Newspaper article The Christian Science Monitor

In Russia, Wealth vs. Power ; Yukos Shares Lost 20 Percent of Their Value Monday as the Oil Firm's Chief Sat in Jail

Newspaper article The Christian Science Monitor

In Russia, Wealth vs. Power ; Yukos Shares Lost 20 Percent of Their Value Monday as the Oil Firm's Chief Sat in Jail

Article excerpt

Russia's President Vladimir Putin is seeking to limit damage from the Saturday arrest of the country's richest businessman, even as Russian markets slumped Monday and some analysts predicted a surge of capital flight.

But at issue now - beyond the future of jailed oil tycoon Mikhail Khodorkovsky - is a crisis that could define the rules in the game of wealth versus power in post-Soviet Russia.

In a cabinet meeting Monday, Putin demanded a "halt to all speculation and hysteria" about the possibility of a reversal of privatization, saying he "understood the business community's concern." But he also ruled out meeting key Russian business leaders, vowing that there would be "no bargaining" over enforcement of Russian law. Now in jail, Mr. Khodorkovsky - the head of Russia's largest oil firm, YukosSibneft - has been charged with tax violations and fraud.

While critics say the arrest is politically motivated and returns Russia to the lawless economic era of the 1990s, analysts are divided over its impact. The observers also wonder how Putin can pull out of the crisis and continue creating a framework that eases capital flight and attracts investors.

Monday, Yukos shares lost 20 percent of their value within hours of opening, helping drag Russian bourses down 10 percent for the day. Amid criticism of the arrest from business chiefs, and the US ambassador to Russia, the ruble lost half a percent against the dollar.

A roller coaster analogy is apt, says James Fenkner, head of research for the Troika Dialogue bank in Moscow, for a country that earlier this month received an improved investment grade from a major ratings agency for legal and economic improvements.

"This is where everyone throws up their hands and starts screaming," says Mr. Fenkner. "We've seen this type of reaction before, in which everyone runs for the doors without knowing if there is a fire or not."

Putin marked the early part of his presidency three years ago by attacking the political aspirations of the so-called "oligarchs," the handful of Russians who grew fabulously rich during the rigged privatizations of state assets in the 1990s. Putin made a deal: Keep the money but pay your taxes - and keep out of politics.

"The game here is no surprise: Those in the government who don't want Khodorkovsky involved in politics made their position loud and clear, and he refused to listen to them," says Fenkner.

The oligarch, who had supported opposition parties, is being made an example ahead of Parliamentary elections in December and a presidential vote next March, in the same way that police pull over a red Ferrari "racing down the street," he adds. "They simply selected the guy who's driving the flashiest car," Fenkner says. "I don't see this as the beginning of the end."

The arrest saga shows that finding a middle way, of market capitalism based on transparent rule, remains elusive for Putin. …

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