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Pro: Foreign investors should sound retreat as Putin expands reach for global power

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Bogdan Kipling
October 4, 2008
EDITOR’S NOTE: The writer is addressing the question, Should Vladimir Putin’s autocratic maneuvers stifle foreign investment in Russia?

Foreign investors wisely are beginning to beat a retreat from Russia reminiscent of Napoleon’s Grande Armee as Vladimir Putin expands his apparently limitless appetite for power within—and beyond—Russia’s borders.


In late August, Russia’s central bank announced that its foreign currency reserves—a highly accurate barometer of investor unrest—had dropped $16.4 billion in a single week.


Reports since indicate that the investment hemorrhage is continuing and for good reason—the threat of Putin reneging on his nation’s commitment to foreign capital at a whim’s notice.


As a result, Russia is undergoing its largest financial debacle since its 1998 currency crisis and default on debt service obligations.


Ten years later, Russia is rich and yet, increasingly unstable. The cause almost certainly is Vladimir Putin’s successful grab of domestic power and his retro nationalism abroad as demonstrated by the violation of democratic Georgia’s sovereignty.


Almost certainly, the final straw for Western capitalists was the Kremlin’s stubborn refusal to release Mikhail Khodorkovsky from his Siberian prison even though he is eligible.


Khodorkovsky, the richest man in Russia, CEO and founder of Yukos Oil, was arrested at Moscow’s Novosibirsk Airport on Oct. 25, 2003, on what Western human rights observers said from the start were trumped-up charges of fraud and tax evasion.


In May 2005, he was found guilty and sentenced to nine years in prison—later reduced to eight years. His real—and only—“crime,” supporters says, was his political opposition to Putin at a time when the former officer and eventual head of renamed KGB had just launched his campaign for boundless personal power.


Khodorkovsky incurred Putin’s wraith when he started buying up failed state-owned companies at fire-sale prices after the breakup of the Soviet Union, a practice hailed at the time as evidence of Russia’s swift transition to a free-market economy after 78 years of Soviet communist morass.


That’s the backdrop, now the foreground. Western circles persuaded themselves Khodorkovsky would be paroled in August after newly installed President Dmitry Medvedev pledged to reform Russia’s judiciary and to establish the supremacy of the rule of law.


Yeah, right. In the remote Siberian city of Chitra, a Russian judge was ruling on Khodorkovsky’s request for parole, but never heard it. He denied the request on the grounds that Khodorkovsky refused to take a required sewing class and failed—as required—to hold his hands behind his back during a walk in the prison yard. With good cause, Khodorkovsky’s attorneys asserted that prison authorities fabricated charges and invented evidence to keep him locked up.


So much for President Medvedev’s pledge to rid Russia of so-called legal nihilism!”This case represents an ongoing test” of Russia’s judicial system, says Robert Amsterdam, a Canadian who heads Khodorkovsky’s team of international lawyers.


This latest chapter in a continuing human rights tragedy tops a laundry list of examples that could be recited to show how Vladimir Putin and his willing supporters go about scaring foreign investors out of Russia. Besides treating its own entrepreneurs as criminals, Russia recently reneged on major contractual agreements with international oil giants BP and Royal Dutch Shell.


Exercising his power the way he is, Putin may be playing with a fire. Russia’s booming economy may end up looking like a 21st-century Potemkin village, held up by constantly rising oil prices, demand for consumer goods and foreign investment.


But, with oil prices in sharp decline and foreign investors fleeing Russia for friendlier climes, Putin’s economy may soon shrivel. For all of Russia’s oil wealth, there has been little trickle-down of petrodollars to the average Russian and that failure will have its price.


Although Putin now wields power his former KGB peers could only dream of, he may be in for a rude awakening if the price of oil continues to plummet and the current exodus of worried foreign investors attains a critical mass. Current events suggest Putin has vastly overplayed his hand.


Bogdan Kipling is a columnist for The Halifax Chronicle Herald. Readers may write to him at Chronicle-Herald, 1650 Argyle Street, Halifax, Nova Scotia, Canada B3J 2T2, or e-mail him at bkipling@herald.ns.ca.

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