Insider: Familiar Patterns in Russia’s Instability

A few weeks ago my blog offered a Kremlin insider’s account of the spy wars and the campaign against Sergei Storchak and Alexei Kudrin. Our contributor, who must remain anonymous for clear reasons, has again sent in the following excellent dispatch, which takes a look at these byzantine power struggles currently roiling the Russian government in the context of the elections. – Robert Amsterdam

Russia’s New Revolution

The arrest of the vice minister of finance Mr. Storchak is more important for how Russia will be ruled in the immediate future than the dubious parliamentary elections that took place on December 2, 2007. The elections at best constitute a cover operation that give a legalistic appearance to a result predetermined to the smallest detail by the Kremlin. The arrest of Mr. Storchak is manifestation of a fight between the real parties that vie for political power. And political power in contemporary Russia is concomitant with economic might.

The Tried Pattern

One cannot understand what is happening in the contemporary Russia if one does not keep going back to the two seminal events of the Putin presidency – destruction of independent media, exemplified by destruction of NTV, and destruction of YUKOS.

The arrest of Mr. Storchak repeats the tried pattern of both campaigns. The attack on Gusinsky started with arrests of the chief financial officer of the Most group, Egor Titov. The attack on YUKOS started in earnest with the arrest of Platon Lebedev, the chief financial manager – and one of the principal shareholders – of YUKOS. Attack on Finance Minister Kudrin started with arrest of his lieutenant, Mr. Storchak.In all the cases the aims of the attackers was manifold:

– To take hostage, forcing the designated target (Most group/YUKOS/Kudrin’s group) to defend itself in an unfavorable setting.

– to flush out the supporters of a designated target in the government structures before the main attack begins- to obtain a useful information from the principal hands-on financial manager (that is where the two previous attempts failed).

There is a further parallel with the YUKOS case: just as YUKOS in the corporate tax cases and M. Khodorkovsky and others in individual cases were faced with criminalization of routine, open and patently legal business practices, Storchak faces criminalization of routine, open and patently legal bureaucratic procedures.In both cases the reasons for criminalizing legitimate everyday practices are similar:

– instead of looking for spurious crimes, the central line of business/professional activities is arbitrarily criminalized. That makes for a massive case prepared in a very short time: investigators just re-write readily available open documents, attaching smears at the end of key sentences.

Thus, if a company enters into a legal contract, open, declared and disclosed long ago to the authorities as a part of statutory reporting, the prosecutors describe it as a “criminal scheme aimed at illegal profiteering”. No further proof is needed, the pliant courts would rubber stamp the insinuation.

Settlement of stale debts at discount openly discussed for years and agreed with every competent person in the Government becomes a criminal scheme to defraud the state of due money. The assumption is that the pliant courts would rubberstamp the accusation in this case as well.

– Since the normal business/bureaucratic activities are criminalized with full cooperation of judiciary, no one, even outside the case, can feel safe. YUKOS case was the starting point for the ongoing takeover of all important business assets in the country (see the recent Shvartsman interview).

The Storchak/Kudrin case is obviously meant to be a starting point for takeover the key levers of economic power in Russia.

The Aim

While the aim of the Storchak’s arrest is obviously the financial resources of Russia and levers of economic power of the Russian state, an important nuance has to be made clear. Most certainly the persons behind the attack (Sechin, Patrushev, etc) do not lack money to cover personal consumption needs, however extravagant (in any case, they have never been noted for excesses of conspicuous consumption).

What is at stake is not completion of a new blue water yacht but completion of the creeping coup d’etat that started with the NTV affair. But now the real aim is not even Kudrin – it is Putin himself.Remember that Putin came to power at the head of a coalition of forces that included rival clans of KGB officers and so-called Saint Petersburg technocrats, who wanted to proceed with economic reforms taking Pinochet’s Chile as a model.

It was those people, exemplified by Kudrin, who proceeded with conservative monetary policies, privatizations and liberalization of tax and currency control regime during the Putin’s presidency. It was they who, with varying degree of success, tried to dampen the impact of the YUKOS case in the West through the red of contacts developed during the reforms of the Yeltsin’s presidency. It was they who publicly defended Kremlin’s attack on YUKOS mistakenly believing that YUKOS would be just one last sacrificial lamb that would assure the support of the KGB-controlled Kremlin for the continuing economic reforms.

It is they, no longer needed as a cover in the West, who are under attack. Since they were an important part of the Putin’s coalition, Putin himself is by implication under attack.Up to now, Putin practiced a balancing act reminiscent of performances of Gorbachev and Yeltsin. Now, fully identifying himself with just one part of the coalition (Sechin group) would mean submitting himself to the group’s discipline. Putin has obviously failed in the coalition game.Simply speaking, Putin is presented with several tough choices:

– surrender the technocrats, identify himself completely with Sechin and Patrushev.

– become an irrelevant figurehead. After the expected success in the Storchak case, the Sechin group would possess all the real levers of power in Russia.

– Defend Kudrin. Not possible, since that would be going against the most powerful group that de-facto ruling Russia, and that has been his main tool in destroying YUKOS.

It would be interesting to see if Putin really believes his own propaganda and would try to use the managed success in the spurious Duma elections to position itself as a “national leader”.

Recent Developments

The recent developments show that shown Kudrin as an able politician. He came out publicly in support of Storchak, without reservations. Moreover, he announced that the Ministry of finance will go on with the transaction that the prosecution alleges is a criminal scheme. In this way he dares Sechin group to attack him directly, obviously hoping to force Putin’s hand.He has some success with that. One sign is that there is no smear campaign – for now – aimed either against Kudrin or Storchak.

The other sign is that TVOI DEN’ newspaper that is, according to the Moscow rumor mill, the best connection to FSB, came out with a conciliatory article stating that the attack is not against Mr. Kudrin and that Mr. Storchak will be probably released soon.It seems that Sechin group now has retreated somewhat seeing that an outright victory is not in the cards (due in all probability to a behind the scenes intervention of Putin).

The thing to watch is how the detention of Storchak will be played out: if he is released soon, that would mean that, at least for now, and in this particular battle, Sechin’s group has suffered a defeat.If he is kept in prison, it would mean a tactical victory for Sechin, even if temporarily all other attacks on the technocratic faction is halted.