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The arrest of Mikhail Khodorkovsky, Russia's top entrepreneur and a government critic, has rocked the country's financial markets and fueled criticism of President Putin for being anti-democratic.
Russia's stock market recovered slightly today, after yesterday's dramatic 14 percent plunge. The financial turmoil was triggered by the arrest of the country's top entrepreneur Saturday on charges of tax evasion and fraud.
Forty-year-old Mikhail Khodorkovsky heads Yukos, one of the world's largest oil companies. A former fuel and energy minister under Boris Yeltsin, he's today considered Russia's richest man, with a reported net worth of $8 billion. And he's used some of that money to fund opposition parties in the run-up to the December 7 parliamentary elections. He's also been openly critical of Russian President Vladimir Putin and his government.
Khodorkovsky's arrest added new fuel to growing charges in the west that Putin is becoming increasingly antidemocratic. Two weeks ago, the "Economist" editorialized that the Kremlin's targeting of Khodorkovsky showed "in Russia, the rule of law is that those who rule are the law."
Trying to calm the markets yesterday, Putin denied any political motives, and urged an end to what he called "all the speculation and hysteria about this."
PRESIDENT VLADIMIR PUTIN (Translated):
Everyone must be equal in the eyes of the law; a modest clerk, a civil servant, even one of the highest rank, as has now happened to a well-known former federal government minister. Everyone must be equal, no matter how many billions he has in his private accounts.
Khodorkovsky is currently being held in a high- security prison in Moscow.
For more on what Khodorkovsky's arrest says about Putin's Russia, we turn to two men who've written widely about Russia. Marshall Goldman is professor of economics, and associate director of the Center for Russian and Eurasian Studies at Harvard and Dmitri Simes is president of the Nixon Center. Welcome to you both.
Professor Goldman, explain to us why would the arrest of this one man trigger such a plunge in the Russian stock market?
Well, because he heads this company that American firms, among others, are very much interested in. Putin has been trying very hard to establish a certain order of stability. He talks about becoming part of the west. Suddenly to see this attack on a man who has been put in jail for at least about two months does suggest that there is something going on here particularly since Khodorkovky has been giving money to other political parties and is viewed as somebody who has been trying to make this company very much transparent, something that he did not do in previous years.
Do you agree with that, Dmitri Simes, that this made foreign investors nervous?
It made foreign investors nervous because Khodorkovky is the richest man in Russia. He's in charge of the most productive and I should say most transparent Russian company. When the investors see that, to put it mildly they are confused. How long their confusion is going to last depends upon what happens to Khodorkovky and depends whether there will be an attack on other Russian oligarchs and whether there be an attempt to re-nationalize major Russian companies.
Professor Goldman, tell me a little bit more about how investors see this. Does it make them worry that the rule of law is not really being applied here? What is it they're really concerned about?
Well, everyone of the oligarchs has a black mark after their name. They have all been engaged in procedures and policies that were questionable. Some of them have said you could not operate legally in that era. So there's the whole issue that anyone can be picked up by Putin or Putin's successor because the reforms that were introduced were so flawed. And that creates… enormous uncertainty. How can you invest when you just don't know what's going to happen? Now, the likelihood is that– and Dmitri suggested something along these lines– that future investors will say we don't want to go there unless you want to look for oil because Russia has enormous oil reserves and there aren't many other places they can go but manufacturers may indeed have other questions about going there when they can go to China or Poland.
Dmitri Simes, as you know Kremlin critics say this arrest was about a lot more than Khodorkovsky's financial dealings and that it was a sort of reflected what former CIA Director Jim Woolsey wrote about a month ago. He described it as Putin's authoritarian drift. Is there something to that?
No. In order to have an authoritarian drift you presume democracy. In Russia we have a horrible system of corrupt capitalism and this system since Putin took over was raised on two columns….
Was raised on two pillars. One security people close to Putin, people from the former KGB and another group the oligarchs. Neither of them was really committed to democracy. What you see today is these two groups are going after each other and Putin increasingly attacking the oligarchs. One point: The Russian press, the Russian TV have described what has happened to Khodorkovky rather fully. There is certain freedom of the press in Russia at least so far.
What do you think about that, Professor Goldman, does this disclose his authoritarian bent?
I would say he's got the authoritarian bent. I'm a little nervous about it. Actually I would take issue with Dmitri about this. The Russian state television on Saturday really almost hid the fact that Khodorkovky had been arrested. The state channels show almost nothing but Putin on the news programs and later on get into some of these other issues. He's recently in this connection with the attack on Khodorkovky, they raided the offices and seized documents from one of the opposition political parties. There is gradually encroachment on these things. It's not that… here I would agree with Dmitri that Russia was really never a full blossoming democracy but the oligarchs have learned that if they attack Putin, they are indeed in trouble and two of them have already been sent overseas and if you look at the other members of the associates of Khodorkovky, two or three of them have already fled and the rest are trying to become members of the Dumas so they'll have political immunity.
But you're suggesting that it's more than the oligarchs who have to be worried here.
Oh, absolutely. For example, the police, the KGB or the FSB, their successor, visited the school that Khodorkovky's daughter was attending and wanted the names of the other students and that has to be intimidating.
It's not a pretty picture. The only point I was making was that people were arrested under Yeltsin. The parliament was shelled by tanks under Yeltsin. Under Yeltsin, the oligarchs were given control over media empires at that time to protect Yeltsin. There was no democracy under Yeltsin. There is no democracy today under Putin. We should have no illusions. We were I think too benign in thinking about Yeltsin. We should not exaggerate how harsh is Putin in terms of democracy but to describe Putin as a democrat, I think Mr. Putin himself would probably laugh.
Professor Goldman, your view on that?
Well, you know, when he spoke at Columbia university when he was visiting this country a few weeks ago he was asked, how do you feel about destroying freedom of the press? He said well we never had it. I think that's too strong a statement. They never really did have complete freedom of the press. But in those days, the other oligarchs did attack Yeltsin over Chechnya.
They did try to attack Putin over Chechnya. When they attacked Putin that's when their properties were seized so there's much less willingness today to attack Putin or do anything which would make him unhappy whereas it's true, the Yeltsin arrested some of these people and shelled the parliament and I think that we should have been much more critical of that but I think the people felt a little freer in the days of Yeltsin. One of my friends said under Putin fear has returned. I think that's the best marker of where we stand now.
Mr. Simes, critics also point to, for instance, what they say were rigged elections in Chechnya, sort of questionable elections for the governorship of St. Petersburg — even meddling, they say, in the upcoming parliamentary elections.
Elections in Russia are rigged all the time. They were rigged under Yeltsin, they were rigged under Putin. Elections in Chechnya are laughable. Everything is for sale including political positions. Mr. Khodorkovky sometimes was the beneficiary of that. One reason they think he was arrested because he was asking several political parties, including a certain party, incidentally, to sell positions on their abilities, and he was trying to create his place in the Duma.
Do you want to comment on that?
I think Dmitri is absolutely right. Indeed the irony is that the Yukos officials have managed to put two people from Yukos on the communist party list. I mean it is an unusual form of democracy there.
Let me follow up then with a question about what President Bush had to say at Camp David last month because some newspaper columnists criticized him for this. When he was meeting with Putin, he said that Russia was a country or, quote, "a country in which democracy and freedom and rule of law thrive." Is he giving Putin too much leeway?
Oh, I think so. Thriving, if that's– I hope that's not the image that President Bush wants to see in the United States. You know, there are some of us who worry about homeland security becoming more like Russia. In that sense you may say it's thriving but by my standards it certainly is not. I say I have a lot of friends who are really quite intimidated now who were not a few years ago under Yeltsin and indeed in the last days of Gorbachev.
But are you saying that the president of the United States should somehow comment publicly on this? Should make different views known than he has?
I wish he would. The only thing I think that Putin might then very well say, look, some of the things you're criticizing me about you have going on in your own country, asking librarians to come up with the names of people who have looked in books. I would hope that President Bush would do it, and I'm a little nervous that the two of them have formed this relationship which is very much involved with Russian support for what we're doing in Iraq and in Afghanistan and I have a feeling President Bush is very nervous about doing anything to disrupt that, plus the fact that again we have our own problems with civil rights here now.
What's your view of President Bush's remark?
Well, unfortunate. I kind of disagree with marshal that President Bush at this point should criticize Putin publicly. It is too early. I think that we have other priorities vis-à-vis Russia including terrorism, non-proliferation. You don't attack somebody like Putin today and expect full cooperation from him tomorrow. But to white wash Putin publicly, to praise him as being a democrat which he clearly is not and in my view does not pretend to be, I think it's going far to far.
Dmitri Simes, Marshal Goldman, thank you both.
Sure, thank you.
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