Daily Archives: June 25, 2008

June 25, 2008 — Contents

WEDNESDAY JUNE 25 CONTENTS

(1) EDITORIAL: The Mother of All Rogue Regimes

(2) Russia Leads the Way on Dictatorship

(3) Inflation Ravages Putin’s Russia

(4) Annals of Russian Corruption

EDITORIAL: Russia, the Mother of All Rogue Regimes

EDITORIAL

The Mother of all Rogue Regimes

This scowling countenance, which gives every impression of being that of a maniac, is that of Russian Deputy Prime Minister Sergei Ivanov, a member of the dictator Vladimir Putin’s closest inner circle. If his face makes you nervous, you’d better turn away now, because his face is nothing compared to his words, uttered at the 12th St. Petersburg International Economic Forum on June 8th and reported by the Other Russia opposition coalition:

Our business participates in the transportation support of wars led by other nations. We earn income from wars, however cynical that may sound. The government, at any rate, does not impede our business of carrying out military transports on behalf of other nations. We will continue to do this.

Ivanov dreams big dreams. He’s in the process of creating an umbrella organization called Rostekhnologia whose purpose will be to deliver Russian armaments into world conflicts faster and better than ever before. And Other Russia concludes that the organization may be doing double duty as a means of further consolidating Putin’s totalitarian grip on the nation:

As many as 600 companies may become a part of Rostekhnologia, which has raised the ire of the Federal Anti-Monopoly Service (FAS) and the Finance Ministry. FAS has raised questions about transferring shares of privately-owned companies, such as vehicle manufacturers Kamaz and UAZ, to a state corporation. The Finance Ministry, for its part, has protested the inclusion of enterprises not directly involved in the military-industrial complex into Rostekhnologia.

This isn’t to say, of course, that Russia is content to allow its weapons to be used by others to promote global mayhem. As we’ve previously reported, Russia is among the ten least peaceful nations on the planet as rated by an independent peace organization. After an investigation, the United Nations recently concluded that a Russian fighter shot down a Georgian surveillance aircraft in Georgian airspace, without question an act of war. Russia is engaged in an ongoing effort to split off a western region of Georgia and annex it to Russia, undoubtedly part of an overall scheme to destabilize Georgia, keep it out of NATO and ultimately annex the whole country to Russia just as was the case in the times of the USSR.

Russia is the mother of all rogue regimes. Run by a proud KGB spy who has been clothed in the legitimacy of “elections,” it is armed to the teeth with ICBM’s and full of just as much hatred for Western values like democracy as Iran or North Korea ever were. It’s also prepared to weaponize its energy assets, and just as in Soviet times it couldn’t care less about diverting vital resources from a sick and diminishing population to foment geopolitical confrontation. Whether it knows it or not, the world’s democracies are in another cold war with another evil empire. If you listen to Vladimir Putin’s propaganda, then you believe that Russia is flush with wealth — and that means these arms sales are entirely gratuitous and unnecessary except as a political weapon.


Russia Leads the Way on Dictatorship

The Moscow Times reports:

Propelled by a surge of oil and natural gas wealth, Russia has become the leading anti-democratic force in its region, the U.S.-based democracy watchdog Freedom House said in a report released Monday. Nearly two decades after the fall of the Berlin Wall, the vision of a wider Europe “whole and free” remains unrealized, Freedom House also said in the report. “Over time, we have seen rising oil prices correlate clearly with sharply falling democracy performance, especially in Russia, Kazakhstan and Azerbaijan,” the group’s director of studies, Christopher Walker, said in an interview. “The resource curse is taking root.”

As energy prices increased over the past decade, the three former Soviet states based their growth on natural energy resources, the report said. The period was marked by “a concurrent and striking decline in the openness and independence of institutions,” the report said. By last year, it became clear that Vladimir Putin’s era had ushered in a new elite that grabbed power, Freedom House said.

Experimenting in “authoritarian capitalism,” an “Iron Triangle” of state power, industry chiefs and security services is leading a decline in the electoral process and increased control over political opponents and news media, the report said. “Independent voices of consequence have been muzzled and are unable to challenge or moderate the leadership’s whims and excesses,” according to the report. Courts, the backbone of the legal system, are targeted by dominant power-holders to make sure they cannot provide unbiased and independent justice, Walker said. As for the media, Walker said, influential power-holders “want to make sure their enormous assets and use of them are not scrutinized and not taken away, and that contributes to repression.”

The growing authoritarianism is also shaping foreign policy, producing “a more assertive and often belligerent posture by Russia toward its neighbors,” the report said. For instance, it said, Russia keeps trying to undercut reform in neighboring Georgia and is applying pressure on Estonia. While yielding the post of president to Dmitry Medvedev, Putin holds the post of prime minister and has assumed leadership of the country’s dominant political party. The report said it is not clear how the still-evolving authoritarianism will fare without him directly at the helm.

When he took the oath of office in May, Medvedev pledged “to protect the rights and liberties of every citizen.” He also declared that “human rights and freedoms … are deemed of the highest value for our society and they determine the meaning and content of all state activity.”

Freedom House has also published a report recently called Worst of the Worst: The World’s Most Repressive Societies 2008. Not surprisingly, Russia appears on their list of 20 nations and territories in that category.

Inflation Ravages Putin’s Russia

The Moscow Times reports:

Food prices have risen 11.6 percent in the country since the start of the year, compared with 3.1 percent in Europe, the State Statistics Service said Thursday.

The news comes as a worrying sign that inflation may continue to hit people’s grocery bills, with a basket of food jumping by 2.3 percent in May alone, compared with 0.6 percent in the European Union, the service said.

The government has been struggling to keep inflation within the current forecast of 10.5 percent for 2008, a target analysts have called out of reach. Finance Minister Alexei Kudrin said Wednesday that it was still possible for the Central Bank to hold inflation to 10.5 percent, although it would require slowing down the “overheated” economy.

Russia is seeing food prices rise faster than in Europe because a higher percentage of its food is imported, analysts said. The country “imports meat, milk, sunflower seed oil and butter — almost everything,” said Julia Tseplyayeva, an economist at Merrill Lynch.

And even with global food prices rising, the country’s consumer price index has risen more rapidly than in most of Europe because Russian consumers spend more of their income on groceries.

“In Russia, 39 percent of the consumer basket is accounted for by food, 36 percent without alcohol,” she said.

In Europe, she said, 15 to 25 percent of the basket is food. “The result is … a huge spike in inflation.”

Vegetables have hit the country’s pocketbooks hardest, with prices rising 51.4 percent since December, compared with 5.1 percent in the EU. Baked goods and cereals saw the next-biggest hike over the period, rising 15.2 percent, compared with 3.8 percent in Europe.

Anna Kareva, director of investor relations at X5 Retail Group, which owns the Perekryostok and Pyatyorochka grocery store chains, said prices would keep rising “more than the government thinks.”

The trend this year has changed, she said, adding that last year inflation was driven in part by wage increases. Earlier this month, Prime Minister Vladimir Putin said the government would seek to boost wages and social benefits as a cushion against rising prices.

“People were upgrading their basket, they were buying more expensive stuff and this trend continued into the first quarter of this year,” Kareva said.

“Now that trend is changing. … We don’t know yet whether it was a problem, but we probably will in the second quarter,” she said.

Annals of Russian Corruption

The Moscow Times reports:

The Moscow police officers checked Viktor’s office and declared that he was in big trouble.

The Windows software installed on his computers was not licensed, and the officers said they would be forced to open a criminal case unless Viktor showed his “generosity.”

Viktor slapped $6,000 into the hand of one of the officers, and the pirated software was forgotten.

Across the city, Igor is proud of his brand-new Ford Focus, but he parked it several hundred meters away from the institute where he studies medicine. If his professors were to see it, he would be charged more money to pass his exams.

In a small shop on Prospekt Mira, Yekaterina regularly pays tax officials to turn a blind eye to irregularities in her accounting records and fire inspectors to ignore fire safety violations.

“This is the way we live. We pay, pay and pay,” Yekaterina said with a sigh.

People living in Russia pay $319 billion a year in bribes, according to Indem, a Moscow-based research center that tracks corruption. That amounts to about $2,250 for each of the country’s 142 million citizens.

The cost of corruption is keenly felt across all segments of the economy, pushing up prices for food, housing, services, health care and education. A few people have taken a stand against bribes, opting instead to take the longer and sometimes more costly route of doing everything above board. But many people prefer the status quo, saying they fear a government-led reform effort would end up forcing them to pay more than they do now.

President Dmitry Medvedev has declared war on corruption, and he is expected to outline a national anti-corruption plan in the upcoming days. The plan, prepared by the Anti-Corruption Council, a body that Medvedev founded and chairs, is to seek amendments to laws that breed corruption, offer protection to businesses from corrupt bureaucrats, and make judges independent.

Corruption, however, is deeply engrained into everyday life. Everyone pays bribes, according to a study carried out last year by Transparency International, a corruption watchdog. The study ranked Russia on par with Gambia, Togo and Indonesia in terms of corruption, ranking it in 143th place out of 180 countries surveyed.

As the cost of living rises, so has the cost of the average bribe, increasing from $10,000 in 2001 to $130,000 in 2005, according to Indem. The largest chunk of bribes go to law enforcement agencies and education institutions, it said.

It is little wonder then that Russians overwhelmingly believe that bureaucrats became less efficient and more corrupt under President Vladimir Putin, as documented in a study by the Institute of Sociology of the Russian Academy of Sciences in late 2005.

Indeed, corruption has become more “impudent and open,” compared with President Boris Yeltsin’s time in office, said Georgy Satarov, the head of Indem.

“Bureaucrats who took bribes used to try to hide them, but now they are not even afraid of showing off their wealth,” Satarov said.

Fighting With Legislation

As a first step, Medvedev has ordered new legislation to prevent state inspectors from entering the premises of small businesses without the permission of prosecutors.

“Arbitrary inspections by officials — from firemen to the police — are often an excuse to extort bribes from small firms and must halt,” he told a State Council meeting in Tobolsk in late March.

Under Medvedev’s direction, the Duma Commission to Fight Corruption has drafted a bill to fight corruption that would deprive officials of opportunities to use their positions for personal profit and set strict standards for government employees. The bill requires officials and members of their families to declare their property and forbids former officials from working for companies that they previously regulated.

The rules were taken from a United Nations convention against corruption and a Council of Europe convention on criminal responsibilities that the Duma ratified two years ago and needs to implement, said Mikhail Grishankov, one of the authors of the bill and the head of the Duma Commission to Fight Corruption.

“We didn’t try to create something completely new,” Grishankov said in an interview. “Instead, we looked at international experience in this field.”

Grishankov said the anti-corruption bill contained provisions that have been tested in Western countries and worked well.

“We don’t have any illusions that by applying European measures we will get immediate results. But there are rules that have been applied in other countries and work,” he said.

Medvedev will present the bill to the entire Duma for a vote in the fall, and the bill will be passed by year’s end, Grishankov said.

Other anti-corruption legislation is also in the works. The Investigative Committee, linked to the Prosecutor General’s Office, has floated a bill that would eliminate a legal loophole that allows government officials to accept gifts worth less than 11,500 rubles.

Putin’s campaign against corruption largely consisted of raising bureaucrats’ miserly salaries to make bribes less attractive and the occasional high-profile arrest of corrupt officials in sting operations.

At his last annual Kremlin news conference in February, Putin admitted that the campaign had failed and said he could not think of a more difficult problem to solve. “Fighting corruption takes time, and there is no miracle anti-corruption pill that the state can swallow and cure its corruption woes overnight,” he said.

He accused big businesses of facilitating corruption by placing their people in the government. “Few of these people actually received a salary in these posts. It was not the money that interested them,” he said.

Putin has dismissed the idea of replicating attempts by Georgia to get rid of corruption as unpractical and unrealistic. Georgia fired its entire traffic police force and replaced the officers with new recruits.

‘Don’t Touch Anything’

Told about the pending legislation, Viktor, the businessman with pirated software, unleashed a torrent of profanity.

“Don’t touch anything! Let things stay the way they are,” he said, shouting. Viktor, like many small entrepreneurs interviewed for this report, spoke on condition of anonymity, citing fears of reprisals from the authorities.

Viktor said he spends about $1,000 a month on bribes to police officers and bureaucrats. The money pays for permits and prevents inspectors from revoking his license for perceived infractions. He said the bribes were like an extra tax, which, although high, is manageable. He said he “strongly” opposes Medvedev fighting the problem.

“I don’t like paying bribes, and I would rather work according to clear and transparent rules,” Viktor said. “But I live in Russia, and experience tells me that every time authorities decide to tackle a problem, things only get worse.”

Yekaterina, who pays $800 to tax and fire inspectors every month, said she feared a government crackdown would only lead to higher bribes. “It would become riskier for bureaucrats to take the money, so they would ask for more,” she said.

“It is better to leave things the way they are,” she added. “It is not an easy situation, but now we can survive. If they touch anything, it would be the end for small businesses.”

Viktor and Yekaterina explained that they have good relations with “their” officials, and a change would mean building new relations with new people who might want more money.

“It took me so long to establish my contacts, and I don’t want to lose them,” Viktor said. “The old ones already have cars and apartments.”

But Igor, the student with the new car, said he supported any government initiative to stop bribery at schools. At his institute, he said, only students from poor families pass exams for free, but professors ask for money from students from middle-class or rich families.

“I like studying, but I sometimes lose motivation because I know that I can pay and the exam is done,” Igor said. “Who studies under such circumstances? People get degrees without even opening a book.”

Satarov said “everyday corruption” is the worst kind, when students pay professors for a degree and people pay doctors for treatment.

Already in 2001, he said, 2 million adults reported that they did not seek treatment when they were ill because they could not afford to pay for nominally free public health care services.

“This kind of corruption will bring unimaginable danger in our society,” Satarov said. “People will be unhealthy, and soon we will have lawyers, constructors and doctors who have all purchased their degrees.”

One Man’s Fight

Ilya Khandrikov, a businessman who owns a clothing factory with 110 workers, started his own fight against corruption in 2006 after growing weary of being harassed by policemen and fire and tax inspectors. He stopped paying bribes.

When officials stop by his office looking for a handout, he refuses. When he needs to get a new permit, he hires a firm that takes care of the bureaucratic hurdles for him.

“It is a big challenge,” he said. “Some people say, ‘You’d better pay,’ but I’m a fighter by nature.”

Khandrikov said it was difficult to compete with rival businesses that prefer the easier way of paying bribes, but he believes that someone has to oppose the system before things will start to change.

“It takes more time and money to solve the problems the way I do, but still I decided to stop giving money to anyone anymore,” he said. “It is more expensive, but it is worth it.”

Khandrikov believes that corruption would end if all businesses followed his example.

A few other businesses are also openly refusing to pay bribes, including Ernst & Young, the auditing firm, which encourages clients to follow its lead. “If a company wishes to get recognition from its Western partners, it should have a zero-tolerance policy toward any corruption payments,” Ivan Ryutov, head of fraud investigation and disputes services at Ernst & Young, said in an e-mail. “That is why we always recommend that our clients think about their image and reputation rather than entering into dubious corruption schemes.”

Grishankov, the Duma deputy, said businesspeople are one of the main problems in fighting corruption. “When businessmen understand that the rules are changing and they need to follow the law like everyone else, things will gradually start to improve,” he said.

Solution Is Democracy

Is there a way out of corruption? Satarov said the solution is simple: allow nongovernmental organizations and the media to provide external control over bureaucracy.

“The bureaucracy is now independent and without any controls. It does whatever it wants,” Satarov said. “When bureaucracy is without any controls, it works for itself, and then you have corruption.”

To fight corruption, Satarov said, Russia needs free NGOs and free media, as well as a developed civil society, political competition and a clear division of powers in the government.

“In one word: democracy,” he said. “Without these conditions, any fight against corruption is useless. You will only get short-time results.”

Punitive measures are unlikely to work in a big country like Russia. “In some small countries like Singapore, it is possible to fight corruption with strong punitive measures, but not in Russia,” Satarov said.

Yelena Panfilova, head of the Russia office of Transparency International, said the authorities needed to work to change people’s mentality so that they understood that life without corruption would be better for everyone. Putin often launched anti-corruption campaigns around election seasons, and people tend to associate them with election-time politicking.

“The political leadership should make it absolutely clear that this time they are fighting corruption seriously, that they are not going to stop when the elections are over,” Panfilova said.

In educating the public about corruption, the government must make people realize the price they pay everyday because of corruption, she said.

“When people see that Coca-Cola is 5 rubles more expensive, they blame greedy businessmen,” she said. “But they don’t see that the reason for the price increase is not economic but corruption.”

People also do not associate the danger in the streets with corruption, said Kirill Kabanov, director of the National Anti-Corruption Committee, an advocacy group. “Patrol officers in our country are on the street to make money, not to protect citizens,” he said.

At least one Moscow police officer is not worried that Medvedev’s drive against corruption will change the way he works.

A police officer, who works for the Moscow force’s anti-organized crime division, is more skeptical about the fight against corruption the government wants to start.

“It is just a publicity stunt to promote the new president and to show people that he wants to find a solution to this problem,” said the officer.

He said bureaucrats were so used to taking money that they would continue the practice even if their salaries were raised by 10 times.

“The only thing to fight this problem is to replace everyone from the top to the bottom with new people,” he said.