- The Washington Times - Wednesday, January 1, 2003

SKOPJE, Macedonia, Jan. 1 (UPI) — Contrary to recent impressions, Russia's Western (American-German) orientation is at least as old as Mikhail Gorbachev's reign. It was vigorously pursued by Boris Yeltsin. Still, 2002 marks the year in which Russia became merely another satellite of the United States — though one armed with an aging nuclear arsenal.

Russia's economy has revived remarkably after the 1998 crisis, but it is still addicted to Western investments, aid and credits. Encircled by NATO to its West and U.S. troops stationed in its central Asian hinterland, Russia's capitulation is complete.

In the aftermath of conflicts to be engineered by the United States in Afghanistan, Iraq, North Korea, Iran, Syria and, potentially, Cuba — Russia might feel threatened geopolitically as well as economically. Both Iran and Iraq, for instance, are large trading partners and leading export destinations of the Russian Federation.

If anything can undo the hitherto impressive personality cult of Russia's new "strong man," Vladimir Putin, it is this injured pride among the more penumbral ranks of the country's security services. Russia's history is littered with the bloodied remains of upheavals wrought by violent ideological minorities and by assorted conspirators.

Hence Putin's tentative — and reluctant — attempts to team up with China and India to establish a multi-polar world and his closer military cooperation with Kyrgyzstan and Armenia — both intended to counter nationalistic opposition at home.

Luckily, the sense of decline is by no means prevalent.

Russians polled by the American Pew Research Center admitted that they feel much better in a world dominated by the United States as a single superpower. The KGB and its successors — Putin's former long-term employers — actually engineered Russia's opening to the West and the president's meteoric ascendancy. And no one in the army seriously disputes the need for reform, professionalization and merciless trimming of the bloated corps.

Reforms — of the military, Russia's decrepit utilities, dilapidated infrastructure and housing, inflated and venal bureaucracy, corrupt judiciary and civil service, choking monopolies and pernicious banking sector — depend on the price of oil. Russia benefited mightily from the surge in the value of the "black gold." But the windfall has helped mask pressing problems and allowed timid legislators and officials to postpone much needed — and fiercely resisted — changes.

Russia's "economic miracle" — oft-touted by the "experts" who brought you "shock therapy" and by egregiously self-interested, Moscow-based investment bankers — is mostly prestidigitation. As the European Bank for Reconstruction and Development correctly noted in November, Russia's 20 percent growth in the past three years merely reflects enhanced usage of capacity idled by the ruination of 1998.

Neutering the positive externality of rising oil prices, one is left with no increase in productivity since 1999. Industrial production outside the oil sector actually slumped. As metropolitan incomes rise, Russians revert to imports rather than consume shoddy and shabby local products.

This, in turn, adversely affects the current account balance and the viability of local enterprises, some of which are sincerely attempting to restructure. According to Trud, a Russian business publication, two-fifths of the country's businesses are in the red.

Russia's number of small and medium enterprises peaked at 1 million in 1995-96. They employ less than one-fifth of the workforce (compared with two-thirds in the European Union and in many other countries in transition).

Thus, falling oil prices — although detrimental to Russia's ability to repay its external debt and balance its budget — are a blessing in disguise. Such declines will force the hand of the Putin administration to engage in some serious structural reform, even in the face of parliamentary elections in 2003 and presidential ones the year after.

Russians — wrongly — feel that their standard of living has stagnated. Gazeta.ru claims that 39 million people are below the poverty line. Many pensioners survive on $1 a day. In truth, real income per capita is actually up by more than 8 percent this year alone. Income inequality, though, has, indeed, widened.

Responding to these concerns, though, in a "coattails" effect, the president is expected to carry pro-Kremlin parties back into power in 2003 — a modicum of elections-inspired bribing is inevitable. State wages and pensions will outpace inflation.

The energy behemoths — major sources of campaign financing — will be rewarded with rises in tariffs to match cost of living increases.


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