ECONOMY-RUSSIA: U.S.-Russian Summit Avoids Corruption Issue

By IPS Correspondents Reprint | | Print |

Sergei Blagov

MOSCOW, Sep 2 1998 (IPS) - Russians, with or without evidence, put the blame for their economic woes on endemic corruption. But despite appeals from NGOs, this week’s meeting between Russian President Boris Yeltsin and U.S. leader Bill Clinton avoided the issue.

“Corruption is widely believed here to be at the root of the country’s economic crisis,” says Human Rights Watch Moscow representative Diederik Lohman, whose group unsuccessfully urged Clinton to make the graft problem a central theme of the summit.

“The Russian government is riddled with graft, and the country’s most urgent problems — chronic wage and pension arrears, insider privatisation deals and tax evasion — are often a consequence of corruption.”

On the very day of Clinton’s arrival in Moscow first deputy finance minister Vladimir Petrov was arrested on corruption charges. Petrov, 43, is suspected of taking huge bribes in exchange for helping a large (and unnamed) Russian bank to minimise its losses when the government decided to suspend repayments on high-yield short-term ‘GKO’ treasury bills last week.

On Wednesday, the Moscow Times daily noted that on the eve of the bailout by the International Monetary Fund (IMF) in July, “as the government was asking for up to dollars 15 billion in short-term help, a Kremlin study cited by (Russian news agency) RIA Novosti estimated that corruption was costing Russia from dollars 15 billion to dollars 20 billion each year.”

Human Rights Watch said both leaders needed to send a message deploring the debilitating effects corruption has had on the Russian economy and on the rule of law, and not to do so was a failure. “If President Clinton fails to give corruption and human rights issues equal priority with economic and security issues, he risks… undermining U.S. policy in Russia in future,” the NGO said.

Attention is focussing on the Russian multi-millionaires who have bought up privatising industries and banks, and added media interests and political parties to their portfolios. This so- called ‘oligarchy’ wields enormous covert political power that is hard to trace, let alone stop. Former deputy premier Boris Nemtsov, is among many who condemn “the oligarchs and their financial groups who do not pay taxes and behave like an occupying force in Russia”.

According to the Centre for Economic Performance, a London School of Economics think tank, the 100 largest tax evaders account for over 40 percent of Russia’s tax arrears. Those same 100 corporations were also among the chief beneficiaries of cheap property selloffs and other state favours.

“Graft has laid waste to the public institutions crucial to long- term economic development, the rule of law and human rights protection, and it is difficult to overstate how thoroughly corruption has eroded public trust in these institutions,” Human Rights Watch says.

“So-called market reforms in Russia have been carried out by over-self-confident and incompetent politicians, notably (ardent free market advocate and former deputy premier) Anatoly Chubais and his like,” adds Sergei Rogov, head of the Moscow think tank, the USA-Canada Institute. “Unfortunately, the U.S. supported these reforms, proving disastrous for Russia.”

From his first days in power, Rogov says, Yeltsin turned to the West and notably the United States for advice, adopting the principles of ‘shock therapy’ based on mass privatisation and the free market, ideas that were highly fashionable in the West at the time of the break up of the Soviet Union.

Russia’s wealth was sold through unfair privatisation auctions and consolidated into the hands of an oligarchy drawn mostly from the ranks of the former Soviet elite, made rich at state expense.

Today some 80 financial-industrial groups, including 1,000 industrial enterprises and 100 banks, are registered in Russia. There were just six in 1994. Their values are measured in billions, especially in natural resources, such as diamonds, gas and oil.

“What has happened is that they have created a new rich class and left the ordinary people with nothing,” says David Dyker of the School of European Studies at southern England’s University of Sussex. “Monopolies have simply changed hands. You had mass privatisation without building infrastructure for a proper market economy because the government was too weak and too corrupt.”

Instead of criticising the corruption, the Moscow Times said “the West has heralded vague “reforms,” and has encouraged Yeltsin and his successive governments to stay the course. “If Clinton is now uncomfortable visiting such an obvious U.S. foreign policy failure as Russia,” the daily commented, “he is welcome to shoulder some of the blame.”

The problem is found at all levels of the official system.

Last week the Russian Interior Ministry’s economic crime directorate released details of a three year investigation into corruption in the country’s State Customs Committee, that cost the state an estimated 30 million dollars in unpaid import duty on cigarettes alone.

Customs committee Chairman Valery Draganov told reporters at the weekend that companies headed by the daughters and his son-in-law of former customs committee Chairman Anatoly Kruglov shipped goods through without customs checks, while Kruglov’s wife allegedly headed a smugglers firm founded by Smolensk organised crime.

Grigory Yavlinsky, the leader of the liberal Yabloko party group, specifically accuses present acting prime minister Viktor Chernomyrdin of creating an “extremely inefficient and semi- criminal economic system” during his previous five year stint as premier.

Yet Chernomyrdin has plenty of business backing. He founded Russia’s wealthiest company, Gazprom, which produces a quarter of the world’s natural gas, is still 40 percent state-owned, and turns in reported net profits of around eight billion dollars a year.

Lohman is equally critical. “Viktor Chernomyrdin’s restoration as acting Prime Minister,” he said, “calls into question the government’s determination to fight corruption.”

The catch for Yeltsin and Chernomyrdin, is that many of the prime suspects in any large scale investigation of graft are their prime backers. Many of the multi-millionaires put their cash and the support of their media organisations behind Yeltsin’s 1996 re- election campaign.

Sceptical observers argue that by seriously tackling graft, Yeltsin would shoot himself in the feet.