on Tuesday is made up of relatively weak figures in key positions (except for the economic team). The former Prime Minister, Mikhail Kasyanov stood up to Putin's gag order and publicly defended the oil company Yukos against attacks by the prosecutor general. Nothing of the sort is likely to come from his successor, the bland diplomat Mikhail Fradkov, or the new foreign minister, the unremarkable Sergei Lavrov.


The new prime minister, 53, is a graduate of Soviet diplomatic and trade institutions that provided cover for intelligence agents. His failure to stem corruption in Russia’s tax police brought him to his last job in Brussels as Russian envoy at EU headquarters, where he proved perfectly harmless.


“Fradkov is a person who has never accomplished anything,” said Anders Aslund, director of the Russian Program at Carnegie Endowment, in an interview with the Washington Profile News Agency. “His one advantage is that he is actually shorter than Putin.”


Meanwhile, chain-smoking Lavrov, 53, is known for just one initiative during his time as UN ambassador, his campaign against Secretary General Kofi Annan's ban against lighting up on UN premises. “This building belongs to all members of the United Nations [and] the secretary-general is just a hired manager,” he said in a front-page interview with Izvestia.


But to be on the safe side, Putin put in a quite able official, Dmitry Kozak, to make sure the government does his bidding. The cabinet, as everyone seems to agree, is now the President's toolbox for implementing his policies.


Still, if the new cabinet has no mind of its own, it at least sheds some light on these policies. The most striking of these is an obvious desire for some rapprochement with the West. A presidential decree downgraded the Atomic Energy Ministry, which was in talks with Iran about supplying its $800 million nuclear reactor in Bushehr, to an agency status. This should go a long way to pacify the U.S., which accuses Iran of secretly developing nuclear arms. Alexander Rumyantsev, former head of the ministry, was due to travel to Iran later this month to sign a final deal.


“The whole issue of Russia's dealings with Iran concerning Bushehr is now under question,” a senior official close to the talks told AP on Wednesday. If so, this would mean the removal of the main stumbling block between Russia and the U.S. and help mute America's complaints about Russia’s performance on democracy and human rights.


Putin nods and nods again to Washington


The new PM, meanwhile, is already helping shut up critics in Brussels where he served during a period of a historic low in relations between Moscow and the EU.


Russia has insisted that if its preferential trade agreement with the EU is extended to the ten new members, while quotas on its sales of steel remained unchanged, Russian trade losses will soar to 300 million euros annually. In return salvos, EU officials have been criticizing Russia's negotiating tactics, off the record. Yet in his first press conference on Wednesday, Fradkov did a complete turnaround, saying “EU expansion won't have negative economic consequences for Russia.” Now not a day goes by without an EU official insisting, on the record, that the talks are near completion.


Even Fradkov's ethnicity – he's half Jewish – was interpreted as a nod to the West. The Kremlin has come under suspicion from some quarters because the three oligarchs it has chased out or imprisoned – Boris Berezovsky, Vladimir Gusinsky and Mikhail Khodorkovsky – are Jewish.


At the same time, the PM is the one who takes the public rap when things go bad. In a land that gave us the word pogrom, Fradkov's performance could become a Sword of Damocles for the Jewish community. Perhaps this explains the recent rhetorical acrobatics of one of Russia's top rabbis: he said the appointment of a Jewish PM was a sign of “political maturity,” but that Fradkov was not technically Jewish because his mother is a goiah.


Security appointees balanced against reformists


The new cabinet strikes a thin balance between the two rival factions within the cryptic Kremlin. The so-called siloviki, or officials with connections to the security services, generally advocate more state intervention in the economy and a tougher stance for Russia on the world scene. The reformists want neither: they fear the state will sap the economic potential. Fradkov, with his security background, is seen as straddling the divide due to his experiences in the West – which is the main reason Putin chose him. Meanwhile, Kasyanov's sacking has chopped off the last remnants of the third faction, Yeltsin's so-called “Family.”


The siloviki include those who report directly to Putin: the reappointed defense minister, Sergei Ivanov, interior minister Rashid Nurgaliyev, Lavrov and the Emergency Situations Minister Sergei Shoigu.


Shoigu is the most popular of the bunch, probably because he pops up on the scene of every disaster, righteously promising that the culprits will be brought to justice. And there are many disasters in Russia.


The liberals have been bolstered by Alexander Zhukov, a widely respected reformist who has been named the only deputy PM. They are concentrated in the economics ministries and advocate a host of reforms, from stronger property rights and less business regulations to the liberalization of utilities prices and reforms of large state holdings such as gas giant Gazprom and the electricity monopoly.


Zhukov's appointment was a surprise gift to reformists. Add to this the expanded powers for the reform-minded Economy and Finance Ministries and the result is Moscow investment bankers squealing with delight.
“Our expectations have been exceeded by the announcement of the new line-up. [The] reform team now appears in a more coherent and potentially effective configuration than in the previous government,” wrote the United Financial Group the night of the announcement.


By his delicate balancing act, Putin hopes to mollify the most powerful of his remaining critics: the investors and Western governments. With all the TV channels squarely behind him – and the state election commission ignoring reports of violations against his opponents – the only hope Russian dissidents and liberals entertain for meaningful opposition to the unchallenged Putin lies in potential cabinet mavericks or outside pressure.


Bar some unforeseen event, that hope is dim indeed.


The war in Chechnya, lost twice over by Russians against a ragged band of Islamic militants and hardly mentioned on TV or radio, will probably drag bloodily on. And the investors will overlook the growing authoritarianism as long as the economy keeps up its impressive growth, estimated at 7.3% last year.


This is no trickle-down growth: most of the new money is concentrated in Moscow or oil-rich provinces, while the GDP per capita puts Russia squarely in the third world. But investors seem nonplussed by the growing divide, even as they go ape when a new tax probe is launched against an oil company. One told The Moscow Times last week that economics has not proven a positive link between democracy and prosperity.


Independent-minded Russian are growing disenchanted. “Foreign firms I work at are completely indifferent to this,” said Daria, a 30-year-old translator after the screening of a new movie exploring the links between the Moscow apartment bombings in 1999 and the security services. “And why not? Foreigners earn huge amounts here in Russia, while Russians are afraid to ask these questions for fear of seeming too activist.”


Tehran deeply anxious


Iranian rulers are deeply worried by Putin’s new government lineup. They see the abolition of Russia’s nuclear energy ministry as placing in question the completion of the Bushehr nuclear reactor and a death blow to Russian-Iranian nuclear cooperation as a whole.


So acute is the concern in Iranian ruling circles that President Khatami interrupted the weekly cabinet meeting Wednesday, March 10, for an urgent telephone call to Putin. He asked the Russian president for information about his intentions and was not reassured by the answers he received.

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