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The Truth About Putin and Medvedev

Putin. Itogi. Nezavisimyi Ekspertnyi Doklad (Putin: The Results: An Independent Expert Report)

by Boris Nemtsov and Vladimir Milov
Moscow: Novaya Gazeta,76 pp., 50 rubles

As he prepares to step down from the Russian presidency in early May, Vladimir Putin has been boasting about his accomplishments. In a speech to the State Council on February 8, he talked of the stability that his government had established, thanks to which “people once more have confidence that life will continue to change for the better.” A few days later, during the last of his long annual press conferences as president of the Russian Federation, Putin said: “I have worked like a galley slave throughout these eight years, morning till night, and I have given all I could to this work. I am happy with the results.”

That Putin’s hand-picked successor, Dmitry Medvedev, won the presidential election on March 2 with 70 percent of the vote doubtless boosted Putin’s ego further, although, because of strict new election rules and the Kremlin’s control of the press and television, there were no other serious competitors on the ballot. Medvedev announced before the election that he would make Putin his prime minister, and Putin immediately agreed to serve. Thus, when they went to the polls, Russians assumed that a vote for Medvedev would ensure that Putin stayed on as supreme leader, at least for some time. And this, according to opinion surveys, is what most of them want.1

As popular as President Putin is among Russians, largely because of Russia’s economic growth, there are those who disagree strongly with positive assessments of his presidency. Among them are Boris Nemtsov and Vladimir Milov, authors of a short book titled Putin: The Results: An Independent Expert Report, published in Moscow just a few days before Putin’s last press conference.2 Both Nemtsov and Milov are highly regarded liberal democrats with inside knowledge of the Kremlin. Nemtsov, who has a Ph.D. in physics and mathematics, was a popular governor of the Nizhny-Novgorod region before serving as a first deputy prime minister of Russia under Boris Yeltsin in 1997–1998. He was a co-founder of the liberal democratic Union of Right Forces (Soyuz Pravykh Sil, or SPS) and served as a member of the Russian parliament, the Duma, until his party lost its seats in the December 2003 elections. Nemtsov, now forty-nine, has since then continued to be an important member of the political opposition to President Putin. (He was arrested briefly in November 2007 for taking part in a protest rally in St. Petersburg.)

Nemtsov’s thirty-five-year-old co-author, Milov, is a respected specialist in energy policy. As deputy minister of energy in 2002, he worked on designing market reforms within the Russian gas, electricity, and railway industries. But the government stalled on carrying out his reforms and he resigned in late 2002. Since then, Milov has headed the Institute for Energy Policy, an independent economic think tank in Moscow, while contributing frequently to the liberal Russian press. He was among those invited to the US embassy in Moscow in March to brief visiting Secretary of State Condoleezza Rice about the political situation in Russia.

In their concise and eloquent report, Nemtsov and Milov present a devastating picture of Putin’s eight years in the Kremlin. Indeed, the report’s appraisal of Putin and his administration is so damning that the Kremlin attempted, with considerable success, to block its distribution. Originally, the publisher, Novaya Gazeta (which produces the newspaper of the same name and had employed the murdered investigative journalist Anna Politkovskaya), planned on a first printing of 100,000. But the distributor backed out at the last minute because of strong pressure from the Kremlin. This left Novaya Gazeta with only one place in the entire country to sell the book—its own kiosk on Moscow’s Pushkin Square. As a result, only five thousand copies were printed, and by mid-March some two thousand had been sold.

When I met with Milov in his Moscow office last month, he told me that the report caused a “hysterical” reaction among the political leadership. He heard from a trusted government source, he said, that the report led to a series of urgent, high-level meetings both in the Kremlin and the FSB (the successor to the KGB). Lilia Shevtsova, a political analyst at Moscow’s Carnegie Center, told me that the report was like a “bomb, which anywhere but in Russia would cause the country to collapse.” Anatoly Chubais, formerly Yeltsin’s leading economic strategist and now head of the Kremlin’s electricity monopoly, was especially concerned, because he is a close friend of Nemtsov and a co-founder of the SPS (although he is no longer a member). Chubais worried that he would be ousted because of his association with Nemtsov and the SPS. After a long and reportedly heated discussion with Chubais, Nemtsov made the concession of “suspending” his membership in SPS, so the party (and Chubais) could distance themselves from the report.

I asked Milov if he was worried about the repercussions of the report, in view of what happened to Politkovskaya. He said with a laugh that if anything bad happened to him or Nemtsov, it would be a “huge advertisement” for the book and attract Russian readers, who know nothing about it.

It was predictable that Putin: The Results could not be widely circulated because it so strongly refutes Putin’s version of what has happened to Russia since 2000. In his February 8 address, Putin asserted that his administration has had enormous success in bringing the people new prosperity and in tackling the problems inherited from the chaotic Yeltsin presidency. He also described conditions in Russia when he took office: Chechnya was a “regime of terror” planning to carry out aggression against Russia. Russian armed forces, demoralized and under-equipped, were not prepared for combat. The government was weak and ineffective, with little regard for the law. Agriculture was in a state of crisis. The economy was controlled by oligarchs and criminal organizations. Inflation was running at 36.5 percent, and unprecedented amounts of wages, pensions, and benefits were not being paid. In Putin’s words, “Wealthy Russia had become a land of impoverished people.”

Today, Putin says, the war in the North Caucasus is over and Chechnya has a full-fledged democracy. Russia’s levels of social and economic development have been rising. Citizens can exercise their rights in full and courts enjoy real independence. Total investment in the Russian economy has increased sevenfold, with capital inflow in 2007 reaching $82.3 billion. Real incomes are 2.5 times what they were in 2000 and unemployment and poverty have declined. Also, according to Putin, Russia has a stable and effective political system.

Nemtsov and Milov acknowledge the economic successes that Putin and the Kremlin claim, including the 70 percent rise in Russia’s GDP since Putin came to power. But they point out that oil prices, which were about $16 per barrel under Yeltsin, have risen sharply, averaging some $40 per barrel during Putin’s presidency (and are now much higher). This, they argue, should have enabled the Kremlin to carry out much-needed reforms—in health care, education, transportation, the pension system, the army, etc. Instead: “As under Brezhnev, super-income from the export of oil and gas has to a large extent been frittered away and necessary reforms left undone.”

As Nemtsov and Milov rightly stress, their country has “a level of corruption completely unprecedented in all of Russia’s history.” Indeed, the nongovernmental organization Transparency International ranked Russia in 143rd place (with first place being the least corrupt) in its 2007 worldwide country rating of degrees of corruption. Of course, the authors say, there was plenty of corruption under Yeltsin as well. But today the sums are much larger, measured in billions of dollars, and corrupt officials, who occupy high-level government positions, are protected from public exposure by the Kremlin’s control of the law enforcement agencies and the mass media.

According to the report:

Assets are being removed from state ownership and handed over to the control of private people, property is being purchased with state money back from the oligarchs at stunning prices, a friends-of-Putin oil export monopoly is being created, and a Kremlin “black safe” [slush fund] is being funded. This is a brief outline of the criminal system of government that has taken shape under Putin.

As one example, the authors cite what they call the “Oscar-winner” in the transfer of Russian government assets to secret third parties—Gazprom, the state-controlled energy giant whose board chairman for the last six years has been the president designate, Dmitry Medvedev. During the past three years several key assets of Gazprom—its insurance subsidiary, Sogaz, its pension funds, and its mass media interests (the Gazprom-Media group has shares in two television stations)—have fallen into the hands of Rossiya Bank, which has its headquarters in St. Petersburg. Rossiya Bank’s chairman, Yury Kovalchuk, happens to be an old and close friend of President Putin. And the bank acquired these valuable assets at bargain prices, buying Gazprom-Media Holdings in 2005 for only $166 million. In 2007—just two years later—Medvedev estimated that these holdings were worth $7.5 billion, or about forty-five times the sale price. “It would appear,” the report observes, “that Gazprom gave its assets to friends of President Putin for a fraction of their real worth! Compared to this deal, the loans for shares auctions [the much-disparaged privatization of state enterprises under Yeltsin] look like exemplars of honesty and transparency.”

Another highly dubious Kremlin transaction mentioned by Nemtsov and Milov was the purchase by Gazprom in 2005 of 75 percent of the shares of Sibneft, an oil company owned by Roman Abramovich, the Russian billionaire oligarch, Putin’s close friend, who lives in London and owns the Chelsea Football Club. To purchase Sibneft the government paid an unnecessarily large sum—$13.7 billion—when it could have gotten the company for much less. (Abramovich acquired it in 1995 for only $100 million.) Why, the authors wonder, did Sibneft have to be nationalized at all? The company would have become much more efficient and profitable if it had remained in private hands.

Then there are the middlemen used by the Kremlin in selling its energy exports, such as the mysterious Swiss-based company RosUkrEnergo, which supplies Russian and Central Asian gas to Ukraine and Europe. The authors do not mention this, but one member of the board of directors of RosUkrEnergo is Konstantin Chuichenko, a close friend and former classmate of Medvedev who worked for three years for the KGB. Also, one of RosUkrEnergo’s reported co-owners, Semyon Mogilevich, is a notorious international criminal who has been sought for several years by the FBI for racketeering and money-laundering. He was arrested in Moscow in early 2008, apparently because his open presence there was making Kremlin authorities uncomfortable.

Nemtsov and Milov acknowledge that because the Kremlin’s financial records are kept secret, it is difficult to come up with concrete proof that Putin or Medvedev has been taking state money for himself. But whoever has gained financially from the Kremlin’s energy transactions, it is clear, as the report shows, that the money has not been used to solve many of the most serious problems inherited from the Yeltsin era. While the number of Russian billionaires continues to rise, Russia today has an army that appears to be “straight out of the last century.” The road system has deteriorated dramatically. According to the authors, “the system for financing road repairs and building has to all intents and purposes collapsed under Putin.”

  1. 1

    A poll conducted by the government-sponsored All-Russian Center for the Study of Public Opinion and published on March 7, 2008, showed that 66 percent of those who voted for Medvedev expected that most of his presidential powers would shift to Putin as prime minister. A more independent poll organization, the Levada Center, released in February the results of a nationwide survey showing that 63 percent of Russians assumed that Medvedev would be controlled by Putin.

  2. 2

    The monograph was posted on the Internet in Russian at www.nemtsov.ru. An English translation by Dave Essel, which appears under the title Putin: The Bottom Line: An Independent Expert Report, has been posted at www.russophobe.blogspot.com/search/label/essel.

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