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July 2006 Country Archive



This month's report on Russia addresses the question of Vladimir Putin's intentions when his constitutional presidential period runs out in 2008. As newnations (and the same editorial team in a previous existence through our publication RUSSIA EXPRESS), we have been reporting RUSSIA and its USSR predecessor every month since 1987. Whilst after 20 years we do not claim to have unwrapped the riddle hidden in an enigma inside the puzzle that is RUSSIA, let alone faultlessly navigated the byzantine corridors of Kremlin fixing and matchmaking, nevertheless we have evolved some ideas and even insights over that period. This month we take a reasoned view of what may come to pass. If we prove to be right, then remember that you read it here first! 

The massive steel company conglomeration is finally agreed of Arcelor and Mittal which so nearly became the virtual takeover of Arcelor by Russian oligarch Alexsei Mordashev, of Severstal, a major Russian company. He collects a 'break-fee' of 140 million euros, but not much more. The tail is still lashing and perhaps some inclusion might still happen, but absent that or an all-cash bid by him for the whole company, there has been a knee-jerk reaction from RUSSIA that the reason for Severstal being outgunned was due to western objections, simply because Mordashev is Russian. 'Russophobia,' they called it. 

The Chairman of the Russian parliament said that an unprecedented 'propaganda' campaign cost Mordashev the deal. It is clear that Russians have not understood how their business world is regarded outside of RUSSIA. The answer is with deep suspicion! How could it be otherwise seeing that there is widespread cynicism about the standard of auditing and lack of transparency in their companies, about business intertwined with organised crime and state intelligence agencies? It is sometime unclear if the private management of a Russian company is in reality just a government front. It seems obvious to westerners used to the world of takeovers, mergers and buy-outs, that shareholders in a free market would always seek the best deal for themselves. Since Severstal shares were the currency that was being traded for his near controlling interest, it is there that perceived value became snagged with the distrust of the Russian marketplace. If he had offered cash he would probably have triumphed, because cash conquers all. 

The eventual fate of Khordakovsky, now languishing in a Siberian hell-hole, realised some key objectives for President Putin understandably wishing to prevent the sale of one of Russia's biggest assets, its Yukos oil company to the US owned Exxon. As in China, the message also went out loud and clear to oligarchs, that they could do pretty well what they wanted (other than sell national treasures like Yukos), but they must keep out of politics; that they must always remember that they owe everything to the Kremlin - who might well call in its debts, whenever it so chooses. It has become obvious that every successful business man in RUSSIA has a secret police file, detailing taxes unpaid, involvement in one or another form of corruption, or of cutting legal corners when they were getting started ten and fifteen years ago in an almost lawless society. If they step out of line, that file contains information good enough to provide a warrant for their arrest and imprisonment. If they conform, then the deal is that the file stays closed. Therefore they are and remain in essentials, creatures of the state and that is not a comfortable position for western shareholders, who fortunately for them have no shortage of alternatives worldwide, in where to place their funds. 

GAZPROM the largest Russian company, is a perfect example of all of the foregoing perceived weaknesses for western investors. Foreign investors seem unable to get a seat on the board which the size of their holdings would appear to entitle them to. Two hedge fund managers, concerned about the opaqueness of this giant corporation have been trying unsuccessfully to get any of the nine seats, currently filled by government nominees and company insiders. The head of one of the hedge funds, William Browder of Hermitage, long an activist in this matter, has incredibly had his visa removed and is not now allowed inside RUSSIA. So much for transparency!

As we report this month, the US government has shown its displeasure with the government of General Musharraf, by cutting its foreign aid by $350 million, explicitly citing as a reason Islamabad's failure to improve democracy and human rights. 
Sounds good - GWB doing his bit consistently for democracy? 

In May, just before this was announced, opposition leaders Benazir Bhutto and Nawaz Sharif announced an important conjunction - that they would fight together in an electoral alliance. This is not to say that these two can win. In their time, they separately presided over PAKISTAN when it was widely regarded as being probably the most corrupt nation on earth, the clan and regional politics they represented, means that the mark that they left on their nation was not uplifting, nor indeed taking PAKISTAN anywhere. Whether they can beat the military man remains to be seen. He has impressed many with a long overdue rapprochement with India. The two nuclear powers who have fought several wars over fifty years past, now at least talk sensibly, look for solutions, and can even play cricket together without communal murder. He took a courageous decision after the 9/11 shock to actively support Washington, when other Moslem leaders sat on their hands. He proved it with the delivery of some of the really important top echelon al Qaeda prisoners, definitely of 'rendition quality' heading for the waterboard with real information, rather than the relatively low-level sweepings of the Afghan battlefields, who mostly inhabit Guantanamo. He is not a religious freak - those fanatics have attempted three times to kill him - the price of supporting the USA. He is not a populist. He is not as far as is known, infected with corruption, that awful disease of power in so very many third world countries, as certainly were his predecessors in office in PAKISTAN. In fact he looks to many at a time when the world is cowering under the threat of irrational religious terrorism, like rather a good man to have on your side. To us, having displayed a stature which puts him above and apart from his country's traditional politicians, he has the potential to perhaps be something of a Kemal Ataturk to his nation, perhaps big enough to take his country, like TURKEY, on an objective secular path towards the future, and away from the cloying and drag-anchor influence of his nation's religion. 

Given that Pakistan is the only Islamic state to have the nuclear weapon and is at least as badly affected by jihadism as any other moslem nation, then any change in the ruler here should be a most weighty matter of the gravest concern. We ask why, in all of these circumstances, is Washington now setting out to destabilize him? 

The final agreement on the coalition in UKRAINE has gone right to the wire but apart from how the sharing of ministerial seats was made, it was eminently predictable. The Orange coalition has held together (its leaders were not quite ready to self-destruct). The new PM is Yulia Timoshenko; President Yushchenko can now get on with …presiding - because he has surrendered some key powers to the parliament (Yulia) - the largest bloc of votes went to the pro-Russian party of Victor Yanukovich who nevertheless got less than he did in the presidential election, and now will drive the opposition. 

But Europe, let alone UKRAINE must brace itself for another potential gas crisis, as GAZPROM expects in July to increase its price to UKRAINE which had doubled earlier this year, and the Timoshenko government is pledged to renegotiate the whole deal. Since most of Russia's exported gas flows to western Europe through pipelines in UKRAINE, as we saw in January, if agreement isn't reached, supplies not only to UKRAINE but flowing through the country to the west, may be reduced or halted.

In both KYRGYZSTAN and UZBEKISTAN this month, we separately describe something of the SCO, the vehicle set up by RUSSIA and China as a counterweight to US hegemony worldwide, which has grown and is still growing in significance throughout Asia. KYRGYZSTAN will host next years SCO summit, and is a lowly member together with TAJIKISTAN, KAZAKSTAN, UZBEKISTAN, alongside the two Eurasian giants. Their joint territory is 60 % of the Eurasian landmass and their combined populations are a quarter of mankind. In addition INDIA, PAKISTAN, IRAN and Mongolia have observer status. Whether any of these will become full members remains to be seen. One can see the hiatus if IRAN were to be so invited. 

This month's INDIA report, tells the SCO story from their viewpoint and describes what appears to be an intelligent approach to the question of how deeply to get involved.
The SCO partner countries are spinning off such economic limbs as the SCO Business Council and Forum of Industrialists and Businessmen; and the SCO Inter-Bank Association. Undoubtedly there will be more to come. They earlier this year, made a political pronouncement, calling on the US to remove its bases from Central Asia, partly to put pressure on the two 'stans in membership - Kyrgyz and Tajik - that have American bases, and partly signaling the position of RUSSIA and China that the US is horning in on 'their' sphere of influence. 

In every sense, except the most critical one, they are recreating a bi-polar world, the key exception being that it is not (so far) a military association. That being the case does not preclude members co-operating on a bi-lateral basis as China and RUSSIA recently did in conducting joint military exercises, purportedly and unconvincingly aimed at "anti-terrorist co-operation". Since it took the form of a combined-forces invasion from the sea, it was rather obviously from China's point of view intended to be fully taken on-board in neighbouring TAIWAN. From RUSSIA's position it could be taken to mean that whilst the EAST may no longer be RED, it is certainly not Stars and Stripes. 

Every nation has its quota of illiberal racist bigots and that includes POLAND. The difference is that in this formerly oppressed country, for so long under the heel of Moscow, in POLAND the bullies seem to be in or sharing, the seats of power. One would have thought that living for so many years within a rigid, conformist, intolerant, regime, that to escape from that might have led towards a reactive tolerance of social minorities, of other ethnicities, and harmless oddballs, as is the norm in fully democratic countries. It brings back the unfortunate reminder that pre-1939 Poland flirted with fascism, and even older and horrific memories of pogroms against Poles of Jewish ethnicity, a part of the folk-memory of the Jewish diaspora, worldwide. Immediately after the collapse of the communist regimes in east and central Europe, the worry at that time for the democratic west was Poland's southern neighbour SLOVAKIA, which had got itself a government led by a populist politician Vladimir Meciar, displaying the same kind of racial arrogance and social prejudice that is now on display in Warsaw. He was, as a result, bracketed along with SERBIA's Milosevic, and BELARUS's Lushenka as the three bad men of Europe.

In SLOVAKIA, Meciar and his party were thrown out by virtually all of the opposition parties burying their differences and forming a coalition whose main policy for eight years was to keep him out. He remains in politics - there has just been an election as we report - but not in power. A great success as it turned out, as that country has turned around to become a highly favoured place for DFI. 

POLAND with its large workforce and EU membership has also attracted much DFI, but like all members it was allowed to join the EU, the source of this success, because it accepted the rules enshrined in the Copenhagen accords, dealing with the principles of full democracy. Whilst the actions and ugly attitudes we report are not necessarily those of the leading political party, two political groupings that are members of the governing coalition, The League of Polish Families and Self-Defence, are responsible for the outcry. Because they are in the government coalition their senior coalition partners are now being badged with prejudices to which the outside world is indeed sensitive, and they should warn these small groupings that if they do not cease, that the coalition including them will be dissolved. 

It is said that the parliament now contains many of the opinion that POLAND would be better off outside the EU. If these disgraceful reactionary trends were to continue, it might provoke a back-lash movement within the rest of the EU to facilitate POLAND's withdrawal. The problem is illustrated in this month's report, specifying the language of a parliamentary member, seeking to 'bash deviants with a big club,' and the like.

In our MOLDOVA piece this month we report a gathering in the Black Sea resort of Sukhumi where met the 'presidents' of three unrecognized statelets, all of which exist only because it suits Moscow that they should. South Ossetia and Abkhazia as well as Transnistria have been addressed by us very recently in 'Stateless States' where fuller descriptions can be found. The first two are agencies of Russia's strategic leverage on GEORGIA, whose provinces they are. Transnistria is a criminal state, possibly the only one now in Europe and is 'protected' by the Russian army and government though unrecognized by them, or indeed by anyone else. Apart from a wide range of illegal trafficking (you name it they do it), they are infamous for bigtime illegal arms sales, one has to presume mostly of Russian and Ukrainian manufacture, to less than respectable Russian clients (but apparently bespoke is also possible). This strip of land, basically the site of a major Soviet arsenal with a Russian garrison, broke away from Europe's poorest nation, MOLDOVA at the time of the ending of the Soviet Union. They in turn have now enlisted support from the new democratic regime in UKRAINE in seeking to regularize the position, which has taken the primary form of taxing exports leaving Transnistria across the UKRAINIAN border. As a consequence and as we describe, MOLDOVA is newly subject to vengeful economic sanctions by RUSSIA, some top people of which have long protected this cash-cow, and now feel the pinch in their pockets. They are powerful enough to use RUSSIA's state institutions to retaliate.

Our SERBIA article this month covers the independence of MONTENEGRO which we will shortly be reporting separately. Here there was an independence referendum overseen by the EU, (with the acceptance hurdle set at 55%), agreed to by both of these, the last two republics left out of six from the former Yugoslav federation. It was conducted democratically and all parties have recognised the result. Independence is now a fait accompli. The 'president' and master of ceremonies of Transnistria, Igor Smirnoff, at the Sukhumi meeting referred to above, cited the MONTENEGRO referendum and asked why self-determination was possible for some, but not for others. Space here does not permit a lengthy exposition, but it is a topic that more respectable politicians will be raising over the coming months and years, particularly in relation to the Balkans. Before the end of this year an outcome is expected for the future of Kosovo. Watching this like hawks are the politicians of Republika Srbska, the Serb segment of BOSNIA-HERZEGOVINA of whose ambitions we tell in our July report. 

It doesn't stop there. As we tell in MACEDONIA, questions have also arisen about the possible ambitions of their ethnic Albanian community. Added to the question of independence is the fundamental matter of whether Europe's borders and specifically those of the Balkan states, can be considered as settled? Disputed borders have historically been costly in terms of human life and suffering, which makes this a serious and important matter for all European nations.

One intriguing thought is whether MOLDOVA and ROMANIA sharing ethnicity, language and a history, should revisit the question raised yet not pursued fifteen years ago, and perhaps seek to unite. With ROMANIA slated to enter the EU, and with RUSSIA set to continue persecuting MOLDOVA (which previously as a component of the USSR had looked to RUSSIA as their main market), Moldovans might opt for union. The people of Transnistria could have a referendum run by the EU or the OSCE, as to whether they wished to also rejoin ROMANIA in such an enterprise, or join their giant neighbour UKRAINE, upon whom in their legitimate economic activities, they depend. 

A profound exposition this month on the overall position of NORTH KOREA and a survey of the possible motives of the dear leader for the brandishing (if such a description may be used of the grounded, initially unfuelled, 110 feet long piece of aviation hardware), of a Taepodong-2 ICBM. Of course since this rocket is of interest to certain nations unsuccessful in building their own, it could be a very cheap and effective form of export advertising, but we are tempted to think that IRAN had been getting too much of the world headlines, and that PyongYang considered it was time to once again wind up the west, with a predictable result. 

Good to see that perhaps moderation is finding its way back in international dealings. Perhaps this reflects Condaleeza Rice's good work in rowing US foreign policy back a notch or two, from the former aggressive style emanating from the Vice- presidents office. Not to say that this is definitely the way things are going to be. Perhaps if Karl Rove says so, the exigencies of electioneering will bring back confrontation, but as we report in this month's IRAN, one can see that all parties are apparently turning to a more mature style of negotiation and even the dread word compromise is creeping into polite conversation again. Bad for the headlines, but maybe good for humanity.

Supposedly 'in-from-the-cold' LIBYA is in confrontational mode, with its lawyers now seeking to avoid further payments agreed with victim's families. We review the situation.

In its understandable effort to recover its hi-jacked soldier, Israel has taken the opportunity to go further than just Gaza and 'mixed-in' with some rather crude geopolitics. In 'spoiling-for-a-fight' mode, two F-16's flew all the way up to Northern Syria to 'buzz' at low level the holiday home of President Asad, returning at low-level over Damascus, in case anybody missed the point. Thus the middle -east is once more in a highly excitable state with such Arab states as Egypt threatening to abrogate their treaty with Israel, and even the anti-Syrian Prime Minister of Lebanon joining in the protest. We give the detail of this rather brash demonstration of raw power.

Two of the nations that we report on, TAIWAN and SOUTH AFRICA, illustrate the changes that have taken place amongst emerging nations where top-flight political leaderships are concerned. The president of Taiwan has barely survived a recall vote in the parliament, not for his own sins but for those of his son-in-law, his wife and his daughter. His future in politics looks extremely tenuous. The vice-president of SOUTH AFRICA, expected by many to become the next president, was charged with rape and has just been acquitted after what was regarded as a fair trial. He is shortly to go back into the criminal court to answer to charges of corruption. The point is that what is happening in SOUTH AFRICA would have been unthinkable only a few years ago and is still amazing to citizens of perhaps most African countries. In Africa 'Big Men' in any state just did not get charged with crimes. It is impressive and most encouraging to democrats everywhere, that guilty or innocent, such a political giant should be arraigned and have to defend himself against the charges brought, just as would any ordinary citizen. A strong Taiwanese president finds himself knowingly or unwittingly involved in the alleged crimes of his nearest and dearest, who it is alleged, used to the hilt the influence and knowledge only available to them as insiders, for their personal gain. Again like African 'Big Men,' the president or ruling politicians of many Asian nations would not believe that their relatives could possibly be the subject of any police investigation, which could ever rebound onto them. One wonders about so many other equivalent officials in more opaque regimes and how long it will be before justice is truly even-handed, but it is not a bad test to judge whether or not a nation is truly 'getting there,' in terms of democracy.  

Publisher - Clive Lindley

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