- The Washington Times - Monday, March 27, 2000

MOSCOW The challenge awaiting Vladimir Putin is enormous. Russia's economy has made only a fragile recovery from the 1998 financial crisis and is attracting less foreign investment than much smaller countries in Eastern Europe.

Market reforms introduced by Boris Yeltsin in the 1990s have been discredited by cronyism and corruption. Schools and hospitals are falling apart. Millions of Russians go for months without pay. Crime is flourishing.

Mr. Putin emphasized on the campaign trail that to tackle Russia's deep-seated economic and social problems, the state needs to intervene more and establish what he calls a dictatorship of law.

His opponents point to Mr. Putin's KGB past and his slew of appointments of former intelligence operatives to the Kremlin as evidence of an authoritarian tendency in his makeup. They argue he will turn back the clock on hard-won democratic freedoms.

Last month, former dissidents including Andrei Sakharov's widow, Elena Bonner, signed a group letter warning that Mr. Putin would usher in an era of modernized Stalinism. He denies he will do anything of the sort.

In the run-up to the election, Mr. Putin benefited from a slight economic recovery based on high oil and metal prices.

But former Finance Minister Boris Fydorov warned that fiscal problems would return when oil prices fall and the competitive boost Russian companies enjoyed after the huge 1998 devaluation wears off. That could come by year's end as oil prices drop and tax arrears start accumulating, Mr. Fydorov has said.

Mr. Putin has made reassuring noises, as far as foreign investors are concerned. He has stressed the need for a fair market, protection of property rights and investment guarantees. The promise of greater political stability under Mr. Putin is also helpful.

His election will give Russia the opportunity to attract investment that will benefit the economy if it is not wasted, said Stephen O'Sullivan, director of research at the United Financial Group.

But, Mr. O'Sullivan said, "Many investors will wait to see which way the wind is blowing before committing large sums."

Mark Jarvis, director of Fleming CIS, said political stability should be good for Russia's economy, but businesses need "a clearer picture of what [Mr. Putin] will do, and reforms in key areas such as taxation and the judicial system to name just a few."

In foreign policy, Mr. Putin's Russia finds itself in the enviable position of being able to dictate how confrontational or cooperative it cares to be with the West.

President Clinton, who is expected to meet Mr. Putin this year, sorely wants Moscow's help in the Kosovo peacekeeping force, its acceptance of the START II arms control pact, and its acquiescence to changes in the 1972 Anti-Ballistic Missile Treaty.

Should Mr. Putin decide to concentrate on domestic affairs, no major foreign policy crises loom to distract him. The war in Chechnya still simmers, but the phase in which heavy civilian casualties and rising refugee flows angered Western critics appears all but over.

One exception is economic aid. An International Monetary Fund loan package to Russia remains in limbo, and Mr. Putin admitted Friday that his long-term hopes to restore Russia's place in the world rely heavily of economic renewal.

"Russia cannot be a world power if it is poor and weak," he said.

Mr. Putin's swift rise to power, his talk of reviving Russia's greatness and his pledge to vigorously pursue national interests have caused some unease in the 14 states that won independence from Moscow with the 1991 Soviet collapse.

"The first thing people in Latvia look at is Putin's KGB credentials," said Matthew Kott, a prominent historian in the Latvian capital, Riga.

In public, the leaders of the former Soviet republics say they do not foresee any threat of annexation under Mr. Putin, but Georgian President Eduard Shevardnadze is reported to worry about being drawn into the Chechnya war.

He recently asked European powers to monitor Georgia's border with the neighboring region.

Other possible flash points include friction with the newly independent states that border the Caspian Sea over rights to oil and gas. Moscow also has clashed with the Baltic states over the treatment of Russian-speaking minorities.

Former Deputy Prime Minister Boris Nemtsov expects Mr. Putin to be a tough defender of Russian interests, but says the West need not worry about a Soviet-style empire striking back. Few Russians are interested in a return to an imperial past, he said.

But Mr. Putin's military campaign to crush separatist rebels in Chechnya has struck a chord with Russians, and some liberals worry that aggressive nationalism is lurking under the surface.

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