Russia: “Renegade Economic Power and Bully”

Bloomberg columnist Michael R. Sesit has written a piece today strongly criticizing Russia for “acting more and more like a renegade economic power and bully”, saying that its questionable commitment to free markets puts the rightfulness of its G8 membership into doubt. Sesit attacks a number of the Russian government’s recent moves, in particular Vladimir Putin’s criticism and effective crashing of Mechel. He also mentions the TNK-BP affair and explains that the case of Mikhail Khodorkovsky demonstrates how the government was centralized under Putin’s rule. Ultimately, he says that Dmitry Medvedev’s recent moves towards stamping out corruption give cause for hope, but says that, without serious domestic and intelligence reform, the country can’t be taken seriously as a democracy:

“Domestically, Russia needs an independent legal and law-enforcement system free of political interference and one that won’t be used to assist private parties in civil disputes. It needs the consistent application of the rule of law. And it must recognize that an all-powerful, fear-inducing intelligence organization isn’t the appropriate training ground for leaders of a liberal democracy.”

Read the full article after the jump.

Bloomberg: Russian Renegade Doesn’t Deserve Place in G-8

When the Soviet Union disintegrated under the weight of its own overwhelming mismanagement, the main successor state, the Russian Federation, was invited by the world’s leading industrial democracies to become the eighth member of their exclusive community: the so-called Group of Seven.Instead of evolving into a Western-style democracy with a fully developed economy, Russia is acting more and more like a renegade economic power and bully. Becoming more authoritarian politically and more dependent on energy revenue economically, its actions are raising doubts about the country’s commitment to free markets and capitalism and causing foreigners to question whether they should invest in Russian markets.To bring it into line with international business norms, Russia should accelerate its long, drawn-out negotiations to join the World Trade Organization. If that doesn’t work, Russia must be threatened with expulsion from the Group of Eight.There are signs, during the past few days, that the honeymoon between President Dmitry Medvedev and Prime Minister Vladimir Putin may be fading. If Medvedev, a lawyer, emerges victorious, that should be a good omen for investors and corporate executives. By contrast, should Putin, the former president and ex-KGB colonel, win out, Western officials may have to read Russia the riot act.Otherwise, international investors, to their chagrin, can expect more of the same.Mechel’s SharesIn the past two weeks, Putin has accused billionaire Igor Zyuzin’s OAO Mechel, a New-York-listed Russian steel and coal producer, of price-gouging and tax evasion. Putin also called for an end to raw-material import duties. Mechel’s shares plummeted 54 percent, and the Russian stock market tumbled 9.4 percent.Meanwhile, British oil company BP Plc and four Russian billionaires are engaged in an acrimonious dispute over management of their 50-50 joint venture, TNK-BP. Russia’s security service has raided TNK offices as part of a tax-evasion investigation, and foreign workers have been denied visas.Citing “sustained harassment,” the venture’s chief executive officer left Russia. Four days ago, TNK-BP’s chief financial officer resigned, effectively saying his position had become untenable.These are only the latest Russian shenanigans. In 2006, Royal Dutch Shell Plc was muscled into selling control of its biggest Russian project to state-controlled OAO Gazprom, after regulators threatened to revoke Shell’s operating permits on environmental grounds. OAO Yukos Oil Co. was bankrupted and sold to state-owned companies after the government claimed it was owed more than $30 billion in back taxes.48 Million BarrelsIts founder, Mikhail Khodorkovsky is serving eight years in a Siberian labor camp for fraud and tax evasion, and last month was charged with laundering more than $28 billion and stealing the equivalent of 48 million barrels of oil.Whether men such as Khodorkovsky are guilty or not, during Putin’s eight years as president, political power was centralized. Strategic industries were renationalized, opponents marginalized, the press kowtowed and the judiciary bullied into decisions favorable to the government.BP CEO Tony Hayward’s advice to other investors in Russia: “Tread with caution.”Domestically, Russia needs an independent legal and law- enforcement system free of political interference and one that won’t be used to assist private parties in civil disputes. It needs the consistent application of the rule of law. And it must recognize that an all-powerful, fear-inducing intelligence organization isn’t the appropriate training ground for leaders of a liberal democracy.”Nightmares for Business”There’s hope. Medvedev has said a priority is tackling corruption. And on July 31, days after Putin sent Mechel shares into a tailspin, he implicitly criticized his predecessor. “Our law enforcement agencies and government authorities should stop causing nightmares for business,” he said. “We need to create a normal investment climate in our country.”Showing he understands the need for change, he said private companies are being “tormented by all kinds of inspections and harassment for commercial reasons.” Still, his actions must now prove that these comments are more than mere slogans.Internationally, Russia must decide whether it wants to make the adjustments necessary to join the community of nations or revert back to being the global tough guy that characterized the predecessor communist regime. In other words, choose between being a normal country or a pariah.WTO TalksMeanwhile, other nations must decide whether to engage Russia or isolate it. It’s best to do the former while threatening the latter. That’s why Russia should be prodded to speed up its WTO negotiations, which have been delayed largely for political reasons.”Russia has a difficult political relationship with countries such as Georgia and Ukraine, and increasingly with developed countries such as the U.K.,” says Roland Nash, chief strategist at Renaissance Capital Finance Ltd. in Moscow.Simultaneously, though, Russia should be cautioned that it risks losing its seat at the G-8 roundtable. The cost of the latter would be mainly symbolic, but symbols mean a lot to a proud people.Of course, it wouldn’t hurt if the West stopped arousing Russian ire by expanding NATO eastward to Russia’s borders.Russia must learn that although capitalism may be a rough-and-tumble game, it is still one with rules.