Ruminations on Russia

I have held off commenting on Russia's recent spate of terrorism attacks and the response to them whilst I try to get my thoughts in order. Quoted below in it's entirety is a note to clients from Bernie Sucher the Chairman of Alfa Capital (one of Russia's leading asset management firms.) I agree with all of what he has written and the conclusion, but personally would take it further.

Given events, a number of people have asked after us these past days.
I answered this morning with some paragraphs that I thought you might want to see.


1. What we've seen over the last week is Pure Evil vs Absolute incompetence. The Russian State has plenty of evil left in it, but in facing monsters that kill children, the level of the State's incompetence, corruption, and myopia manages yet to prompt astonishment. The post-event signs are already discouraging -- there will be no salutary shock to the tragi-comic system of "security" in Russia, just more of what doesn't work: posturing, sloganeering, scapegoating, steelbooting and bruting.

2. You don't easily win any war without "society" as an active supporter of the war effort. The challenge for Russia remains the building of a Civil Society -- a set of relationships, rules and standards in which the People and their Institutions set the agenda, vent their frustrations, and in various ways collaborate to achieve common ends. Putin talks often about the construction of a healthy Civil Society, and I for one believe that he means what he says. But his rule stopped making detectable progress in this direction as the presidential "election campaign" began to hit its homestretch earlier this year. So today, everyone -- the security services, the government, the parliament, and the people -- all wait for the Czar to say what is to be done. This, despite the fact that it his direction of five years of the "not-war" that led up to last week's horror. In this terribly complex situation, where the most creative, collaborative, and diverse kinds of thinking and acting are required, we find Putin's Chechnya policy exposed for the shambles we all knew it to be, and the man himself standing all alone, without any in this cowed society daring to step forward and advise him, let alone act.

3. Until last week, the Russian government had before it a pressing agenda to push comprehensive reform. Reform of its choking bureaucracy, reform of its useless judiciary, reform of its antiquated military, reform of its inefficient natural monopolies, reform of its inadequate financial system -- to name just a few. Until last week, I was worried that the government's costly grasping in the Yukos affair had already drained too much energy from its reserves to support the realization of a meaningful part of the broad reform agenda. This week, I am certain that the twin hammer blows of Yukos and Beslan mean that any progress we see in Putin's second term in the main reform targets will be thanks more to accident than to design, thanks more to circumstance and forward inertia than to political will or conviction.

4. Given the high price of Russian natural resource exports, its economy will continue to grow, and at rates about which most large countries can only dream. Day-to-day economic policy is in good hands. So the lost opportunities of unrealized reforms will not bite the country until lower export prices become reality and/or the remorseless dynamic of globalization reaches deeper into the Russian economy.

5. Thus, remarkably, we can well imagine that as Russia becomes mired deeper and deeper in the bloody mud of its "new" war, and its children's best hopes choke slowly on unchecked corruption, waste, and incompetent leadership, the headlines from the financial sector will tell a different story. Foreign direct investment is rising, and as there should be no dramatic successor to Yukos as a scarecrow to ward off investors, we can expect more of the same. Speculators in thin Russian financial markets will see promise in a deeper shared commitment by the US and Russia in their crusade against the bad guys; they'll celebrate when Russia accedes to the WTO, and gush when President Putin of Russia plays the role of president of the rich men's club called the G-8. A country with more cash than debt will at last get its full investment grade credentials. A chronic lack of supply of paper in fixed income and equity markets, set against global liquidity and bottled-up domestic savings, will keep the prices of Russian securities bubbling. There will be lots of happy people writing lots of good things about Russia.

Previously, I commented on the incompetence of the ex-KGB thugs surrounding Putin. Security is their area of competence......... As always Gideon Lichfield at the Economist has written a much more balanced piece Economist.com | Terrorist attacks in Russia

Today's Moscow Times (Moscow's English Language newspaper) gives some insight in to the mess that is Russia's government. We should not be that surprised it's just that when the economy was booming (and it still is) and reforms were being pushed through left right and center it sort of felt that we were living in a normal country. We aren't. Anyway the MT's headlines (all free today and over the weekend and then subscription);

1. Silence of the Political Elite is Deafening
2. Police Emerge as Big Security Threat
3. The Populist Approach

BTW, Indpendent Media MT's publisher has launched an appeal for the Beslan kids. They will need help. IM is trustworthy and should be supported.

I sat tight in Moscow after the 1998 financial crisis believing that Russia had the ability and the will to drag itself out of that hole and get itself moving again. It did so with some aplomb and then Putin needed to get himself re-elected and it's been downhill ever since.

I am sickened to my very core by the corruption and incompetence of this country. Time to move on?