Russia plays power games while world moves on


Phat Cat
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Feb 23, 2009
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Russia plays power games while world moves on

Like a spoilt child angry that its new toy is broken, Russia lashes out at the world, screaming for attention. This week’s Bric summit in Yekaterinburg of emerging economic giants was just silly, the celebration of an idea whose time is now over, killed by recession and widening gaps in policy.

The grouping of Brazil, Russia, India and China is a pet project of the Russian Prime Minister and it was an opportunity for Vladimir Putin to prove that Russia is more than just an authoritarian petrostate, run by corrupt bureaucrats, in which money buys power and status.

Instead, while President Medvedev stood next to Hu Jin Tao, the Chinese leader, the event was overshadowed by bizarre Russian policy U-turns, pointless political posturing over the US dollar and more evidence of Russian financial mayhem, crime and commercial skulduggery.

Without warning last week, Mr Putin said that Russia would scrap plans to join the World Trade Organisation as an individual state. Instead, he said, it would seek membership of the trade body jointly with Belarus and Kazakhstan as a single customs bloc.

There is no precedent for a customs union joining the WTO, much less one that brings together a paranoid superpower and two dysfunctional dictatorships. That Mr Putin chose to bring to an end 15 years of negotiations only five days after a signal from the European Union that it expected Russian membership by December is telling. Pascal Lamy, the WTO director-general, said he was “perplexed” by the Russian decision. It is unclear whether a customs union could be treated as a sovereign body within the organisation, but what is certain is that Russian membership is now off the agenda.

Trade regulation is not sexy but it is vital because, unlike pompous diplomatic jawing, trade operates at the level at which real people do real things that concern us all. It is about commerce, investment, profits and jobs. If, after years of negotiation, Russia has finally turned away from the body that promotes free trade between nations, it is bad news. Instead, Russia and China toyed with the notion that it was time that the depreciating US dollar be replaced as global reserve currency with another or several currencies. Perhaps China’s renminbi or the Russian rouble could be candidates?

Perhaps, at some future date, when the behaviour of a Russian government encourages confidence that roubles are a useful store of value. The dollar still accounts for almost two thirds of global foreign exchange reserves, according to HSBC, and there is no sign that Russia is intending to price its oil and gas in (or roubles).

Such public preening must be deeply depressing for Alexei Kudrin, the Russian Finance Minister, one of the rare sane voices in the Kremlin who recently dismissed as premature talk of alternatives to the dollar. He must know that these political games are damaging distractions to the urgent task of reforming Russia’s economy, which has been badly hurt by this recession. The Russian economy will shrink by 10 per cent in this quarter and unemployment is close to 10 per cent. Investment has plummeted while industrial output has fallen off a cliff. Instead of a towering resources giant with an energy stranglehold on Europe, the financial crisis has exposed Russia as vulnerable, a one-trick economy with a shaky financial system.

Instead of reforms that might attract foreign investors, we have chaos and corruption. Telenor, the Norwegian company, is fighting to prevent the sale by bailiffs of its 29 per cent stake in Vimpelcom, a leading Russian mobile operator, to satisfy a $1.6 illion court judgment. Telenor is in dispute with Alfa Group, the conglomerate controlled by Mikhail Fridman over control of a Ukrainian mobile company and Telenor believes that Farimex, an obscure shareholder in Vimpelcom that secured the judgment against Telenor, is a front for Alfa. Mr Fridman denies any such shenanigans, but the continuing and outrageous perversion of the judicial system in Russia to the benefit of private and sometimes criminal individuals is now in the realm of farce.

The International Bar Association published a letter to President Medvedev yesterday, protesting at the prosecution and pre-trial imprisonment of lawyers acting for HSBC and Hermitage, the fund manager. The lawyers were assisting Hermitage and HSBC in their attempt to bring to justice corrupt officials in the Russian Interior Ministry who took part in a massive fraud using stolen documents and which resulted in the theft of $230 million in taxes paid by Hermitage to the Russian Treasury.

While Russia’s bureaucrats loot, the oligarchs pillage and politicians play games, the rest of the world moves on. Mr Putin would like to see himself on equal terms with the Chinese leadership, but he has squandered Russia’s chance to become an economic power worthy of sitting at a Chinese table.

For many years, China sought to secure reliable oil and gas supplies from Russia. But the former President Putin, exhibiting traditional Russian antipathy to its eastern neighbour, was reluctant to build links with China, preferring to reinforce the dependent relationship to the West.

In the meantime, China has been building pipelines to Central Asia, sucking up oil and gas in Kazakhstan. The world has now changed: the price of gas is falling through the floor, the West is fed up with Russian arrogance and China has found new friends with which to trade.

Russia plays power games while world moves on - Times Online

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