Putin Tries to Calm Investors

By Peter Finn
Washington Post Foreign Service
Tuesday, April 26, 2005

MOSCOW, April 25 -- President Vladimir Putin sought Monday to blunt rising concern about the country's political direction and business climate, declaring in his annual state of the nation address that "ensuring human rights and freedoms is critical both for the development of the economy and for the social and political life of Russia."

At a time when many investors are worrying about a series of back-tax cases against major corporations, Putin declared that "tax agencies have no right to terrorize business." He promised to clarify the rules on investment in strategic industries. "Investors certainly don't need riddles and puzzles," he said. "Their money will only go where there is stability and where the rules of the game are clear and understandable."

The speech came two days before a Moscow court is scheduled to issue a verdict in the case of Russian oil tycoon Mikhail Khodorkovsky and one of his partners, Platon Lebedev, who face up to 10 years on tax and fraud charges if convicted.

The prosecution of Khodorkovsky and the simultaneous dismantling of the company he headed, Yukos Oil Co., generated a wave of fear in the business community, which was compounded by the large back-tax bills issued to other companies, including TNK-BP, Russia's leading oil exporter, and VimpelCom, a major cell phone service provider.

Capital flight tripled to nearly $8 billion last year, official figures show, and Putin seemed anxious Monday to reassure investors, many of whom believe that Putin's words are signals to state agencies about what is permissible.

"I consider that the main political and ideological task is the development of Russia as a free and democratic state," said Putin in a 45-minute address to lawmakers at the Kremlin. "We frequently utter these words, but the underlying meaning of the values of freedom and democracy, justice and legality are seldom treated in a practical way in our life."

The conciliatory tone was in contrast to last year's address, in which Putin spoke darkly about Russia's nascent non-governmental organizations, saying some of their members were not defending "the real interests of the people" but interested only in pursuing money from foreign and other sources. This year he reserved his criticism for his own bureaucracy.

"I think the main theme today was the president trying to restore his own image as the main modernizer, the main reformer, the main Russian European," said Alexei Makarkin, a political analyst at the Center for Political Technologies in Moscow, a private research organization. "The address today was basically a response to the claims that Russia is going back to authoritarianism."

Opponents dismissed the speech as empty rhetoric, and said that Putin was burnishing his image in advance of May 9 celebrations marking the 60th anniversary of victory against Nazi Germany in World War II. President Bush and other world leaders will be in Moscow for elaborate ceremonies that day.

"The hymn to democracy and liberalism sung by President Putin in his annual address to the nation is targeted exclusively for the audience outside Russia," said Sergei Mitrokhin, deputy chairman of the small opposition party, Yabloko. "When leaders of more than 60 countries are arriving in Moscow it is vitally important for the president to have an image of a true and convinced democrat. . . . The president's words about stable and true rules of the game for investors sound like a mockery just two days before announcing political sentences for the former Yukos managers."

Putin singled out the country's entrenched bureaucracy for particular criticism. "Our bureaucracy is still to a large extent an isolated and sometimes arrogant caste which sees the civil service as a kind of business," he said.

He acknowledged the Russian public had little confidence in its police or judiciary. "We need the kind of law-enforcement bodies in which a decent citizen would be proud to work, and people would not cross to the other side of the street at the sight of a uniformed man," Putin said.

Putin also suggested that the pace of change in Russia would be dictated by the state, and that the Kremlin would not tolerate the kinds of popular revolts that have toppled governments in the former Soviet republics of Georgia, Ukraine and Kyrgyzstan in the past two years.

The "consistent development of democracy in Russia is only possible in a legal and legitimate way," he said. "Any extra-judicial methods of fighting for national, religious or other interests contradict the very principles of democracy. The state will react to them in a legal but tough manner."

Many of Russia's problems, he suggested, grew from the 1991 collapse of the Soviet Union, which he called "the greatest geopolitical catastrophe" of the 20th century. As a result, he said, large numbers of Russians were stranded outside Russian borders as Soviet republics gained independence and separatist violence began.

© 2005 The Washington Post Company