By Patricia H. Kushlis
Near the end of the June 21 New York Times article “Oil Wealth Reduced, Russia Needs to Lure Foreign Capital,” on the tepid state of the Russian economy, reporters David Herszenhorn and Andrew Kramer wrote that the Kremlin has decided to dip into the country’s $171 billion “rainy day fund” to fix what ails it – e.g. to spur short term economic growth - rather than do what needs to be done in terms of structural reforms for the long term.
Bandage not sutures: No thank you
This approach, not surprisingly, is like applying a bandage to a hemorrhaging artery not stopping the geyser’s flow at its source. A follow up article on June 22 by the same reporters indicates that the Putin government proposes to “dip into Russia’s pension fund reserves” for up to $43.5 billion to finance three major infrastructure projects: to modernize the Trans-Siberian railroad, to build a high-speed rail line from Moscow to Kazan and to build a superhighway ringing Moscow. This is supposed to show the world’s financiers that Russia has turned over a new leaf and suddenly made the country safe for capital investment? Please not with my dollars.
The Russian economy may well be the world’s eighth largest and unemployment in the comfortable 5.9% range. But until and unless the government changes its laws and their enforcement – new transportation infrastructure projects and a substantial Chinese oil flow deal (just when that economy is slowing) or not - the country will never become more than a Eurasian Zimbabwe with nuclear weapons - a source of raw and sometimes rare commodities which today account for 80% of the country’s exports.
Corruption, uncertain property rights, rigged courts, bribe-taking officials, seemingly interminable low level civil war roiling the country’s south, and unresolved suspicious murders of journalists, businessmen and lawyers do not a healthy society make. Why should foreign investors risk their capital in such a place?
Endemic problems
The dilemma is that today’s problems are endemic to the country’s economic and political culture. Some result from the 70 years of Communism which collapsed in 1991. Yet others date back to Czarist times. Russia never really was a truly industrialized nation despite Stalin’s exhortations and efforts to the contrary. It still imports far more industrial products than it sells abroad.
Rule of Man vs. Rule of Law
Like it or not, there was a reason the United States passed the “Magnitsky Act” (Sergei Magnitsky Rule of Law) last year out of respect for the 37 year old lawyer for Hermitage Capital who was left to die in a Russian prison ‘nearly a year after uncovering a massive fraud allegedly committed by Russian officials to the tune of $230 million.’ The people whom Magnitsky implicated in the fraud arrested him in 2008; a year after his murder.” Instead of cleaning up Russia’s act, “several of these officials were promoted and awarded, adding insult to the fatal injury inflicted on Magnitsky.” Not only has the Putin Government made their case (denial of American visas and U.S. banking privileges to the worst offenders) an anti-American cause célèbre but also put heavy pressure on “foreign NGOs” –like Human Rights Watch that receive funds from abroad – to close up shop in response to domestic criticism of and demonstrations against his regime. Never mind that Putin took control of mass broadcasting years ago.
Meanwhile, liberal economist Sergei Guriev recently fled the country after pressure from state prosecutors and Mihkail Khodorkovsky, the Russian oligarch remains in jail since 2003 because well, he dared to challenge Putin’s increasingly authoritarian rule. The mammoth state owned petroleum companies sputter along losing potential revenue for the government because of poor management and questionable strategic planning while Putin relies more and more on playing the nationalist card to bolster his sagging popularity at home.
See also: Kushlis, Tsarnaev, Congress and the FSB: Unanswered Questions Remain Unanswered, WhirledView, June 0, 2013