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Friday, July 11, 2008

Russia is Closed for Business, America is Wide Open

Joshua Keating of Foreign Policy says that Russia is "closed for business" and blames Dmitri Medvedev:

Last month, Dmitry Medvedev assured a group of international CEOs that he would work to enforce the rule of law and establish "absolutely independent modern courts that comply with the country's economic development level." But if the assembled corporate leaders were hoping that the new Russian president would be true to his word, and the corruption and politically motivated prosecutions of the Putin era would end, this has not been an encouraging couple of days.

Yesterday, most of the expatriate staff of TNK-BP, an oil venture co-owned by British Petroleum, were denied extensions of their work visas. CEO Robert Dudley e-mailed employees this morning telling them to prepare for relocation as early as next week. The standoff between BP and its Russian partners has been escalating for months but after today, it appears that that the Russian shareholders have effectively wrestled the company away from the departing Brits. (Medvedev has denied accusations that the government is intervening on behalf of the Russian oligarchs on TNK-BP's board as well as the rumors that his old company Gazprom plans to take control of what's left of the company.)

Also today, new charges were filed against Mikhail Khodorkovsky. Once Russia's richest man, the former CEO of oil company Yukos has languished in a Siberian prison since a tax-evasion conviction in 2003 that was widely seen as punishment for the tycoon's political ambitions. Khodorkovsky has now been charged with embezzling more than $28 billion and stealing 350 million tons of oil. Kohodorkovsky's lawyers had hoped he could be released early after having served more than half his original sentence, but the new charges could keep him behind bars for another 20 years. One of his lawyers, Robert Amsterdam, told Bloomberg: "I don't think they're even trying to make these new charges look real."

Russia's leaders have created a legal system in which it's essentially impossible for a business to operate legally, making anyone who does business there subject to arbitrary prosecution. It's an arrangement that's well-suited to protecting state power, but not very effective at promoting economic growth. If Medvedev really wants to make Russia the world's fifth largest economy by 2020, he's going to need to try a littler harder.

Keating continues:

While President Bush is spending his birthday week with "smart guy" Dmitry Medvedev, his secretary of state is embarking on you might call a tour of the front lines of Western-Russia tension. Tomorrow, Secretary Rice travels to Prague to formally sign an agreement on the construction of a U.S. missile-defense radar system in the Czech Republic. Later in the week, she heads to Georgia, an American ally locked in a standoff with Russia over its increasingly violent breakaway provinces.

Russia strongly opposes the building of the missile-defense shield and the Foreign Ministry has warned that "appropriate steps" will be taken to punish the Czechs. Since the Russians' amped-up support for the Georgian provinces began as retaliation for Western recognition of Kosovo, it's safe to assume they don't make such threats idly. But compared with historically unstable Geogia, there's not much Russia could do to push around the Czech Republic, a country where Moscow hasn't held much sway since the Velvet Revolution of 1989.

In fact, it's clear Czech leaders are excited to be under the U.S. military's protective wing, and the same goes for Georgia's efforts to join NATO. Poland, which the U.S. hopes will also host part of the missile defense system, is still holding out, but that seems to be mostly about the Poles negotiating a better deal.

These countries, even if purely for cynical reasons, see cooperating with the U.S. as a strategic advantage. Russia, on the other hand, only seems to influence other nations by undermining their governments or shutting off their energy supplies. This can work in bordering countries like Georgia or Ukraine, but places like the Czech Republic and Poland no longer have to fear Russian tanks rolling down the street.

There's a lesson here: For all the talk of the Putin/Medvedev tandem's international assertiveness, they seem to lose a lot more battles than they win. And despite everything that has gone wrong in the last eight years, the United States still seems to be much better at making and keeping friends than the Russians.

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