Business in Russia: What’s the deal?

Date: 22/11/03

President Putin declines to say

EVER since the start of the investigations into Yukos, which led last month to the arrest of Mikhail Khodorkovsky, other Russian businessmen have been wondering if they will be next. Most assume that it was political influence-peddling that got the boss of Russia's biggest oil firm into trouble. Many could easily face similar charges of tax evasion and fraud (several already have, but seen them dropped). So, when Vladimir Putin at last agreed to see business leaders at a congress on November 14th, they were eager to hear his terms.

The meeting echoed one Mr Putin held in 2000, soon after his election. That was with a much smaller group, the so-called “oligarchs”. They were told they could keep their enormous wealth, grabbed during the free-for-all privatisations of the 1990s, but not the political influence they had enjoyed. After two of them, Vladimir Gusinsky and Boris Berezovsky, refused to obey and used their TV networks to attack Mr Putin, they were stripped of their assets and forced to flee abroad. The rest seemed to get the message, until Mr Khodorkovsky began this year to wield his clout in parliament and against the government.

So what are the new rules? Mr Putin would not say. Indeed, those at the congress were told that they must not even mention the biggest business and political scandal of the past three years, leaving the president to deal with it in a few enigmatic statements. In the closest he has come to admitting a political motive to Mr Khodorkovsky's arrest, Mr Putin said that “there is a view...that industrial policy today is nothing other than the attempts by some businesses to lobby their interests through state structures at the expense of other businesses.” He extended some olive branches, such as a concession on property rights, but hinted that business “could put some effort into developing a system of new social guarantees,” which was taken as a signal of future tax rises.

Mr Putin's vagueness is slowly shredding investors' nerves. This week the stock market fell to a three-month low on the news that Yukos faced a court challenge to its merger with Sibneft, a smaller firm, and that the two firms would soon lose tax breaks. (Share prices had earlier stumbled after the arrest of Platon Lebedev, an associate of Mr Khodorkovsky.) A new tax probe into Sibneft was also revealed. The president's gnomic statements allow officials to interpret them as they please, and use them as cover for their own crusades. Mr Putin has already had to contradict the natural-resources minister, who had said that Yukos might lose some oil licences.

But above all, it undermines Mr Putin's claim that he is interested in “improving the state institutions...in a systematic, public and legal fashion”. Rather than set clear rules, such as a law limiting political lobbying, he prefers, at least in this area, arbitrary power. That lets him keep crooked businessmen, who understand the coded messages, under his thumb. But it will not encourage the honest ones to grow.