Committee for Russian Economic Freedom

Garry Kasparov

United Civil Front leader Garry Kasparov writes in the Wall Street Journal today that given Vladimir Putin’s repression of his own people and the way he cozies up to dictators (Chavez, Assad, Lukashenko), the U.S. should not be interested in a strategic partnership with the Kremlin.

Rather, he writes, U.S. lawmakers should do what they can to promote human rights in Russia, namely through the  passage of the Sergei Magnitsky Rule of Law Accountability Act, which would “bring visa and asset sanctions against Russian government functionaries culpable of criminal and human rights abuses.”

Read Kasparov’s entire op-ed here.

President Medvedev

Russia Profile begins an article summing up Dmitry Medvedev’s presidency, which is coming to a close Monday, in a rather stark and negative manner:

Russia’s outgoing President Dmitry Medvedev probably never wished to end his term this way. His economic achievements, after four years in office, were minimal, and often had no visible impact in peoples’ day-to-day lives.

But the truth hurts sometimes. Medvedev came in with all the bluster of a reformer, but that sentiment wore off quickly, as he proved to be unable to enact meaningful economic reforms or emerge from the shadow cast by his predecessor / successor. The British Independent also has a scalding look-back on Medvedev’s tenure, quoting a Russian woman named “Masha,” who oversees the fake “Kermlin” Twitter handle:

[Medvedev's term] was like when it snows in the night and the machines come and clear it up before dawn. When you wake up, there is a vague feeling it has been snowing, but hardly any sign of it. That’s the level of impact he has made.

Read more on Medvedev in Russia Profile and the Independent.

Reporting from the 13th annual International Academic Conference on Economic and Social Development in Moscow, Russia Profile’s Tai Adelaja adeptly details some of the reasons Russia is falling behind other BRICS and CIS nations in measures of entrepreneurship and economic freedom.

“There is a 50 percent chance that any entrepreneur doing business in Russia will sooner or later end up behind bars,” he writes, citing a conference speaker.

Not helping the situation is the fact that in the last few years the Russian government has enacted only two laws to help improve the country’s business climate (banning pre-trial detention for economic crimes suspects and requiring an audit before tax evasion charges are filed), while the acquittal rate for economic crimes has remained less than one half of one percent.

Other data that the conference speakers pointed to while explaining the disappointing state of the Russian economy:

• Two million Russians have lost their jobs over the past several years as a result of systematic persecution of businessmen by state officials. (Leonid Grigoriyev, Higher School of Economics professor)
• Only about four percent of Russians said they are planning to open new businesses within the next three years, compared to about 25 percent for other emerging nations. (Global Entrepreneurship Monitor)
• While about 60 percent of Russians see entrepreneurship as a desirable career choice, only eight percent consider it worthwhile. (Olga Verkhovskaya, St. Petersburg University professor)
• Without rising global oil prices and changes in legal policy toward businesses, the Russian economy may only grow by 1.2 percent annually. (Yevgeny Yasin, former Russian Minister for the Economy and Higher School of Economics professor)
• Bribery and corruption have forced manufacturers to raise the price of food 15 percent.

“There is a perception in government that business people are dishonest,” Yasin added. “Sadly, this appears to be the prevailing mindset.”

Read more about the conference here and here.

The World Economic Forum in Davos wrapped up late last week, with the head of the Russian delegation making some startling admissions about the ineptitude of his country’s political system, writes Anatoly Medetsky in the Moscow Times.

Deputy P.M. Shuvalov

At a meeting hosted by state-controlled Sberbank, First Deputy Prime Minister Igor Shuvalov said the way the state functions in Russia is “backward” and “one-dimensional” and that “Russia deserves a different political system.”

Adding insult to injury, Arkady Dvorkovich, a Kremlin economic aide, stated his belief that the state plays an excessively large role in the economy.

Meanwhile, former Finance Minister Alexei Kudrin, who fell out of the Kremlin’s favor last fall and is considering mounting an opposition campaign of his own, said he thinks businesses should have the right to finance political parties. “Only then,” he added, “will there be [political] competition.”

Read the full article here.

P.M. Putin

In the meantime, Putin was out with a 6,000-word article in Vedomosti (also excerpted in the Financial Times) making the case for why he should be elected for a third term as Russian president.

In it, he acknowledges a number of pervasive problems in the Russian economy and espouses a program of modernization. Yet to tackle Russia’s economic problems and implement an earnest modernization program would compel him to sacrifice the power system that has been in place since 2000.

He may say he wants modernization but it’s clear that any true actions in this direction would inevitably lead to self-destruction.

CREF Founder & Chairman Pavel Ivlev

Writing on CNN.com’s Global Public Square, Committee for Russian Economic Freedom Founder and Chairman Pavel Ivlev writes that the recent push for political reform in Russia is tied to the compulsion for economic reform:

[M]ore than just a rigged election, Russians are protesting the inability of the current regime to lead the nation on a path of modernization. While various statistics show that wages on the whole are rising, millions of Russians are in fact experiencing worsening inequality, decreasing opportunities and a repudiation of basic free market principles.

You can read Chairman Ivlev’s full op-ed here: http://bit.ly/xlZr8a.

Boris Nemtsov at an event hosted by Columbia University's Harriman Institute and the Institute of Modern Russia

On November 17, 2010, Boris Nemtsov, a leader of the Russian democratic opposition and a former Deputy Prime Minister of Russia, spoke at Columbia University’s Harriman Institute on the current political situation in Russia and his perspective for its future. Echoing his thoughts and research in his recently published pamphlet, “PUTIN: What 10 Years of Putin Have Brought,” Mr. Nemtsov equated Prime Minister Vladimir Putin’s economic policy with Russia’s corrupted state. “If you break corruption, you will break Putin,” Mr. Nemtsov said.

The symbol of corruption in Russia remains the imprisonment of Mikhail Khodorkovsky. Mr. Nemtsov speaks in this video at length about how Khodorkovsky’s imprisonment is an impediment to foreign direct investment and perhaps even more importantly, how freeing Khodorkovsky allows President Dmitry Medvedev the opportunity to break free of Putin’s vertical power chain.

Allegations of corruption on a grand scale continue to dog the Kremlin. Transneft was accused by minority shareholder Alexey Navalny of embezzeling $4 billion during the construction of the East Siberia-Pacific Ocean pipeline. Some of the materials that support his allegations come from mid-level civil servants in the Audit Chamber, perhaps implying that vertical power is most profitable at the top.

Although much is written about the corruption in Russia, estimated by Russian authorities to be between $200 and $300 billion annually, the main indicator for investors is their return on investment.

There was another call today, to remove Russia from the group of emerging market powerhouses, BRIC and replace it with Indonesia. Although a fabricated group of emerging market countries, the allure of BRICs remain and companies from BRIC companies dominate indexes. Indonesia has a younger, growing population, maturing social and political institutions and commitment to education and public health and make it more attractive to foriegn investors. Above all, investors seek growth on their investment, as long as the Kremlin continues to siphon off working capital to grease their vertical power structure, Russia will only continue to be less productive and become less attractive to investors.

PUTIN: What Ten Years of Putin Have Brought

Russian President Dmitry Medvedev looks through 3D glasses at an exhibition at the economic forum in St. Petersburg, Russia, Saturday, June 19, 2010. (AP Photo/Dmitry Lovetsky)

Just a few weeks ago Putin was front and center with his visits to Istanbul and Paris, negotiating foreign policy disputes over UN sanctions against Iran. He even made comments about his tandem leadership with Medvedev that Kremlinologist have interpreted to mean that Putin as no choice but take over the reins in 2012, lest Medvedev actually execute his modernization plans by reducing 160,000 bureaucrats and nearly 300,000 policemen. Of course not all of these government employees have profited from Putin’s rein at the helm but they benefit from the existing “old” system (“budget inefficiency and a resource-based economy” as Arkady Dvorkovich, Medvedev’s top economic advisor put it.)

What a difference a few weeks make.

This week President Medvedev is visiting Silicon Valley to drum up support for a Russian Silicon Valley in Skolkovo outside Moscow. Despite a more promising outlook for Russia’s growth this year, in order for Medvedev’s modernization to be realized, laws must be enacted and enforced.

Another hinderance to Medvedev’s efforts is widespread corruption in the country, equivalent to a third of the country’s GDP annually. The death of Sergey Magnitsky while in pre-trial detention hangs like a cloud. Today, Magnitsky’s business partner Jamison Firestone released a video documenting what the government officials who are responsible for Magnitsky’s death are doing with their ill-gotten fortunes.

Beyond the Magnitsky tragedy the Khodorkovsky trial is a symbol of the lack of property rights in Russia and is costing Russian companies a risk premium as foreign investors demand greater compensation for this political risk.

Leon Aron, director of Russian studies at the American Enterprise Institute wrote in the Los Angeles Times that:

The road to a Russian Silicon Valley starts not in California, Mr. President. It begins with unlocking the door to Mikhail Khodorkovsky’s jail cell.

This is a critical time for Russia’s development as an emerging market. It remains to be seen if Medvedev’s modernization initiatives will be allowed to proceed and allow Russia to develop in an ever crowded global economic playing field or will the presidential election of 2012 reaffirm the Kremlinologists prediction that Putin will rein in liberalizing efforts and lead Russia down the path of increased centralization in government and government oversight of business and trade.

Musings continue about the Foreign Ministry’s leaked policy document on engaging with the West to help Russia modernize. This new leaked policy seeks to import Western techonology and expertise to improve Russia’s infrastructure and jump start its techonolgy sector.

While Deripaska looks towards East for future initial public offerings of his other companies, notably EN+ Group, Rusal’s holding company, and OAO EuroSibEnergo, a power utility company. Rusal is the trailblazer Russian IPO on the Hong Kong Stock Exchange, but with it’s dismal performnace its first six months, it could leave a bad taste for other Asian investors. Additionally, institutional money managers are wary of Russian companies with opaque management rules and only promises of profits.

Investors both from the West and from Asia need to see commitment from the Russian government and the Russian business elite that they are serious about developing the technology and financial sectors in Russia. Russian businessman routinely top Forbes list of the world’s wealthiest; they clearly have the means to invest in domestic techonology firms. Russia’s political system as it has concentrated power to the executive branch has the political will to end corruption and strengthen the rule of law and improve its perception among foreign investors. But so far Russian businesman prefer to use their money on overseas investments while Russian politicans strengthen their own power at the expense of the country’s economic development.

Leading human rights and legal experts discuss the implications of the Khodorkovsky trial on political and economic freedom in Russia at a panel discussion held in conjunction with the US debut of Sketches of [in]Justice: The Khodorkovsky Trial from Putin to Medvedev.

"Territory of Liberty" by Julia Aryeh

Panel Discussion: The Khodorkovsky Trial – Human Rights and Economic Freedom in Russia

Venue: Dorot Center, 171 West 85th Street, New York, NY

Date: Tuesday, May 18th at 3pm

Sponsors: Committee for Russian Economic Freedom, Andrei Sakharov Memorial Museum, Institute of Modern Russia and Drawing the Court

The ongoing trial in Moscow of Mikhail Borisovich Khodorkovsky symbolizes the challenges all Russians face as they seek to build a society free of fear and corruption. In conjunction with the US premier of Sketches of (in)justice: The Khodorkovsky Trial from Putin to Medvedev, the Institute of Modern Russia is sponsoring a panel discussion in which leading human rights and legal experts will discuss the case’s social, political and economic implications.

Panelists will include Karinna Moskalenko, director of the International Protection Center and notable expert on international human rights who will provide an update on international human rights advances in the US Congress and other legislatures. Additionally, Ms. Moskalenko will provide context to YUKOS v Russia a pivotal international case currently being deliberated in the European Court of Human Rights. She testified before the US Congress on May 6 about Russia’s human rights transgressions.

Sergei Lukashevsky Director of the Andrei Sakharov Center (Moscow) will discuss the human rights situation in Russia specifically and the latest efforts by the Sakharov Center to preserve historical memory of the victims of political repression at the hands of the Soviet regime and promote an open democratic society and state in Russia. Mary Holland, NYU Law’s Director of the LL.M. Lawyering Program, will provide a legal context for recent legal developments in post-Communist Eurasian countries and its impact on efforts in the region to improve human rights. Pavel Khodorkovsky, president of the Institute of Modern Russia will discuss how his organization will continue the efforts of his father who strived to modernize Russia through education and opportunities for young people.

Moderating the panel is Pavel Ivlev, chairman of the Committee for Russian Economic Freedom (CREF) and a long-time legal counsel to YUKOS and its former CEO, Mikhail Khodorkovsky, who fled to New York from Russia under fear of unjust prosecution. Through his efforts and the CREF organization, Mr. Ivlev has raised the awareness of the risks of doing business in Russia and how the release of Mikhail Khodorkovsky would be a signal to the international investment community at Russia is back in business.

Admission: Free and open to the public.
General Information: Dorot Center, 171 West 85^th Street, New York, New York, 212-769-2850.