CHICAGO TRIBUNE: Kremlin Is Fastest-Growing Part Of Economy

From: Eagle_wng

Kremlin is fastest-growing part of economy
Under the stewardship of Vladimir Putin, Russia is gradually putting the Kremlin in control of everything that matters: energy, the economy, politics and the media

Alex Rodriguez writes from M

By Alex Rodriguez
Tribune foreign correspondent
Published January 15, 2006

MOSCOW — Russia’s newest, most powerful corporate enterprise doesn’t have a logo or a balance sheet. It doesn’t hold shareholder meetings and isn’t bound by any charter. Observers say it doesn’t need one because it makes its own rules, and changes them as it sees fit.

It doesn’t even have a name, though the brand several critics have suggested–Kremlin Inc.–is as good as any. In 2005 its CEO, Vladimir Putin, put into full swing Kremlin Inc.’s corporate strategy: reassert state influence over Russia’s economy and use energy to muscle its way back onto the world’s top shelf of economic powerhouses.

Under Putin’s stewardship, Russia is gradually putting the Kremlin in control of everything that matters: energy, the economy, politics and the media. Last year, Russian authorities engineered takeovers and deals that gave the state partial or complete control in some of the country’s most lucrative enterprises. The most significant of those deals involved the acquisition of Russian oil major Sibneft by state-owned Gazprom, the world’s largest natural gas producer.

The state also wrested control of Russia’s leading carmaker and took over the company that makes nuclear turbines for Russian submarines. And it tightened its grip on the media; in June, Gazprom bought Izvestia, one of Russia’s largest newspapers. The state already has control over Russia’s television networks.

In 2005, the Russian government was the most active player in Russia’s mergers and acquisitions market, engineering nearly a third of all deals.

The Kremlin’s push for legislation imposing severe restrictions on non-governmental organizations was widely seen as its stratagem for snuffing out the one element of Russian civil society that authorities had yet to control.

On the surface, this centralization of power and influence has all the markings of a reversion to Soviet-style governance, but there’s a difference: To a certain extent, Putin embraces Western-style market reforms as vital to Russia’s economic rebirth. Foreign investment should be nurtured, he believes. So should growth in small- and medium-size business.

The problem is that Putin cherry-picks where market reforms should be applied. He clearly wants Russia’s natural resources sector, the engine behind its economy, placed squarely in the hands of the state. He bemoans the size and influence of Russia’s bloated bureaucracy, even as he puts Kremlin apparatchiks at the helm of some of the country’s most powerful enterprises.

Economists say the Kremlin’s strategy risks stifling competition and ultimately imperiling economic growth. One of those economists, Andrei Illarionov, a top Putin adviser, quit in December in protest of Kremlin policies.

“The state can be inept, irrational and pursue strange interests, but those interests were always seen as in the national interest,” Illarionov told the Russian newspaper Kommersant. “What I could not foresee was that state interests could evolve into corporate and private interests to such an extent.”

Russia began 2006 with another highly criticized policy move that could haunt it in coming months. When Ukraine’s pro-West government balked at agreeing to a fourfold price increase for natural gas it buys from Russia, Gazprom shut off gas supplies to its western neighbor Jan. 1. The move caused sharp reductions in gas Russia sends to European customers via Ukrainian pipelines, and it triggered strong concerns from the West about Russia’s reliability as an energy partner.

Those concerns couldn’t have come at a worse time–on Jan. 1, Russia assumed this year’s chairmanship of the Group of Eight club of leading industrialized nations and will push an agenda of energy security.

Europe already depends on Russia for a quarter of its natural gas, and Gazprom is building a pipeline between Russia and Germany that eventually will supply Europe with 20 billion cubic meters of gas annually. But in the wake of Russia’s decision to cut off gas to Ukraine in the middle of winter, European leaders are murmuring about the need to look elsewhere for energy sources.

As G-8 chairman, Putin faces criticism on other fronts. As much of the rest of the world condemned Uzbekistan’s authoritarian government for shooting to death hundreds of demonstrators in Andijan last spring, Russia joined China in sidling up to Uzbek President Islam Karimov, firmly backing his handling of the crisis. Human-rights groups are urging G-8 leaders to raise concerns about the pending non-governmental organizations bill, which would significantly hinder the work of foreign and domestic NGOs in Russia. Putin has yet to sign the bill into law.

The rollback of democracy in Russia has become a familiar theme at summits between Putin and Western leaders. The criticisms never seem to faze him, in part because Russians themselves have never made democracy a burning issue with their president.

For Russians, the priorities have remained the same throughout the Putin presidency: better health care, better schools, higher wages. And after six years in office, Putin still struggles to deliver the basics that Russians need most. It’s why he gave his chief of staff, Dmitry Medvedev, a new job–improving health care, housing and schools.

Time will tell whether Medvedev can fix what other ministers couldn’t. If he fails, Putin could face a wave of criticism at home — criticism he would have no choice but to heed.
http://www.chicagotribune.com/news/opinion/chi-0601150301jan15,0,6764911.story?coll=chi-newsopinionperspective-hed

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