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David Ignatius

Dealing With Putin's Putsch

By David Ignatius
Friday, September 17, 2004; Page A27

After communism collapsed in Russia during the early 1990s, many analysts warned about the eventual rise of an authoritarian leader who would take control of a weakened, demoralized country and slowly crush its new democratic institutions in the name of law and order. Now, under President Vladimir Putin, it's happening.

This past week showed Putin's boldness -- and his brazen contempt for Western opinion -- in consolidating power. He announced a plan Monday to halt the election of regional governors and independent members of the Duma -- a move that will give him a dictator's grip on Russian politics.

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Putin's move continues his slow-motion putsch. He has, in turn, gutted the old Communist Party, crushed the "oligarchs" and their independent political and financial power, and now demolished the regional power bases of the governors.

Like his Russian forebears, Putin can now claim the title "Czar of all Czars." And like past Russian leaders, he is probably smiling inwardly at criticism from the West. He knows his power grab is wildly popular at home with a Russian public that is sick of terrorism, looting and disorder -- and wants the strong leadership Putin so obviously offers.

This past week also illustrated the peculiar role played by a factor that didn't exist for previous Russian autocrats: the global economy. Putin must pay attention to global investors, but while those capitalists may favor democracy in principle, they seem to care more about their money. Rather than running away from Putin's Russia, companies such as Citigroup and GE are discussing new investments.

I'm told that by late Monday night, Putin's aides were anxious enough about the negative reaction of international financial markets that they were quizzing Westerners about how they might soften the blow of the political moves.

And sure enough, on Tuesday Putin threw the capitalists a bone. He announced that the Russian energy giant Gazprom would acquire the state-owned oil company, Rosneft -- creating a "super-major" that will have five times as much oil and gas reserves as Exxon Mobil. More important, Putin announced that he was easing restrictions on foreign ownership of Gazprom shares.

Putin's economic move brought just the response he must have hoped for: Gazprom shares rose 15 percent Tuesday and an additional 5 percent Wednesday. Hermitage Capital Management, a firm that already held a substantial position in Gazprom, wrote its investors Wednesday hailing the Gazprom announcement as an "enormously positive development."

What Putin has done on the economic front is astonishing, and somewhat frightening: When he began cracking down last year on the Russian oil company Yukos and its ambitious CEO, Mikhail Khodorkovsky, critics warned that he was endangering the Russian economy. And statistics seemed to support those concerns. Net foreign direct investment plummeted, from an inflow of $1.5 billion in 2002 to an outflow of more than $5 billion in 2003. Panicked Russian oligarchs raced to export their money, with capital flight estimated by the World Bank at $3.5 billion in the first quarter of this year.

"It took more than a year, but the Kremlin is within reach of achieving one of its core economic objectives under Putin," analyst Peter Lavelle wrote this week.

Putin is an unlikely titan -- a short, stone-faced ex-spy whose chief virtue is his utter decisiveness. In today's Russia, that seems to be enough. I'm told there was discussion in Moscow this week of possible changes to the Russian constitution that would extend his reign beyond the expiration of his second term in 2008 -- either by abolishing the two-term presidential limit or by weakening the power of the president and vesting it instead with a prime minister Putin could control.

Westerners like to believe that democracy and free markets go hand in hand. That optimism should have been tempered by China, which is becoming a global economic powerhouse even as the Communist Party keeps a lid on political expression. And now there is Putin's Russia, which seems to be following a Chinese path.

What should the West do about Putin's putsch? The right model, many analysts would argue, is U.S. policy toward China. In dealing with Beijing, the United States is clear about its values -- condemning human rights violations and advocating democratic reforms. But at the same time it maintains an economic relationship that, over time, is making China richer and eventually freer. The same process should happen with Russia, and an attempt to isolate and punish Putin would almost certainly backfire.

Optimists in the Bush administration once hoped that Putin's commitment to a modern, democratic Russia was inexorable and irreversible. This past week's events showed just how wrong they were.

davidignatius@washpost.com


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