September 18th, 2012

Kremlin’s asymmetric response to the Magnitsky law

In 90-ies Putin was responsible for the international economic ties of Sankt-Petersburg

Vladimir Putin signed a decree about “Measures to protect interests of Russian Federation in the international trade of Russian companies”. According to this order, Russian “strategic” companies, including Gazprom, Rosneft, Aeroflot and many others, will need to get government’s approval on their pricing policy abroad, any M&A activity and particularly on releasing any data about their business to the foreign regulators.

The largest Russian companies won’t be able to operate efficiently on the global markets under this order. They will need to discuss their every move abroad with the bureaucrats in Moscow. In fact, top managers of the “strategic” companies will turn into assistants of the government’s officials, who, in their turn, can’t do anything without an approval from the President’s administration, a de-facto parallel government. This highly centralized decision making system will be even less efficient than Soviet style planning because there is no plan in place, no vision of the future.

Putin is willing to stay in power at any costs and he is not sensitive to the tremendous economic damage the new regulation will bring to the leading Russian companies. His recent initiatives distinctly demonstrate that he is keen to unbundle the economic interests of the ruling class from the West in order to secure more freedom for harsh measures inside the country.

First of all, the new regulation is designed to protect some shadow activities of the Russian state-owned corporations. For instance, Gazprom is known for using nontransparent schemes in its European trade. Within one of the most famous schemes the monopolist was selling natural gas to Ukraine not directly, but through the firms of Dmitry Firtash, a person with a controversial reputation. The documents, disclosing the details of such schemes and their real beneficiaries, could fall into hands of European regulators during their numerous raids on the European offices of Gazprom.

Second, Putin hopes to tight control on the ruling class through restraining its international business. Based on his own experience as a head of the Sankt-Petersburg’s economic cooperation committee in 90-ies, he might believe that one can trust nobody working in this sphere. He probably wouldn’t trust even himself.


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