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Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 433,491 346,520 310,000 16
GNI per capita
 US $ 2,610 2,140 1,750 97
Ranking is given out of 208 nations - (data from the World Bank)

Books on Russia


Update No: 323  (05/12/07)

The expected landslide leaves questions open
Russia had vital elections to the Duma, the lower house of parliament, on December 2, which will decide the destiny of President Vladimir Putin and much else. But it is by no means obvious yet in what way.

Putin wanted a landslide and he got it. United Russia swept the floor with 64% of the vote, the communists trailing on just under 12%, one per cent less than four years ago, Vladimir Zhirinovsky's Liberal Democratic Party of Russia (anything but liberal or democratic in fact, indeed in cahoots with the Putin regime) obtained 8%, while Fair Russia received just under 8%, enough to exceed the 7% threshold for party representation in the Duma. The latter is a stooge party of the government.

The only genuine opposition party in the Duma will be the communists, which suits the government down to the ground. They are has-beens and everybody knows it.

The other genuine opposition parties were well below the the 7% threshold, notably 'Yabloko' on 1.6% and the Union of Right Forces on just under 1%. They dispute the honesty of these results, as well they might. People were being put under huge pressure to vote – and to vote for United Russia. Despite the real popularity of Putin, his sidekicks in the government and Duma, United Russia to the fore, are generally despised by the public. It is agreed that United Russia would never have got more than 35% of the vote except for exceptional pressure to conform being exerted and Putin's key decision to lead the party himself. 

Putin talks of 'moral right' 
President Putin said on November 13 that a convincing victory for the party he is leading in December's parliamentary elections would give him the "moral right" to maintain strong influence in Russia after he steps down next year. He cannot stand in the March presidential elections for a third consecutive term.

Putin's remarks, made in Siberia, were the clearest affirmation yet that he planned to keep a powerful hold on Russia's reins thereafter, but he stopped short of saying whether he would seek a formal role. It is likely to become evident before Christmas. The candidates for the presidential elections have to be declared by December 23. It is now deemed likely that Putin will back two candidates to ensure a second round, so establishing his paramount superiority in popularity, which nobody doubts.

United Russia inc
What is the make-up of United Russia? The pro-government group won just under the expected two-thirds of the vote on December 2. 

Putin had urged its members to choose candidates not associated with business. In the doublespeak world he inhabits, along with them, this meant that the opposite was to be expected. 

Vladimir Pribylovsky, head of Panorama think-tank, said of this call to exclude businessmen that it was to curry public favour: “What Putin said was mere demagogy.” A few dodgy characters were removed in its aftermath, undesirables for any political party, a convicted serial rapist, a recidivist convict or two. 

But the bulk of United Russia's candidates, 95% of them, were bureaucrats-cum-businessmen, who crave the immunity from prosecution that membership of the Duma confers. This alone proves the nefarious character of the assembly and of the party that dominates it.. Can a stronger inducement to criminals to join up be imagined than to give them automatic immunity of prosecution?

Spots on United Russia's lists were not free. Pribylovsky said that businessmen have to pay $ 2-4 million, double the amount in the 2003 elections, for a spot. Who can afford this entry fee to a club, if not businessmen and crooks?

Actually, there is another category of persons who are even more important.

KGB - United Russia inc
Putin has devised a novelty unadvertised, if not unknown, elsewhere – his top officials in government are taking over big business. They are nearly all former KGB agents, siloviki. Actually they have taken it over. Russia has become a KGB state.

Marx, the ideological inspiration of the Soviet Union, defined the state as 'the executive committee of the ruling class.' In a capitalist country one might assume that the class in question is always the bourgeoisie, and its executive committee bourgeois princelings or aspirants, crooked or otherwise, to be such. 

In the Soviet Union the ruling class was supposed to be the proletariat, and the Politburo of the Communist Party its 'executive committee.' It was never really like that. Lenin and Trotsky were fanatics, of quite exceptional ability in both cases, who placed the interests of the working classes of the world above those of the Russian proletariat, whose only salvation, they thought anyway, lay in world revolution. The Soviet state, under them, was the executive committee of the world's working masses. Well, notionally, so.

In fact it wasn't, because nationalism is far stronger than class warfare. The workers rallied to the nation in every combatant nation in 1914; and in Russia they only broke with its Tsarist rulers after their disastrous failure in defending it in 1917. Stalin instinctively understood this better than his more his intellectually austere superiors.

He proclaimed: 'Socialism in one country.' By which he meant that ideology counts for less than nationalism (as a Georgian-come- greater Russian nationalist, he grasped the significance of the subject far better than most).

The USSR was in extreme peril vis-a-vis the capitalist world. Its fons et origo of existence was survival. Socialism in one country became the course to be followed. The guarantee of that was a state security service, the thirteen forerunners of the KGB ( every one of whose heads met a grisly end). The KGB was only founded in 1954, after Stalin's death, the decorous successor of the Cheka, the OGPU, the NKVD, etc. 

This has left a chilling legacy for Putin to follow. He, as the leader of this most extraordinary of all land-masses, adjacent or nearly so to virtually every important country on Earth, sees external threats as far more important than internal problems. The encroachment of China and perhaps Japan on the Soviet Far East and what-else, and of the West in the Ukraine, the Caucasus, not to speak of the benightedly Western Baltic states, fills his KGB heart with horror. 

Was the Great Patriotic War (which began in 1941- forget about the rape of Poland, the collapse of France, Dunkirk and the Battle of Britain) fought for nothing? It gave the Soviet Union the true legitimacy it craved for a half century. 

The collapse of the Soviet Union was consequently a trauma of a great magnitude for Putin and his KGB ilk. It is hardly surprising that they want to rescue something from the debris. They have the largest state on Earth on their hands, Russia. They can, indeed, make something of that!

The future is not so obscure – it is the KGB 
There is no point in assuming to be a Cassandra in the case of Russia. There is no need. It is already in the hands of 'survival freaks,' who experienced the end of the Cold War as a very different affair than did the West – not as a triumph, but as a raw deal. 

The people left in charge in Russia are the KGB. It might have seemed different under Gorbachev and Yeltsin. But they were both KGB functionaries in their time. It might not have appeared so to the Western world. But the Russians had no illusions. They are now run by a brazen, not a covert, KGB regime.

The Kremlin rules all
To take a very telling example, when one of the top directors of Gazprom, the Russian state-owned gas giant, was recently summoned to a meeting with his chairman, the billionaire executive did not go to the company’s lavish new head offices in a high-rise south of Moscow’s city centre. Instead his chauffeur-driven limousine and chase car crammed with armed bodyguards headed straight for the Kremlin. After a brief walk along the building’s eerily silent corridors, which run along sumptuous, gilded halls, he was ushered into the office of Dmitry Medvedev, Russia’s deputy prime minister and close protégé of the president, Vladimir Putin. He may well be the next president – for one term.

But what outsiders could have mistaken for an exchange between a powerful Kremlin figure and a wealthy businessman seeking to curry favour was instead a routine corporate meeting which, in Russia at least, no longer raises eyebrows. For Medvedev is one of the country’s most senior government figures and chairman of Gazprom’s board of directors to boot. 

As a result, the 42-year-old has three offices, one in the White House, Russia’s seat of government, another in the Kremlin, the president’s official residence, and a third at Gazprom’s headquarters.

Also on the gas giant’s board are Viktor Khristenko, Russia’s minister for industry and energy, and German Gref, who until September was economic development and trade minister. 

Far from being an anomaly, Gazprom’s unusual boardroom line-up is the result of a deliberate policy introduced by Putin of appointing trusted Kremlin insiders to head Russia’s largest state companies. Instead of being an obstacle, the fact that they also hold senior state positions appears to have become an essential requirement. 

After nearly eight years in power the policy has become so widespread that Russia’s largest companies are all controlled by bureaucrats, cabinet ministers and Kremlin bigwigs, whose biographies in many cases share one thing – a KGB past. Personally appointed by Putin, they answer only to the president. 

Critics have dubbed the system Kremlin Inc or Korporatsiya, the Corporation, likening the country to a multinational, the state to a boardroom and the president to its chief executive. Putin, who curbed the power of the oligarchs – in some cases by jailing them – is accused by critics of giving birth to a new breed of state tycoons. 

“Only in Russia are business-men also big state bureaucrats,” said Stanislav Belkovsky, a political commentator linked to Boris Berezovsky, the oligarch turned fierce Kremlin critic. “The country is not run by politicians serving the state but by a clan of business-men who often use the state’s instruments, including its security services, to make money.” 

Even a partial list of state figures who officially also hold senior positions in business is bewildering. Igor Sechin, a former KGB officer who is now deputy head of Putin’s presidential administration, is chairman of Rosneft, the huge state-run oil company. Sechin’s No 2 on the board is Sergei Naryshkin, a deputy prime minister who is chairman of Channel One, one of two state television networks. 
Viktor Ivanov, another former KGB officer and close Putin aide, heads Aeroflot, the state-owned airline. In addition, he chairs the board of directors of Almaz-An-tey, the state missile-production monopoly. 

Sergei Ivanov, the hawkish deputy prime minister and former KGB officer widely tipped as another favourite for the presidency, heads the newly formed monopoly United Aircraft Corporation, a merger of Russian aircraft-design bureaus. 

Alexei Kudrin, Russia’s finance minister, is the chairman of Alrosa, the world’s second-largest producer of diamonds. Until last year, Vladislav Surkov, one of Putin’s most trusted Kremlin advisers, was also on the board of Transnefteprodukt, a state oil-pipeline group. 

In the case of Andrei and Dim-itry Patrushev, who respectively work as an adviser to Rosneft’s board of directors, and vice-presi-dent of the state-run bank VTB, the link to Russia’s sprawling state bureaucracy is through their father, Nikolai – a close Putin loyalist who heads the FSB, the former KGB. 

“Frankly I don’t know of any other country where so many high-ranking state officials also head state companies,” said one Western oil-industry source. 

It’s a bizarre situation which surely leads to daily conflict of interests. Imagine a British cabinet minister moonlighting as the chief executive of a state company. Instead of properly regulating the economy, the state actually owns the economy.” Putin’s supporters – and there are many – say the policy is justified as it reestablished the state’s control in the world of big business and put an end to the chaos of the 1990s when, under Boris Yeltsin, state-owned enterprises were sold to well-con-nected tycoons for a fraction of their value. 
Cabinet ministers who are at the helm of big corporations are not there to enrich themselves, say many in Russia. Instead they attend board meetings and make appointments to ensure that the state’s interests, as seen by Putin, are met. They are his eyes and ears, not oligarchs. 

Putin’s detractors, however, suspect – but given the lack of transparency and the Kremlin’s tight control on the media, have found little evidence – that members of the Korporatsiya have long become multimillionaires. 

Privately at least, few dispute that state officials are allowed to have businesses on the side. More than one is rumoured to own a villa in Sardinia. 

Putin did not simply appoint state officials to head Russia’s largest corporations. In most cases he either created or turned the companies into what they are today. From the start of his presidency he has aggressively moved to bring much of Russia’s oil and gas industry back under Kremlin control, often wrestling ownership from the oligarchs. 

By far the most hostile takeover was against Mikhail Khodor-kovsky, the former owner of the Yukos oil company and once Russia’s richest man. He incurred Putin’s wrath not just because he developed political ambitions. His crime in the eyes of the Kremlin was considering selling part of Yukos to an American oil company and seeking to negotiate the construction of a new pipeline without Putin’s consent. 

Jailed and found guilty of embezzlement and fraud in a politically motivated trial, Kho-dorkovsky is now serving an eight-year sentence in Siberia. 

Yukos was slapped with a £10 billion bill in unpaid back taxes, forced into bankruptcy and stripped of its main assets, which were sold to Rosneft in a process that even some Kremlin aides described as state-spon-sored theft. 

Sechin, Rosneft’s chairman and a close Putin aide, has been widely described as the driving force behind the onslaught on Yukos, one in which the Russian president is said to have taken a keen and personal interest. In 2004, before the demise of Yukos, Rosneft was worth an estimated £4.5 billion. It is now valued at about £40 billion. 
But Putin’s most cherished pet project by far is Gazprom. Once a Soviet behemoth, under the Russian president the company has experienced a giddy expansion. Putin, who is determined to see Russia regain some of the influencecreated and more state appa-ratchiks are being ushered in to boardrooms. 

Influential Russian business-men say that if the state is interested in buying out a company there is only one choice: sell. To oppose a takeover is as pointless as it is dangerous.
“Private companies can make a more attractive offer to win you over,” said one Russian entrepreneur who made a fortune in the oil industry and sold out shortly after the Kremlin began to show interest in the energy sector. 

“The state can send in the tax police and raid your headquarters with armed officers. Best option is to accept the first offer. You make decent money instead of powerful enemies.” 

Given the political power of some of Putin’s appointees, murky behind-the-scenes battles have been inevitable. 

Sechin’s interests as Rosneft chairman, for instance, are said to have clashed with Medvedev’s at Gazprom. 

A proposed merger between the two state-controlled behemoths was abandoned in 2005 due to rivalries between the two men’s power bases in the Kremlin. The two sides also clashed over the spoils of Yukos. 

The byzantine power struggles, both inside and outside the boardroom, are set to intensify now that there is growing insecurity over who will rule Russia after the March presidential elections. Equally unclear is what political influence Putin will retain and, crucially, in what capacity. 

“Make no mistake, if you area Kremlin insider and a member of Kremlin Inc you are far from poor,” said a Gazprom source. “And if you are up there with the big boys, your biggest fear is that the complex balances of power which have been formed over the last few years are going to be shattered with the end of Putin’s presidency.

“If a new boss comes in, so do his people. And they will want a slice of the cake. “Expect turmoil and intrigue – behind the scenes, of course. Expect pit bulls fighting under a carpet, as we say in Russia. 

“But, whatever the outcome, Kremlin Inc is here to stay.”

Putin and Gazprom
it lost with the collapse of communism by turning it into an energy superpower, has astonished aides and foreigners alike with his knowledge of minute details about Gazprom. No important company decision is taken without first consulting the president. 

Two years ago the state took a majority stake in the gas giant. It then purchased the oil company Sibneft from Roman Abramov-ich, Russia’s richest man and owner of Chelsea football club. Insiders say that soliciting rival bids was never considered. 

Gazprom, which some describe as a state within a state and a powerful tool of Russian foreign policy, is now worth more than £120 billion. Ranked by the value of its stock, the company is the fifth-largest corporation in the world. Its executives vow to make it the biggest. 

Putin’s hands-on interest in Gazprom is such that until recently many expected him to take over as chief executive when his second and last term ends in March – the Russian constitution bars presidents from serving more than two consecutive terms. 

He is now more likely to stay on as leader of United Russia, a pro-Kremlin party that could win as much as 70% in parliamentary elections next month. 

Either way, he will retain much influence over the huge state corporations created during his tenure. 

Kremlin Inc continues to grow fast as the state is now reaching out far beyond the energy sector. 

Mining, shipping, the railway and airline industries as well as car manufacturing are all coming under the government’s control. Other state giants are becoming subject to the Kremlin.

The eclipse of the Russian armed forces
There is another make-believe going on. Not only is Russian democracy a sham; so are its redoubtable armed forces, including its nuclear arsenal. Contrary to received doctrine, there is a steady post-Soviet decline of the armed forces under way, despite repeated pledges to strengthen military might, a group of independent experts said in a report released on November 6.

The military continues to suffer from rampant corruption, inefficiency and poor morale, the report said. The Kremlin has also failed to deliver on its promises to modernize arsenals, it said.

Putin owes his broad popularity to an oil-fueled economic boom that has helped increase wages and pensions, as well as efforts to revive Russia's clout. But critics say that the Russian military is only a shadow of the Soviet Army and that bellicose statements from the Kremlin mask a steady decline of its potential. "The revival of Russia's military might under Putin is merely a myth," Stanislav Belkovsky, who head the Institute for National Strategy, said at a presentation of the report. "The Russian armed forces have degraded completely under Putin."

If the current trends continue, the report warns, Russia's nuclear arsenals would shrink from about 680 intercontinental ballistic missiles now to between 100 and 200 missiles over the next 10 years. "It's impossible to reverse these trends under the current policy," it added, pointing at a steady decline of the Russian military-industrial complex that would make it impossible to increase weapons production without huge investments.

Alexander Khramchikhin, an expert with the Institute for Military and Political Analysis, said the continuing decline of nuclear forces meant that they would shrink to a level far below that of the United States and would be comparable to China's. "Russia's strategic nuclear forces have seen sharp cuts under Putin," Khramchikhin said. He added that the sea-based component of Russia's nuclear forces had undergone particularly drastic reductions.

Blaming corruption as the root of the problem, Khramchikhin and others said increasing military budgets under Putin actually bought fewer weapons than in the era of President Boris Yeltsin. "Because of corruption, the military gets a lesser number of weapons at a higher cost," Khramchikhin said.

Amid the increasing cold spell in relations with the West, officials cast the United States and NATO as the main potential enemy, neglecting a rising threat from China, experts said. Moscow and Beijing have developed increasingly close ties since the Soviet Union collapsed in late 1991, building what they described a "strategic partnership" based on their shared opposition to perceived U.S. global domination.

China has also become the top customer for Russia's military-industrial complex, buying billions of dollars' worth of jets, submarines and destroyers. "Thanks to Russia, China has practically overcome the lag in military technologies which was pretty big in the late 1980s," Khramchikhin said. A growing population and limited resources in China, he added, will make it a potentially difficult neighbor in the future. Some people in Russia have voiced similar fears, pointing at increasing numbers of Chinese migrants in scarcely populated Russia's Far East and Siberia. Officials have dismissed such concerns.

NATO scents its chance
There are those in the West eho understand that it now has a chance to bring the contest with Russia, the protracted aftermath to the Cold War and all that, definitively to an end. 

There will be cynics here who will say that such a thing is not possible. But the British and the French were at loggerheads for nearly eight hundred years from 1066 to 1815. Yet by 1830 they had made it up and have never gone to war since, becoming the Western nations par excellence, with Belgium and Holland. 

It surely makes admirable sense that the West and Russia should never see a repeat of the Crimean War of 1854-56, when Great Britain and France waged a dismal war against Russia on behalf of Turkey, whose only true glory is that it gave rise to Florence Nightingale and the Red Cross.

The United States and Russia are now engaged in brinkmanship at NATO headquarters in Brussels, where both sides are trying to salvage an arms treaty that is considered one of the cornerstones of European security since the end of the Cold War.

But much more is at stake. The United States and its European allies, especially France and Germany, want to try to strike a grand bargain with President Vladimir Putin. Their hope is that if NATO allies make concessions over the Conventional Armed Forces in Europe Treaty, not only would Putin lift his threat to pull out of the accord on Deember 12, but it could also be the start of a diplomatic rapprochement with Russia, helping to reach compromises over other big international disputes.

One is Kosovo. Despite Russia's staunch opposition, the ethnic Albanians are intent on declaring unilateral independence in the new year if talks with Serbia fail. The second is Iran, where the United States needs Russia's full support for stopping the Islamic Republic from obtaining the capability to produce nuclear weapons. And finally there is the U.S. plan to deploy part of its antiballistic missile shield in Poland and the Czech Republic, which Russia and indeed several West European countries believe is foolhardy.

Security experts say that if NATO negotiators believe that by making concessions to Putin over the Conventional Armed Forces in Europe Treaty, the rest of the grand bargain will fall into place, they are naïve. "The linkages are spurious," said Christopher Langton, an arms control expert at the International Institute for Strategic Studies in London. "It is hard to imagine Putin selling Kosovo for a deal on the conventional arms treaty."

The CFE treaty established a system for reducing conventional forces - tanks, armored combat vehicles, artillery and attack helicopters and combat aircraft - from Vancouver to Vladivostok. Countries signed up to on-site inspections and notifying each other of troop movements. There were restrictions over deploying forces on the "flanks" or border so as to prevent surprise attacks.

Even though the Cold War is over, security experts that say the treaty, which took effect in 1992, is worth saving. "Without it, we would not be able to see what Belarus is doing or what Russia is doing," said Lieutenant Colonel Marcel de Haas from the Netherlands Institute of International Affairs. "It really is about confidence building."

Putin has set conditions for Russia remaining in the treaty. He wants Estonia, Latvia and Lithuania to join it and for all signatories to ratify amendments agreed in 1999. So far, only Russia and Belarus have done so. He also wants the Organization for Security and Cooperation in Europe, which negotiated the treaty and which includes most NATO countries, to give Russia more flexibility to move its troops and equipment to volatile areas along its southern borders.

Diplomats involved in the negotiations say they are focusing just on reaching a compromise over the treaty. But they acknowledge that they have become caught up with Kosovo, Iran and missile defense. They say, too, that inside NATO, an East-West divide has opened up, with the East Europeans fearing they will be sold out for a grand settlement.

Putin has warned the West that if Kosovo declares independence outside the UN Security Council, followed by recognition by the United States and EU countries, it could set a precedent for other trouble spots in the region. Separatists in South Ossetia and Abkhazia in Georgia and in Transnistria in Moldova who look to Moscow for military and political support are seeking independence. Putin is in no hurry to throw away these cards. Then there is Iran and the U.S. missile defense plans for Eastern Europe.

Back in NATO, negotiations are rekindling fears among some East European countries that the West is going to appease Putin at the expense of their security. "Even though they are in NATO, the East Europeans worry that Russia will use any compromise to carve out its own sphere of influence in the neighborhood, for example, Georgia and Moldova," said Tomas Valasek, a defense expert at the Center for European Reform in London.
The United States has proposed that the Baltic states talk directly with Russia about joining the conventional forces treaty. It has also suggested that national parliaments start the ratification process. And, pressed by Germany, NATO would consider allowing Russian troops to remain in Abkhazia, but as part of an international peacekeeping mission. In parallel, Russia would start withdrawing its troops from Transnistria.

This is a major shift by the United States," said a Western diplomat involved in the negotiations, who requested anonymity. "Russia has not yet decided how to respond."

Baltic diplomats are disheartened. "It is of course very important that we have this dialogue with Russia on the treaty," said Zygimantas Pavilionis, under secretary of state at the Lithuanian Foreign Ministry. "But with respect to the dialogue, it would be good if our American friends and the EU would pay a bit more attention to what is happening in Russia's neighborhood in the coming months. Global issues that dominate the agenda could be a distraction from real Russian interests in its neighborhood."

Indeed, Russian interests in the neighborhood may provide the only real bargaining chips the West has. Putin feels encircled by NATO and the United States, particularly since 2004, when the Baltic states joined the alliance.

"This is when these former Soviet republics were lost to Russia," de Haas said.

Russia insists that they join the arms treaty so as to limit NATO maneuvers and troop buildups in the Baltics. In response to the U.S. antimissile shield, which has further hardened Russia's stance toward the arms treaty, Russia has threatened to deploy missiles in its exclave of Kaliningrad, which is sandwiched between Lithuania and Poland. Russia also opposes Georgia, Ukraine and Moldova joining NATO, fearing less influence in this region.

The stakes are high for NATO. It wants to save the treaty, which gives the signatories guaranteed military access to Russian and other defense establishments across the former Soviet Union. Putin wants to save it, too, but only if his conditions are met by Dec. 12. With so little time left, the East Europeans may be cajoled into accepting the compromise. But if the United States, France and Germany believe that Russia will make major concessions over Kosovo and Iran, they should think again.

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