Moscow “Day of Anger” rally, March 21, 2010 (AFP)

Imagine if this weekend’s Restoring Honor rally wasn’t given permission to rally because the organizer was of an opposing political party then the one in power. Then imagine if DC police broke up the rally with nightsticks and tear gas. There’s no need to imagine this in Russia, because it is going on now.

Tomorrow will be the first March of Dissent protest in New York City. First organized by Russian opposition supporters on the last day of each month with 31 days in defense of their right to freedom of assembly as enshrined in Article 31 of the Russian Constitution, Marches of Dissent have sprung up globally in support of those who value and strive for Democratic values in Russia and elsewhere.

It is a Sisyphean task as Russian Prime Minister Vladimir Putin has effectively ended political debate in Russia through control of the media and refusal to grant official permission to rally for the political opposition. In an interview today in the newspaper Kommersant, Putin went on the record to say that those who choose to rally, “will be beaten upside the head with a truncheon. And that’s it.”

Come and watch history as Russian expatriates and Americans support Democratic values of freedom of assembly in front of the former KGB headquarters in Manhattan.

Logistics

Who: Supporters of Freedom of Assembly in Russia
What: First March of Dissent in New York City
Where: Permanent Mission of the Russian Federation to UN
136 E 67th Street, New York, NY 10065 (between Lexington & 3rd Aves)
When: Tuesday, August 31, 2010 from 6p to 730p
Why: To protect and advance the human rights and democratic values of Russian citizens and elsewhere in the world

Cyprus leads with investment in Russia, but it is a well-known tax-advantaged locale for Russian businessmen. The other leading countries are Netherlands, Luxembourg and Germany.

Chris Weafer, a frequent Russian economics commentator and chief strategist at Uralsib, discounted a large portion of the cited FDI figure by saying “actual non-Russian sourced FDI is currently negligible.”

In Reuters’ most recent analysis of Russia geopolitical risk, there is little change from the last report as  “corruption and arbitrary rule of law” remain the biggest risks and its main impediment to growth. Higher oil prices would help with Russia budget deficit and lessen the need for tax hikes or reducing benefits.

Despite Medvedev’s words and perhaps good intentions, his plans to reduce the police force have stalled and his executive order ending pre-trial detention for economic charges ignored by the courts. All of this points to his “non-leadership” as Pavel Baev points out in the Eurasia Daily Monitor.

There is a strong demand for “for-of-the-same” in the welfare-oriented society and in the predatory bureaucracy, so Putin’s message is conveyed easily–and his authority unshakeable. Medvedev’s discourse of “modernization” remains foreign, and his attempts to encourage innovations are treated with the same ironic indifference as Nikita Khrushchev’s orders to introduce corn after his “historic” visit to the US in 1959. Medvedev is often reduced to complaining about the sabotage of his orders, which only signals to bureaucrats opposed to modernization that real executive power remains out of his grasp.

Civil liberties of different kinds depend on each other and Medvedev’s initiatives have had little effect on shifting Russian into a more open society.

The Russian Interior Ministry today reported that bribes have doubled since last year to $1,320 per occurence on average. And overall, the Russian economy leaks $300 billion as the result of bribes. With only 10%  going to rank-and-file policemen, that leaves a large chunk of change for provincial and Kremlin authorities.

And what could Russia do with an extra $300 billion in its coffers? Repair infrastructure, for sure, invest in alternative fuels or new techonologies, reducing its dependence on foreign investment to diversify the economy or perhaps postpone the largest state asset sale since the early 1990s.

Corruption remains pervasive and the current power structure is unwilling to kill the golden goose. Sergey Magnitsky died in pre-trial detention for refusing to renounce corruption activities of senior Kremlin officials. With much fanfare, Medvedev launched an investigation into his untimely death, but the investigation has stalled. According to Valery Borshchev, head of the government oversight panel responsible for the investigation into Mr. Magnitsky’s death,

They’re dragging their feet because some very important figures are implicated

Aleksei Dymovsky, the YouTube policeman, whose video galvanized a country inured to corruption spoke about his new quest to raise a grassroots campaign against corruption. He knows it won’t be easy as someone who participated in the pyramid corruption scheme that required police officers to hand off that day’s bribes to a “cashier,” a senior member of the police force. Those who didn’t comply were reprimanded.

The dubious charges against Russia’s mobile phone king, Yevgeny Chichvarkin show how hard it is for companies to do business in Russia, even domestic ones. The problems started for Chichvarkin in 2006 when he refused to pay bribes in order to prepare his accounting books for an initial public offering in London. His refusal resulted in the confiscation of $20 million of Motorola phones and the current charges against him. Motorola was his largest corporate partner and suffered huge losses when Department K, the interior ministry’s economic crimes division, released false warnings about the safety of their mobile phones. Motorola’s market share has dropped from 20% in 2006 to less than 1% where it is today.

Cisco has pledged a $1 billion investment in Skolkovo but John Chambers should have scratched Russia’s surface a little deeper.

Dear President Halonen,
Dear President Medvedev,

While you are meeting today in Finland, we, representatives of Russian and Finnish civil societies, are also gathering here to discuss how non-governmental actors can contribute to cooperation between our two nations and to building a common European space based on the principles of democracy, rule of law and human rights. We would like to draw your attention to the following concerns, which are in the center of our discussions today.

Like you, dear Presidents, we also want to see Russia a modern and prosperous country. However, we believe that without ensuring fundamental freedoms, building strong democratic institutions and an independent judiciary any technological modernization efforts will fail. It goes without saying that free and fair elections and independence of the media are essential to this process.

We want to share with you some of our immediate concerns, which require resolute actions that go beyond declarations.

In particular, we are convinced that the draft law granting new powers to the FSB contradicts not only the Russian Constitution but also recognized international norms. Therefore, it should not be signed by the President of the Russian Federation.

We are extremely concerned about continued persecution of human rights defenders, political activists, trade unionists and journalists in Russia. Instead of fighting terrorism and organized crime, thousands of law enforcement officials harass civic and political activists, often under the pretext of fighting extremism. This practice must be stopped. Murders of human rights defenders, journalists and lawyers must be effectively investigated, and perpetrators brought to justice. Impunity simply must come to an end.

Lack of fair trial and due process fundamentally undermine access to justice in Russia. This includes torture in pretrial detention centers, politically motivated trials in cases of Mikhail Khodorkovsky, Platon Lebedev and others; persecution of Alexey Sokolov and Oleg Orlov for their human rights work and Valentin Urusov for his trade union activism, as well as the lack of effective investigation of murders of Anna Politkovskaya, Natalia Estemirova and Sergey Magnitsky. In the case of Magnitsky it is even more blatant because the names of those responsible for his death are well known. This list is by far not exhaustive.

Freedom of assembly continues to be denied to the Russian public. Across Europe we are united in support of Russian activists who convene peaceful gatherings in the framework of ”Strategy 31.” In a week from now, we will again express our solidarity with Russian people in Helsinki, Prague, Brussels, Berlin and other cities across the continent. We call on you, President Medvedev, to guarantee the freedom of assembly on 31 July and in the future.

We hope, President Halonen and President Medvedev, that these concerns close to our hearts will form an important part of your dialogue and that future Russian-Finnish modernization cooperation will include concrete projects in such areas as building independent judiciary, strengthening the rule of law and developing robust democratic institutions.

Gazeta.ru, A Twisted Reality

Cloudy Precipice / Tom Burgher Gallery

Despite the recent spate of international news over the past week, from the hamburger summit in DC to the G20 in Toronto to Russian spies in Suburbia USA, underlying global economics has not changed and talk of a double-dip recession has revived. Even the dreaded “d” word was uttered by NYTimes’s Paul Krugman in his assessment of the US economy. Signs of a global weakening is evidenced by the fall in world equity indices, weak US home sales and China’s manufacturing growth is weakening as its government reduces stimulus. Debate rages on the effects of deficits on the economy. While the two sides debate the merits of deficit reduction over stimulus spending, the world economy feels like it is again at a precipice.

In the most recent Reuters’ Russian analysis, three factors remain unchanges from their last report in April: oil prices, political risk and insurgency. For the 2010 budget the Kremlin used a $75 barrel estimate, but with crude oil prices falling under $73 a barrel, the Kremlin may have to return to the capital markets trough and isuue more debt to cover budget deficits.

Medvedev understands the need for Russia to diversify its economy and made a major international push last week with his visit to Silicon Valley. However, it still remains to be seen how the power struggle is resolved. The 2012 presidential election presents political risks for investors and many anaylsts predict that:

Russia is unlikely to lure the level of investment or international support it deserves as long as Putin and his ensemble remain publicly engaged.

With the tandem leadership jostling for advantage, it remains to be seen if Medvedev’s push for modernization can resist the pull of Putin. In addition to a change of guard in the Kremlin, Reuters cites the release or acquittal of Mikhail Khodorkovsky as a sign of liberalization and a “bellwether” of Russian policy.

However, current signs point to the status quo as the authorities refuse to investigate into the suspect death of Hermitage Capital’s Sergey Magnitsky in pre-trial detention.

James Beadle

Source: PRIME-TASS
Contributed by James Beadle, a private investment consultant

MOSCOW, Jun 23 (PRIME-TASS) — Since 2003 former Yukos executives Mikhail Khodorkovsky and Platon Lebedev have been incarcerated in Russia on charges of tax evasion. At present, as their eight year stint enters its final stages, the two are on trial once more, charged with stealing millions of tonnes of oil (reputedly the same oil that they didn’t pay taxes on).

The Yukos case has always been of fundamental significance to Russia investors. The original arrests marked the end of what might be called the “liberal progressive” period of Vladimir Putin’s presidency. As Yukos was transferred to the state through a series of corrupted political interventions, so Putin’s policies became increasingly harsh.

His efforts to placate investors by offering up Gazprom delivered huge profits to a minority, but had little structural impact. And although the Russian market soared from 2004-2008, the costs and implications of the Yukos case also lingered and stacked up. Russia became increasingly corrupted as the judiciary ceased any pretence of impartiality and the bureaucracy found its powers rejuvenated. The one-party system rebounded from 15 years in the wilderness.

Today, Russia faces a new set of challenges. Although it has not acknowledged the costs of nationalist policies and political risk, unleashed by the prosecution of the nation’s former richest man, it publicly recognises that dependence on oil and gas revenues is a limited and dangerous strategy.

As Khodorkovsky and Lebedev labour their way through their second show-trial, Russia’s new president is seeking to demonstrate that the nation is changing, that business risks are on the decline and that foreign investors are welcome, wanted even.

If the facts of the Yukos case were clean cut, or even uncertain, then the trial would be of limited importance; but the scale of the farce taking place in the Moscow courtroom is rapidly becoming a political embarrassment. Few Russia specialists, this one included, expect a fair hearing, or an honest outcome. But, as the evidence stacks up against the prosecution, so the case gains importance as a litmus test of how much has changed since Medvedev came to power on a promise to end corruption and clean up the judiciary.

In recent court sessions, Khodorkovsky has cross examined a series of high profile politicians from the Putin era: former central banker Viktor Gerashenko, former Prime Minster Mikhail Kasyanov (now an embattled opposition leader), former Economics Minster German Gref (now head of Sberbank) and incumbent Industry and Trade Minister Viktor Khristenko.

All have, to a greater or lesser extent, come out against the prosecution, stating variously that no oil was stolen, that transfer pricing was legal and normal practise or that they were not aware of any theft.

The cynical argument would be to say that this new freedom of speech – which would have been inconceivable just a few years ago – is an effort to make the trial look fair before putting the pair away again. The reality is that something has shifted in Russia.

Not to say that we should expect an honest or open result. Yukos investors are currently prosecuting the government for $100 bln in the European Court of Human Rights. (Note that there was no sign of contingency for this case in the pricing of Russia’s recent Eurobond.) A victory for the defendants would certainly increase the risk of Russia being put on the hook for an extremely large sum in this related case.

More important, it would also discredit the entire Putin era, undermining much of the power vertical that has been so meticulously constructed.

The sad fact is that Khodorkovsky and Lebedev are likely to be kept in jail for a long time yet. Many senior investors will talk about why this is justified. The truth is that it will continue to sustain the risk premium Russia faces as an investment destination. (The true cost of the policies that began with the prosecution of Yukos – in terms of reputation, investor risk premium and lost opportunity – are unmeasurable, but certainly higher than the $100 bln being sought by Yukos shareholders.)

Freeing Khodorkovsky and Lebedev would be a bold move implying that things are really on the mend in Russia. It would boost investor interest and bring a difficult transitional chapter to a close. Unfortunately, with so many of the victors of that chapter still in power (is it a coincidence that there is a lengthy article about Igor Sechin in the FT this week?) such an outcome is unlikely.

At last week’s St Petersburg Economic forum, President Medvedev announced the elimination of capital gains tax on long-term fixed investment projects. It is pertinent that Russia is doing what it can to sustain high returns as economic growth has slowed and risk remains high.

Witnesses at the Khodorkovsky trial have proven that things are changing in Russia. But freedom of speech is one thing, independent judiciary is quite another.

The case is likely to confirm my 2010 outlook that the changes under-way fall short of what is needed for Russia to embark on an optimal development path, but we should never forget that in Russia the unexpected is always possible.

End

Russia 2H10