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Capitalism with a stalinist faces

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Capitalism with a Stalinist faces

When the compact figure of Vladimir Putin strode onto the world stage after his success in the 2000 presidential elections, a tremor of anxiety passed through the collective body of Western leaders.

Gone was the boozy, bumbling, free-wheeling Boris Yeltsin, clown-prince of post-Soviet Russia who had unaccountably found himself in the box seat at the historic moment when his country was rolling up the Communist empire.

The new leader of the new Russia was his polar opposite. A former KGB colonel, Putin was the identikit Soviet-style apparatchik: hard-eyed, unsmiling, tightly disciplined. And he had a black-belt in judo to prove it.

The high-achieving Putin, who rose to prominence from the rat-infested slums of St Petersburg, is still obviously uneasy at the media spotlight that relentlessly picks out his slight form and follows his every move.

But Putin’s moves have been carefully orchestrated and exquisitely choreographed. While he remains reluctant to permit a smile to crack his stony façade, he has demonstrated that he is a fast learner.

American and European leaders were soon jostling to embrace their new best friend as he set about convincing the West that he was committed to continue carrying Russia down the path of democracy and upholding the principles of the free market.

But all that changed abruptly on October 25 when Russia’s most powerful political figure ordered the arrest of its most powerful economic figure.

As Mikhail Khodorkovsky was bundled off his private Tupolev 154 jet at a remote Siberian airport on that cold and misty morning three weeks ago, a new chapter in Russia’s turbulent history was being opened.

October, of course, is the season for revolution in Moscow, and just as the 1917 revolution sent an echo around the world, the 2003 revolution has raised the specter of a return of the bad old Soviet ghosts.

For those who wanted to believe that Russia was on the cusp of a new, democratic, free-enterprise destiny, the timing of Putin’s challenge to the small band of mostly Jewish oligarchs could hardly have been worse.

After all, the Moscow market had just hit a record high and the credit-rating agency Moody’s had, for the first time, just conferred investment-grade status on Russia. Not least, elections for the Duma were scheduled for December and presidential elections for next March.

Iu decision to arrest Khodorkovsky, the multi-billionaire former head of the Yukos oil empire, was an election ploy designed to woo the masses who loathe the oligarchs, it has badly misfired. The arrest sent the value of Russian stock plummeting 15 points in one day and, simultaneously, raised dark fears among the business and political classes abroad about the wisdom of investing in Russia and of trusting Putin.

Foreign investors, who provide the fuel for Russia’s renaissance, now perceive the Khodorkovsky affair as the acid test of Putin’s sincerity; Western leaders believe it could destroy Russia’s nascent economic and political reforms; Russian businessmen fear it could trigger the biggest crash since Russia’s rebirth.

Perhaps the best the West can hope for is what Grigory Yavlinsky, leader of the liberal opposition party Yabloko, has described as “capitalism with a Stalinist face.”

A sign of the dilemma facing the Kremlin — and of the international respectability that Khodorkovsky had acquired — came in a letter to the London Times last week signed by the four-man international advisory board of Yukos. They included former Carter White House aide Stuart Eizenstat and former German finance minister Otto Lamsdorff.

In a devastating indictment, they wrote: “We are gravely concerned by recent events that exhibit a complete disregard for the rule of law and we believe these will serve only to destroy confidence in Russia as a place to invest.”

It is still not possible to fully fathom the implications of Putin’s putsch against the oligarchs. What is certain, however, is that the credibility of his administration — and, possibly, the destiny of Russia’s experiment with freedom — is inextricably tied to the fate of 40-year-old Khodorkovsky, now awaiting trial on fraud and tax charges.

Those who know Khodorkovsky have told The Jerusalem Post that his future is now unpredictable, but they expect him to remain in jail, even if he is not formally arraigned, until at least after the Duma elections, possibly even the presidential elections . If Khodorkovsky is convicted, he could face a sentence of up to 10 years.

For all Putin’s careful calculations, observers believe he might have got his sums disastrously wrong when he slapped the handcuffs on Mikhail Khodorkovsky.

If Russia’s most celebrated prisoner walks free, Putin’s authority at home will be savagely eroded; if he is convicted and sentenced to a long jail term, Putin’s credibility with foreign investors will fall like the Russian stock.

Whatever happens, Putin’s credentials among Western leaders have been indelibly tainted.

THE OLIGARCHS are a small band of Russian entrepreneurs who soared to dizzy financial heights in the chaotic days of privatization that followed the demise of the Soviet Union.

Under Yeltsin’s indulgent eye, the “family,” as they were known, set out on a buying spree in the first half of the Nineties, snapping up valuable chunks of state enterprises at knock-down prices. Russia’s creaking enterprises provided the richest bargain basement in history

Within a few years, they were counting their fortunes in billions. By some accounts, they now control a staggering 70 percent of the Russian economy. It ain’t, as they say, chopped liver.

The oligarchs have adjusted their lifestyles accordingly, giving new meaning to the concept of conspicuous consumption as they cashed in clapped-out Ladas for fast-track Lambourghinis. They did not stint themselves as they set about accumulating the appurtenances of the super-rich, from luxurious foreign homes through yachts and fast cars.

Khodorkovsky created the template for the oligarch’s rise to power. In 1995, he bought the ailing Yukos oil company for $309 million. Analysts at the International Monetary Fund calculated that the 31-year-old math graduate-turned thrusting tycoon had scooped up the oil assets for less than a 10th of their value.

After a series of swift Khodorkovsky-inspired mergers and acquisitions, Yukos emerged as Russia’s largest oil company, and the world’s fourth-largest oil producer. Today, Khodorkovsky’s stake is estimated to be worth some $8 billion.

As the oligarchs amassed their fortunes — by cornering the market in oil, banking, the media and metals — they aroused the ire of their countrymen who were left to suffer the chilly privations that inevitably accompany the shift from stifling central control to the fresh air of the free market.

But the oligarchs are not simply demonic plunderers of the state’s wealth. They have sought to make their enterprises more transparent and more accountable. They have offered to pay more taxes and they have, paradoxically perhaps, campaigned for a more “honest capitalism.”

Khodorkovsky, for example, met with Putin on several occasions to lobby for more clarity in Russia’s tax laws, for a more impartial judicial system and for a more rational investment structure.

What caused the fateful break between the two men was a combination of Putin’s instinctive animus toward the oligarchs and his underlying fear of their potential political power.

He is said to understand the West’s demands for democratic political and financial institutions, and he is prepared to go some way to accommodate their sensibilities. But he also understands the domestic imperative to maintain his popularity among Russia’s voters. And the voters want the oligarchs behind bars.

Putin was also caught between the two competing forces operating in the Kremlin — residual members of the “family” and the “chekists” (hold-overs from the KGB and other security services of the old Soviet Union). He apparently opted to side with the “chekists” — apparently, because some observers believe he does not have as much control as he would like, or would like to appear to have.

There was scant sentiment in the decision. The oligarchs had, after all, supported Putin’s succession. Indeed, some observers believe he might not have won the election without their financial and media muscle. But mutual disenchantment soon set in.

After sweeping to power, Putin turned on the oligarchs, publicly pledging to the voters that he would institute far-reaching reforms, “put the house in order.” And when the oligarchs, in turn, began translating their huge wealth into domestic philanthropy and political dissent, the stage was set for a clash of the titans.

The oligarchs raised Kremlin hackles by contributing on an unprecedented scale to Russian charities, an act which, in itself, was regarded with the deepest suspicion by Moscow’s political masters who feared they were buying their way into Russia’s hearts and minds. Then, when they threw down a political challenge to Putin, the axe fell.

By all accounts, Khodorkovsky’s demise was further accelerated by news that he was negotiating the sale of a large chunk of Yukos stock to Exxon Mobil and Chevron-Texaco.

He created a furor when he criticized Putin’s handling of the Chechen conflict and then when it became known that he was backing two libertarian parties that will oppose Putin’s party in the Duma elections.

But his fate was sealed when he let it be known that he would run for the presidency in 2007, when Putin will be constitutionally required to step down. What Khodorkovsky might not have known, however, is that Putin is said to be contemplating a constitutional change that will allow him to continue in office beyond that date. Khodorkovsky’s challenge was a step too far. “He made the mistake,” said one source, “of thinking he was untouchable.”

WHO ARE the oligarchs? To author Amy Chua, whose book World on Fire was published in London this month and is set to become an international best-seller, the answer can be summed up in one word: Jews.

“As it turns out,” writes Chua, a Yale law professor, “six out of seven of Russia’s wealthiest and, until recently, most powerful oligarchs, are Jewish.

She names the six Jewish oligarchs who helped themselves to Russia’s crown jewels as Mikhail Khodorkovsky, Roman Abramovich, Pyotr Aven, Boris Berezovsky, Mikhail Fridman and Vladimir Gusinksy. The seventh of the breed, who is described as the only “full-blooded ethnic Russian,” is Vladimir Potanin.

As Chua tells it, “in Russia’s nearly anarchic transition to a market economy, Jews rose to the top. Long before most Russians, including the country’s leaders, had any understanding of how the markets work, the six Jewish oligarchs mastered the game.

“These men started with next to nothing. They were not particularly sophisticated. They may have been ruthless, but they were plainly smart entrepreneurs.”

Chua’s book, which purports to explain, “how exporting free market democracy breeds ethnic hatred and global instability,” is critical of the Jewish oligarchs, but she stresses that, “despite the inevitable rumors, these men did not become billionaires through violence or Mafia tactics.”

“Rather,” she writes, “they became billionaires by playing the game more effectively and ruthlessly than anybody else during Russia’s free-for-all transition to capitalism.”

In her book, Sale of the Century, Chrystia Freeland echoes the point that “Russia has been looted all right,” but she notes, “the biggest crimes haven’t been clandestine or violent or even, in the strict legal sense, crimes at all.

“Russia,” she writes, “was robbed in broad daylight, by businessmen who broke no laws, assisted by the West’s best friends in the Kremlin.”

So, who are the oligarchs?

Boris Berezovsky, 57, with a Ph. D. in mathematics, dabbled in a car dealership before creating a sophisticated get-rich-quick financial structure that appealed to the new Russia. He then set about penetrating the president’s inner circle, befriending Yeltsin’s ghost-writer and offering to publish his “autobiography.” Such generosity was well rewarded. In 1994, Yeltsin handed him control of the privatized ORT TV network and, soon after, Berezovsky took control of the state oil company Sibneft and the national carrier Aeroflot.

Vladimir Gusinsky, 53, parlayed his business in cabs, jeans and copper bracelets into real estate and construction. Then his eyes opened to the riches of banking. Through his friendship with Moscow mayor Yuri Luzhkov, he made millions managing the city’s funds, while plowing his mounting profits into newspapers (including a stake in Ma’ariv), magazines and TV companies. His NTV TV network played a pivotal role in Yeltsin’s 1996 electoral victory over his Communist adversaries.

Mikhail Fridman, 39, graduated from cleaning windows to importing cigarettes and photo-copiers before moving into the oil business. By 1991, he was a millionaire. Then the privatization of Russia’s banks grabbed his attention. After recruiting Yeltsin’s trade minister, Pyotr Aven (himself an oligarch), he created the Alpha Group, which today controls Russia’s largest private bank, half of Tyumen, Russia’s fourth-largest oil company, and Crown Resources, a commodities trading company turning over some $5 billion a year.

Roman Abramovich, 37, was a protégé of Berezovsky, who parachuted him into the family. He rose from selling plastic ducks and second-hand car tires to acquiring the world’s richest aluminum company. He also bought Berezovsky’s shares in Aeroflot and Sibneft. Indulging his passion, he recently sank several hundred million dollars into Chelsea football club. Abramovich bought himself a slice of immunity when he became governor of Russia’s remote region of Chukotka.
NOW, PUTIN has rung down the curtain on the final act of the drama and invited the Kremlin’s nomenklatura to return to their old ways of making up the law to suit themselves. Only now there is a difference. Russia’s integration in the West allows the Kremlin to try to use the international judicial system to cull its targets.

Berezovsky was arrested on an international warrant in London earlier this year. He persuaded the British authorities that he faced persecution rather than prosecution if he was returned. Gusinsky, once head of Russia’s Jewish community, was arrested on an international warrant in Athens earlier this year but he, too, managed to persuade the Greek authorities that the charges against him were manifestly unjust. After walking free, he invoked his rights as an Israeli citizen and made aliya.

Meanwhile, Abramovich’s immunity (by virtue of his governorship of Chukotka) appears increasingly fragile. There are reports he is the Kremlin’s next target in the war against the oligarchs, and state prosecutors in Moscow confirmed last week that they have been instructed to investigate his purchase of the Sibneft oil company.

For the oligarchs, the party’s over.

Picking up the pieces will not be easy — not for Putin, not for Russia’s economic community, not for Western businessmen who had high hopes of a fresh new market, and not for Western leaders who trusted that the no-nonsense Putin would be a staunch ally and partner in the emergence of the new Russia.

Nor will it be easy for the oligarchs — those who remain and those who have left — or indeed, for Russian Jewry, which faces an uncertain future in a country that has a long record of antipathy toward its Jews.

The 2002 report by the Moscow office of the ADL notes that while state officials in the new Russia no longer espouse open anti-Semitism, “grass-roots anti-Semitism remains a very significant problem and has become an integral part of life in Soviet society.”

The oligarchs did not cause anti-Semitism, nor are they responsible for the aggravation of this “very significant problem.” A particularly pernicious strain of anti-Semitism has long been endemic in Russia.

But there is a curious twist in the tail that will give the anti-Semitic conspiracy theorists much to chew on with the imminent arrival on the scene of the new power behind Khodorkovsky’s Yukos empire.

Stepping into the breech is the formidable figure of Lord Jacob Rothschild, head of the London branch of one of the most illustrious families in the annals of banking.

What Putin discovered only after he attempted to freeze Khodorkovsky’s stake in Yukos was that the arrest had automatically triggered a secret trustee agreement that Khodorkovsky had concluded with the 67-year-old Rothschild several months earlier.

Thus, when Khodorkovsky was arrested, Rothschild automatically assumed control of his $8 billion stake in Yukos, which has been held by the Gibraltar-based Menatep Group.

Though separated by a generation in age, Khodorkovsky and Rothschild are said to have become close friends, drawn together by mutual passions for art and philanthropy.

Both men are trustees, along with several other oligarchs, of the Open Russia Foundation, which was established with Yukos money to support educational projects. It was Russia’s first foray into the world of corporate philanthropy.

Lord Rothschild has always sought to conduct his business far from the public gaze, but now he faces the prospect of a very public, very bruising confrontation with the thwarted Russian president.

While Rothschild has chosen the quiet life, there is no doubt that he can draw on the family’s rich historical experience to operate in the chaos of modern Russia.

After all, the Rothschilds made their first fortune two centuries ago providing gold to pay the wages of the Duke of Wellington’s soldiers who were fighting in the Napoleonic wars.

The fourth baron now has a new war to fight.

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