The Perils of Putin

RARELY HAS A PRESIDENT, successful in his first term, collapsed so totally in his second term as Russia's Vladimir Putin did in 2004. Alberto Fujimori of Peru might offer the closest parallel, with Carlos Menem of Argentina another contender.

For four years, starting with his election in 2000, Putin seemed to have nothing but good fortune. Russia saw substantial and far-reaching reforms, including radical tax reform with a flat income tax of 13 percent, the legalization of private ownership of land, judicial reform, labor market reform, and pension reform. The economy boomed, growing 6.5 percent a year. Abroad, Putin pursued a realist policy, trying to be useful to others, like the United States, while safeguarding Russia's national interests.

Still, ominous signs were never altogether absent. Putin kept extending his political control, and he promoted a small group of fellow KGB officers from St. Petersburg far beyond their competence. Fortunately, their rising power was balanced by that of the big businessmen known as the oligarchs, leaving policy to be guided by a few reformers in key government positions, notably Minister of the Economy German Gref and Minister of Finance Alexei Kudrin. By playing the equally unpopular KGB and oligarchs off against each other, Putin successfully appealed to a broad Russian public, gaining an unprecedented approval rating.

Then in the past year everything changed. Putin's loss of stature has been defined by three signal events: the confiscation of the oil company Yukos, the state's failure to respond to the Beslan hostage drama in the Northern Caucasus in September, and Putin's palpable interference in the Ukrainian presidential election.

Putin's winning streak ended with the arrest of Mikhail Khodorkovsky, the principal owner of Yukos, on October 25, 2003. The key motives were to enlarge Putin's political control and grab assets. The arrest scared Russia's businessmen out of politics. All countervailing sources of power were eliminated or curbed. Suddenly, Putin was governing on behalf of himself and a narrow circle of KGB officers.

In hindsight, Putin's concentration of power appears both systematic and deliberate. First, he subdued the media. Then he took out the oligarchs, of whom Khodorkovsky was the third to be eliminated. Then, partly by manipulating the electoral process, he finagled the removal or marginalization of the admittedly corrupt regional governors. With the economy booming and the president's control of the bureaucracy and the media firm, his United Russia party won a two-thirds majority in the Russian State Duma in December 2003. Then in March 2004, Putin himself was reelected with over 70 percent of the votes. These elections were deemed free but not fair. Russia's repression may not be severe, but it is effective. Potential opposition figures are coopted or marginalized rather than arrested.

Putin's key weakness is an insatiable appetite for political control. He has even replaced his strong first-term chief of staff and prime minister with two individuals famous for their indecision. This leaves all decisions to the president, but he himself is not very decisive. As a result, his administration is all but paralyzed. In addition, all information is manipulated by the security services, and most feedback mechanisms have been dismantled.

On top of everything else, Putin has proven himself extremely stubborn. Once he has finally chosen a course of action, he will not change it even to correct a mistake. His failed policies on Chechnya and Yukos are cases in point. Indeed, all three big developments of the past year illustrate how dysfunctional Putin and his government have become.

The Yukos affair boils down to confiscation by means of arbitrary taxation at the behest of kangaroo courts. In one blow, Putin made a joke of both his radical tax reform and his enlightened judicial reform. He also threw out the successful Anglo-American economic strategy based on competing private resource companies that he had inherited from Boris Yeltsin. And, even as he indulged his desire to humiliate the independent-minded Khodorkovsky, his KGB men were striving to seize assets for themselves through state enterprises.

Naturally, Russia's business leaders are asking who is next, and the tax authorities and prosecutors have made abundant suggestions to keep them on their toes. Who wouldn't scale back his investment plans, faced with such a prospect? Russia's previously high production and investment forecasts are steadily being downgraded because of the ever more uncertain business conditions despite the commodity boom.