24 May 2004 16:52
President Putin to Launch New Systematic Campaign Against Russian Oligarchs Say Analysts at London Think Tank Russian
Axis
LONDON, May 24 /PRNewswire/ -- In his state-of-the-nation address scheduled for Wednesday, recently re-inaugurated
President Vladimir Putin will provide for the first time signals of a new campaign to methodically uproot Russia's
system of "oligarchic capitalism," according to analysts at Russian Axis, a think tank based here.
Writing in a report released today, Russian Axis forecasts that Putin, sworn in for a second term just two weeks ago,
is expected to offer a "systemic solution" to break the grip on the national economy that a small group of
influential businessmen, often referred to as "oligarchs," gained during the reign of his predecessor Boris
Yeltsin.
The address will be Putin's first major speech of his new term. It will be delivered before both chambers of
Parliament -- the State Duma and the Federation Council. The analysts predict that Putin will reveal the contours of a
de-oligarchisation campaign, while stopping short of making an explicit policy statement at this stage due to the
issue's continuing political complexity.
Important political messages articulated in Putin's address should gain force following the submission in
mid-June of a special report from the government Audit Chamber, the supreme body of state financial control in Russia.
The report is to comprehensively analyse the economic impact and legal aspects of the 1990s industrial privatisations.
Those often-rigged auctions put a big fraction of Russian GDP in the hands of a small group of well-connected
businessmen.
Putin's address comes against the background of heightened media speculation in Moscow that magnate Mikhail
Fridman of Alfa Group, as well as Vladimir Potanin of Interros, has now appeared in the cross hairs of the
Kremlin's effort to undo one of the key negative economic legacies of the Yeltsin years.
According to a calendar of likely events included in the report by Russian Axis, a spike in the campaign is probable
in mid-summer - a time the Kremlin favours for controversial activities to exploit the light information flow of the
vacation season. The arrest last year of oligarch Platon Lebedev, a principal shareholder in the oil company YUKOS,
under investigation for massive tax evasion, took place in early July.
The think tank report is titled "The Second Presidential Term of Vladimir Putin and the Coming Campaign of
De-Oligarchisation - Possible Scenarios." It says that the Russian President will move qualitatively beyond the
seemingly ad hoc and selective assaults on big businesses seen during his first term. (Those actions included the
exiling of Boris Berezovsky of Logovaz and Vladimir Gusinsky of MOST Group, and involve the continuing investigation of
YUKOS and incarceration of former chairman Mikhail Khodorkovsky.) The report says that a renewed, more "systemic
solution" for de-oligarchisation will be based on new tax legislation and anti-monopoly regulation and on winning
the support of domestic and international public opinion.
The report details ten big private business groups vulnerable to becoming targets of the de-oligarchisation campaign.
Each is given a rating according to a set of susceptibility criteria derived from Russian Axis' exclusive
methodology. The criteria range from volume of capital concentration in relation to the federal budget, to accumulated
resources for lobbying Russian and particularly foreign governmental entities.
Topping the list of vulnerable companies in the report is Alfa Group, a sprawling financial and industrial empire
founded and lead by 40-year-old oligarch Mikhail Fridman. Alfa received a susceptibility rating of 7.64, compared with
second-highest Interros at 5.01. The principal reasons for Alfa's top rating include a unique confluence of
economic concentration in natural-resource industries, the Kremlin's perception of monopolistic tendencies, and
disproportionately high levels of political influence within Moscow and the West in both the private and public
sectors.
Third in the ranking was the RUSAL-Base Element conglomerate of 36-year- old Oleg Deripaska; it had a vulnerability
of rating 4.01. Fifty-one-year-old Vladimir Bogdanov's Surgutneftegaz oil company received the lowest rating of the
ten business groups at 1.01.
"Our goal in this report was to go beyond reading tea leaves and merely making predictions to providing a
thorough analytical framework for understanding possible future scenarios of Kremlin de-oligarchisation policy based on
actual trends and conditions," said Dr Vadim Malkin, head of Russian Axis and editor of the report. "Having
done that, we do have a high level of confidence that this policy of the Putin Administration will unfold consistent
with our evaluation of the situation."
Drawing a distinction between Putin's first-term anti-oligarch efforts and now, Dr Malkin noted: "Earlier
the oligarchs had sufficient power to be described almost as states-within-a-state, which was the fundamental problem
for the Kremlin, but now the balance has shifted toward President Putin.
"The earlier implicit pact that all you have to do is stay out of politics and you have virtually free reign in
business no longer applies. Consider that last year Putin met with the oligarchs before his state-of-the-nation speech
to solicit views. This year they will meet him only after the address and take what is handed to them. They are all
vulnerable now."
The release of the Russian Axis report follows the announcement April 7 of a World Bank study warning of the
retarding impact of economic concentration in Russia. It said Russia's 23 largest business groups controlled more
than a third of the country's industry by sales and at least a sixth of its employment. The companies were said to
be inefficient compared with those controlled by other private owners. The powerful business blocs were said to be
capturing the majority of foreign investment, limiting other business segments' opportunity for growth.
The Financial Times quoted Christof Ruhl, chief economist for the World Bank's Moscow office, who coordinated
the research, as saying: "Russia needs to do what the Americans did 100 years ago by introducing tough antitrust
rules and anti-monopoly regulation to create fair competition."
Where resistance by large business structures is met, it is believed that the Kremlin will also utilise external
levers, including seeking cooperation from foreign officials that are perceived to be providing cover for the Russian
magnates as a result of their extensive oversees lobbying activities.
According to Russian Axis, the imperative for a systemic approach to de- oligarchisation is driven by the
Kremlin's critical need to consolidate state power in still relatively young post-Soviet Russia, and to manage
effectively the disposal of scarce resources to immediately address problems of overwhelming social importance. These
issues include a crumbling housing and utilities infrastructure that could spark social unrest, a disintegrating
military, and volatile relations with the states on Russia's periphery that were once part of the Soviet Union.
The British-based information and analytical centre Russian Axis is an independent non-governmental organisation,
providing Western experts on Russian affairs objective analysis including native perspectives and first- hand
information. Russian Axis published reports to date include "The 2004 Presidential Campaign" (76 pages) and
"Ten Years of the Russian Constitution" (44 pages). To view these studies and the current report visit our Web
site at: http://www.russianaxis.org/.
For additional information and up-to-date commentary on the upcoming state-of-the-nation speech, please contact
Russian Axis: In London A– tel: +44 7789 230-199, Dr Vadim Malkin, Director General In Moscow A– tel: +7 095 506-9078,
Dr Maxim Kiselev, Deputy Director General Russian Axis
CONTACT: In London - Dr. Vadim Malkin of Russian Axis, +44-7789-230-199; or In Moscow - Dr Maxim Kiselev, Deputy
Director General, +7-095-506-9078
Web site: http://www.russianaxis.org/
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