Recently in Russia, the government has arrested many of the top executives of the YukosSibneft oil company on various charges. This move is long overdue because the evidence of wrongdoings of the 'oligarchs' in obtaining their firms in the early 1990s (particularly in the loans-for shares program which sold off many of the country's largest firms for a fraction of their value, usually in auctions where politically connected businessmen were the only bidders). The process of prosecuting these 'oligarchs' has occurred throughout Putin's presidency with Vladimir Gusinsky and Boris Berezovsky fleeing the country to avoid prosecution and many other oligarchs being elected as members of parliament (which provides immunity from prosecution). However, the circumstances surrounding the arrest of Mikhail Khodorkovsky have led to questions about the political motives, particularly with the rumors that the pro-market chief of staff, Alexander Voloshin, has resigned.
The speculation that the Putin government's motives for arresting Mr. Khodorkovsky relate to the desire to keep the state's power in the economy strong present many disturbing possibilities. While, renationalization of industry are highly unlikely, the government may be preparing to take a more meddlesome role in the economy. This is a dangerous possibility for the economic future of Russia, particularly at a time when Russian government debt has just been upgraded to investment grade. If the government were to lean further towards interference in the economy it might scare off foreign investors and possibly promote large scale capital flight (something already happening to a small degree). This would harm long-term prospects for economic growth and would reverse a lot of work done since the August 1998 crisis towards repaying Russia's debt, especially given that at some point in the future, oil prices will fall, reducing government tax revenue, a significant portion of which is paid by oil companies, as well as hurting the macroeconomy in Russia. In order for Putin to prosecute the 'oligarchs' for their wrongdoings, he needs to reassure foreign investors and Russians that he is not trying to reverse much of the progress made in the past few years.
Note (as of 10/30/03): Today it was announced that Khodorkovsky and his allies' shares in YukosSibneft (61% of total shares) were seized as part of the prosecution by the state. A story from Reuters World can be found at Russian Courts Seize Control of Oil Giant (10/30/03).
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©2003 Richard B. Goud, Jr.
Updated on 30 October 2003 at 7:41 PST