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RUSSIA WATCH No.2, August 2000 Graham T RUSSIA WATCH No.2, August 2000 Graham T. Allison, Director Editor: Ben Dunlap Strengthening Democratic Institutions Project Production Director: Melissa C..Carr John F. Kennedy School of Government Researcher: Emily Van Buskirk Harvard University Production Assistant: Emily Goodhue SPOTLIGHT ON RUSSIA’S OLIGARCHS On July 28 Russian President Vladimir Putin met with 21 of Russia’s most influ- ential businessmen to “redefine the relationship between the state and big busi- ness.” At that meeting, Putin assured the tycoons that privatization results would remained unchallenged, but stopped far short of offering a general amnesty for crimes committed in that process. He opened the meeting by saying: “I only want to draw your attention straightaway to the fact that you have yourselves formed this very state, to a large extent through political and quasi-political structures under your control.” Putin assured the oligarchs that recent investi- The Kremlin roundtable comes at a crucial time for the oligarchs. In the last gations were not part of a policy of attacking big business, but said he would not try to restrict two months, many of them have found themselves subjects of investigations prosecutors who launch such cases. by the General Prosecutor’s Office, Tax Police, and Federal Security Serv- ice. After years of cozying up to the government, buying up the state’s most valuable resources in noncompetitive bidding, receiving state-guaranteed loans with little accountability, and flouting the country’s tax laws with imp u- nity, the heads of some of Russia’s leading financial-industrial groups have been thrust under the spotlight. See page 6. Putin’s approval rating reaches 73% SEE INSIDE: PM Kasyanov gets 49% (VTsIOM Poll of 1600, July 20-25) * Crackdown on the oligarchs, p. 3, 6 * Origins of the oligarchs, p. 10 * Guide to the investigations, p. 4, 8 TOP NEWS OF JUNE-JULY * Harvard’s Kelly M. McMann on the need for economic pluralism, p. 9 · Prosecutors, tax police crack down on leading oligarchs. * Analysis by leading Russian experts: · Putin diagnoses ills, prescribes cure in State of the --The coming information war, by D. Dondurei, p. 11 Nation address. --Lessons from the Kremlin roundta- · Federation Council passes radical tax reform package. ble, by A. Kara-Murza , p. 13 · Russian senators vote themselves out of office. --It’s Over, Russia—Are You All Right?, by V. Boxer, p. 16 · Duma overrides veto; new law allows President to dis- * Putin’s State of the Nation address, p. 2 miss governors, mayors. * Economic news in brief, p. 4 * Russia’s radical new tax reform package, · Berezovsky quits Duma, promises to create new opposi- p. 2 tion party. * Senators’ vote to restructure Federation · Revised foreign policy doctrine calls for pragmatism, Council, p. 2 * Berezovsky quits Duma post, p. 3 economic integration and growth. * Russia’s new foreign policy, p. 2 · Chechen fighters escalate guerilla attacks on Russian * Putin, star of Okinawa, p. 2 troops. · Putin impresses G-8 leaders at Okinawa summit. 1 JUNE AND JULY IN RUSSIA calls for pragmatism in pursuing Russia’s national in- PUTIN SETS AMBITIOUS AGENDA IN STATE terests and identifies as its main priorities the im- OF THE NATION ADDRESS provement of Russia’s domestic economic situation, Putin delivered his first State the fight against international terrorism, and the quest of the Nation address to the for a multi-polar world. SDI’s Policy Memo No.2 on Russian legislature on July Russia’s new foreign concept is available at: 8. With characteristically http://ksgnotes1.harvard.edu/BCSIA/Library.nsf/pubs/ brutal honesty, he blamed PolicyMemoNo2. the state for having allowed a “dictatorship of the shadow PRESIDENT SECURES RIGHT TO FIRE economy,” “raging corruption,” and “massive outflow GOVERNORS of capital overseas.” He cautioned that recent economic On July 19 the Duma overrode the Federation Coun- growth is the result only of high commodity prices and cil’s earlier veto of the bill allowing Russia’s president the lingering effects of the ruble devaluation, warned to dismiss governors and disband local parliaments. that the economy is on the verge of collapse, and that According to the new law, Russia’s president can dis- Russia risks sliding into third-world status. When de- miss regional leaders, including both governors and scribing his cure for Russia’s ills, Putin fell back on a presidents of republics, for violating federal laws. A familiar mantra: strengthening the state. Only a strong court ruling and a letter from the General Prosecutor’s state, he argued, can stabilize the economy, defend office are required to confirm that a regional leader is Russia’s reputation abroad, and propel the country into facing criminal charges. the information age. SDI’s Policy Memo No. 1 on Putin’s State of the Nation address is available at: DEFYING PREDICTIONS, UPPER HOUSE http://ksgnotes1.harvard.edu/BCSIA/Library.nsf/pubs/ APPROVES RADICAL TAX REFORM PolicyMemoNo1. On July 26 the Federation Council, made up of Rus- sia’s governors and regional legislators, voted 128 to PUTIN WOWS WORLD LEADERS AT G-8 13 in favor of the tax reform package proposed by the DEBUT Putin government and already passed by the Duma. Putin stole the limelight at the G-8 Summit in Okinawa The new tax plan includes a 13 percent flat income tax on July 21-23, as he reported on his meeting with to replace the current 12 percent to 30 percent sliding North Korea’s Kim Jong-Il, discussed Russia’s eco- scale, and reduces the turnover tax, which is levied on nomic development, and advocated Russia’s full me m- all enterprises regardless of income, from 4 percent to bership in the WTO. Putin’s deft performance helped 1 percent. The Federa- boost his ratings at home and demonstrated his com- tion Council was not mitment to making Russia “an equal partner in global expected to approve the affairs.” The Russian president’s preparedness and tax plan, in part because active participation impressed the leaders of the it includes a controver- world’s richest industrialized nations. Canadian Prime sial measure to central- Minister Jean Chretien ize collection and distribution of tax revenues previ- called Putin’s com- ously left to the governors. Moscow Mayor Yuri mand of the issues Luzhkov (pictured) opposed the bill, saying: “The re- “very impressive,” and gions will now be forced to pass on most of their tax Germany Chancellor revenue to higher levels. Everyone will be confined to Gerhard Schroeder a stall, with the state proffering handfuls of hay.” pronounced Putin’s performance “brilliant.” Immediately following the RUSSIAN SENATORS VOTE THEMSELVES summit, Russia and Germany signed an agreement OUT OF OFFICE rescheduling Russia’s Paris Club debt. Also on July 26 the members of the upper house of parliament voted to approve a plan on restructuring the IVANOV PRESENTS “PRAGMATIC” FOREIGN Federation Council. According to the new plan, pro- POLICY CONCEPT posed by the Kremlin and worked over by a “concilia- On July 10, Russian Foreign Minister Igor Ivanov pre- tory commission” made up of Duma deputies and Fed- sented a new foreign policy concept that replaces an eration Council members, Russia’s regional leaders earlier version dating from 1993. The new blueprint will surrender their seats in the Federation Council on 2 December 31, 2001, giving up the perks of the office— take part in the collapse of Russia and the establis h- such as immunity from prosecution. Instead, the gover- ment of an authoritarian regime.” In his farewell nors will be allowed to appoint representatives to take speech he declared his intention to set up a “construc- their place, and regional legislatures, instead of being tive opposition” to President Putin and his policies, represented by their speakers, will elect delegates to hoping to draw on support serve in the Federation Council. from governors and busi- Despite bitter opposition to the bill nessmen alike. when it was first proposed, the senators offered little resistance on Russian observers reacted the day of the vote. As Altai Gover- with skepticism. Yuri nor Alexander Surikov (pictured) Skuratov, former prosecu- said, “The law will be in force, tor-general of Russia, questioned, “Can a person from whether we reject it or approve it.” the ‘Family’ head an opposition? I never heard any- thing funnier.” Igor Bunin, Director of the Center of BEREZOVSKY EXITS DUMA, VOWS TO Political Technologies: “Several hypotheses are possi- CREATE OPPOSITION PARTY ble. Let’s assume that he has reached a covert agree- On July 17 Boris Berezovsky announced that he was ment with the regime that he will personify construc- quitting his seat in the Duma in protest of the govern- tive opposition. He will try to consolidate the gover- ment’s moves “aimed at eliminating major independent nors and oligarchs, and at the same time, prevent this businesses in Russia.” Berezovsky said he “will not opposition from getting out of hand.” PUTIN GOVERNMENT APPLIES HEAT TO OLIGARCHS While campaigning for the presidency in February, In the last two weeks of July, however, Russian prose- Vladimir Putin promised to keep all oligarchs at arm’s cutors stepped up cooperation with their Swiss coun- length. His declaration was met with some skepticism, terparts in a fraud case against Berezovsky, and especially given the role that Boris Berezovsky, the Abramovich’s Sibneft was targeted for possible tax influential tycoon from Yeltsin’s inner circle, was then evasion. In his July 28 meeting with the business lead- playing in orchestrating Putin’s PR campaign. ers (minus oligarchs Gusinsky, Berezovsky, and Abramovich), Putin even singled out Sibneft as a com- In mid-May, it appeared that skeptics’ suspicions pany with “surprisingly low tax payments, given their would be confirmed when tax police raided the offices enormous earnings.” of the Media-Most holding company headed by Vladi- mir Gusinsky, a staunch Putin opponent and owner of It appeared that Putin was following through on his the NTV television network—one of the few that promise to distance Russia’s plutocrats from power and openly criticized the Kremlin.
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