From this week forward, everything that happens in Russia will be about the upcoming elections. There are two, the elections for the Duma (Russia's parliament) in December, and four months later the presidential election that seems almost certain to re-elect Vladimir Putin.
So this week's brisk visit to Moscow by Italian Prime Minister Silvio Berlusconi (wearing his hat as current head of the European Union's Council) was really about setting a date in November for a Putin-EU summit that will give the Russian president a useful pre-election spot on the world stage.
Berlusconi says he wants eventually to see Russia join the EU, and has worked hard on his personal ties with the Russian leader, inviting Putin's daughters to his private estate on Sardinia last summer. Berlusconi is using his current EU leadership to build some permanent institutions -- like the EU-Russia summit -- designed to lock Russia and the EU more closely together.
Equally, this week's Moscow visit by the American insurance tycoon Hank Greenberg was really about setting an economic agenda for Putin's next summit with President George W. Bush in Washington in September. Greenberg's American International Group is about to make a big plunge into Russia's nascent home-mortgage market.
Putin wants to be able to go to the voters with some achievements under his belt, particularly when his war in Chechnya continues to grind fruitlessly on. Specifically, Putin wants Bush to scrap the 1970s vintage Jackson-Vannik amendment that still affects Russian-U.S. trade and he also wants some real progress on Russia's application to join the World Trade Organization.
But Putin also wants a lot more Hank Greenbergs in Moscow. The Russian leader said this week he cannot begin to understand why the United States is just at No. 8 in the list of foreign investors, way behind the Germans and British and Dutch.
The answer is fairly obvious. There are three problems. First, Putin's henchmen, with their background in the Soviet-era KGB, do not take private property very seriously. The arrest of the Menatep finance group director Platon Lebedev earlier this month on fraud charges, part of the obvious campaign of intimidation being run against Yukos oil tycoon Mikhail Khodorkovski, has unnerved a lot of investors. The Russian stock market has plunged sharply this month.
Western investors may understand that most of the vast fortunes acquired in the post-Soviet years by the Oligarchs were dubiously or even crookedly made. And they may have swallowed the use of Kremlin power against Boris Berezovsky and Vladimir Gusinsky when they tried to use their wealth and TV stations to challenge Putin. But Western investors do not want to see private companies surviving only on the Kremlin's terms, particularly when Khodorkovski's Yukos group has led the way in corporate governance reform and in opening up the secretive ways of Russian business.
Russia's second economic problem is that outside of Moscow and one or two other big cities, not many Russians are doing well out of the economic recovery that has come with higher oil prices.
A massive nation-wide survey by the Social Innovations non-profit group (commissioned by the Russian Peoples Party) found that close to 50 percent of Russians believe themselves to be living at below subsistence level. (The official figure is 30 percent). They complain about bad roads and housing, the lack of heating and the difficulty of getting to see a doctor, and the fact that even "free" public education now costs more in hidden extras than they can afford.
The third big economic problem is that Russia remains uncomfortably dependent on the oil price. Energy exports still account for two-thirds of its foreign earnings, and overwhelmingly this is the sector where the foreign investors go. Ironically, it is also the sector where most of the Oligarchs initially made their money, and where they still keep a grip on this commanding height of the Russian economy while Putin thinks Russia's energy reserves are too strategically important to be left to the Oligarchs.
The combination of oil, power and money, with the Kremlin on one side and the Oligarchs on the other, is inherently unstable -- particularly when the Oligarchs are the main source of funding for the upcoming political campaigns. Indeed, Khodorkovski's main offence seems to have been his readiness to finance opposition parties.
But then Khodorkovski, like the other Oligarchs, is looking far ahead. They all assume that Putin will win re-election net year, but his ability to enact legislation will depend on the composition of the new Duma. Above all, with Putin on his second (and last) term, the Duma will be the place where the next generation of Russian politicians win their spurs and position themselves for the Presidential campaign of 2008. In that sense, December's Duma vote could be more important than Putin's re-election -- and the Oligarchs know it.
