May 2nd, 2013

Trial against opposition leader will hamper any hopes for business climate improvement

A trial against popular opposition leader of a new generation, Alexei Navalny, continues in Kirov. Four years ago a company of Navalny’s acquaintance bought a medium lot of wood and then sold it with a 7% margin. According to the state prosecutor, Navalny and his friend “have stolen all the wood”. This is only one of five investigations against the opposition leader.

Navalny case will determine the investment climate in Russia for many years

Politically motivated persecution of Mr. Navalny will further undermine Russia’s unwelcoming investment climate. Any businessman could be accused of embezzling all his revenue and locked into prison for many years. According to Alexei Kudrin, Putin’s Minister of Finance in 2000-2011, this trial puts at risk the foundations of the market economy in Russia, including the freedom to sell and buy goods and services. Any verdict will influence the willingness to start new and invest in existing ventures, continues one of the most trusted Putin’s allies.

The Navalny case resembles the campaign against YUKOS, when the largest and most efficient Russian oil company was ruined in several months. Ten years ago, pro-Putin liberals hoped that the prosecution of Khodorkovsky would be an exception. However, the conviction of YUKOS owners and management opened the Pandora box of unlawful expropriation. “Siloviki” employed the technology from the YUKOS case to acquire thousands of large and small companies. Thousands entrepreneurs were imprisoned or squeezed out the country by Russian legal system.

The charges against Navalny reproduce the logic of the second Khodorkovsky’s trial, in which former tycoon, his partners and managers were accused in embezzlement of all oil produced by YUKOS. Two processes also share similar politically motivated goals. Nobody in Russia doubts that Kremlin will lock Navalny out of the legal political process. Khodorkovsky’s case ten years ago harmed Russia’s investment climate a lot, but high oil prices, Kudrin’s macroeconomic stabilization and the effect of Yeltsin’s market reforms cushioned all the negative impact. Now Russian economy approaches stagnation and after the government convicts the freedom of entrepreneurship one more time, it may well head to a hopeless recession. Siloviki and state-owned companies will be the only entrepreneurs left in the country.

The New York Review of Books

  1. No comments yet.
  1. No trackbacks yet.