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July 16, 2007

Russia Remains Far Behind the Developed World
President Putin has frequently complained that international reporting on Russia is
biased and unfair, that the media focus on the bad news rather than on positive

There is certainly some truth in this - Western reporting on the Soviet Union and on
Yeltsin and Putin's Russia has varied between brilliant and insightful and downright

Nevertheless, Putin's comments display a profound failure to understand what drives
the 24/7 international news agenda.

And as new reports by the World Bank and the Swedish Defense Research Agency make clear,
it is hard to put a good spin on bad policies.

The Sochi Olympics
This week, Russia started getting down to the serious business of organising the
2014 Winter Olympics after Sochi's successful bid to host the Games.

President Putin's injunctions to the prime minister, ministers, government officials
and the Prosecutor General were symptomatic of Russia's current stage of

In televised remarks, Putin told officials to set up a special working group at the
Prosecutor General's Office to ensure that the billions of dollars the state will
spend on building the necessary sport facilities and transport infrastructure will
be used rationally and as intended.

He also told ministers and Yuri Chaika, the Prosecutor General, that the working
group should prevent the money from being siphoned off and embezzled and should
include people from other law enforcement agencies to beef up monitoring.

The Russian media highlighted Putin's call for the working group, but Dmitry
Chernyshenko, the head of the Sochi bidding committee, argued that the fears of
fraud were exaggerated and rightly pointed out that in the last 15 years, Russia has
made great progress in democracy, openness and transparency.

But it is hard to imagine that a western head of state would feel the need to set up
an audit body with such a specific brief: the legal regimes and control mechanisms
in developed countries are by no means perfect and cannot prevent corruption, but
they are far superior to similar institutions in Russia.

Putin's orders reflect his recognition of rampant corruption, but Transparency
International claims that since 2001, graft in Russia has in fact jumped sevenfold.


Governance Indicators far behind G7 and OECD
This week, the World Bank Institute published its sixth annual Worldwide Governance Indicators.

The Bank summarizes six aggregate indicators to arrive at an assessment of how well
countries are governed: i) Voice & Accountability, ii) Political Stability and Lack
of Violence/Terrorism, iii) Government Effectiveness, iv) Regulatory Quality v) Rule
of Law and vi) Control of Corruption.

Needless to say, the G7 and the OECD continue to boast the high values which
indicate better governance - in other words, these are the advanced first-world
countries, or those aspiring to become developed.

But no matter how you slice and dice the data, Russia almost invariably appears far
below the advanced countries and falls in the ranks of the lower percentiles, which
indicate the percentage of countries worldwide that rate below the selected country.

Even more worrying to Moscow ought to be Russia's poor performance in the
much-vaunted BRIC group, with Russia often far behind Brazil and India, although
China more often brings up the rear with a big lag.

Indeed, Russia doesn't even perform particularly well among the group of countries
from the former Soviet Union.

All this, however, is no surprise - I have often pointed out in this column that
despite its demands to be treated as an equal, Russia is still a long way off
achieving anywhere near the levels of the developed West and Japan - and also of
OECD members such as Mexico.

Moreover, the World Bank study shows that Russia's relative performance vis-a-vis
other countries had improved from about 2000-2001, with the percentiles of its
Governance Indicators on the whole increasing.

But since about 2002-2004, Russia's Governance Indicators have generally been flat
or declining - the notable exception is Political Stability.

The World Bank is keen to point out that these Governance Indicators are subjective,
rightly arguing that the areas it examines cannot be measured by objective
scientific methods.

Nevertheless, this general impression of Russia's development under Putin is
probably shared by most domestic and international observers - despite claims by the
president of biased reporting in the western media.

Further deterioration of UK-Russian relations?
This week, Mikhail Kamynin, the Russian Foreign Ministry's official spokesman,
stated that Russia did not understand why London was making such an issue of the
Lugovoi-Litvinenko affair when bilateral and multilateral relations were progressing
so well and were so important to both countries.

Is this true, or is Moscow merely being disingenuous?

Whatever the truth, Russia has caused unnecessary problems for itself - it certainly
should have foreseen the negative effects its policies would cause in bringing about
its own isolation.

This week, the Swedish Defense Research Agency published a report sponsored by the Swedish
Ministry of Defense and entitled "Russian Leverage on the CIS and Baltic States."

The study analyses Russia's use of foreign policy levers, such as energy and
culture, and concludes that Russia's actions during the "oil and gas wars" and the
recent crisis with Estonia have caused a backlash and go against Russia's stated aim
of joining the WTO and better relations with Europe and the EU.

But the report also rightly points out that in fact Russia has few levers - and this
accounts for its increasingly bellicose statements as it understands more and more
that its power is not increasing in line with its wealth.

Moscow should now be deeply concerned that its main allies continue to be in Central
Asia (and Armenia), while in Europe and the West it has mere partners - many of whom are now
deeply worried about Russia.

The British government, for example, made it clear this week that it was
reconsidering cooperation on all fronts with Russia following Moscow's refusal to
extradite Lugovoi to face trial in the United Kingdom, although opinion in the
British House of Commons seems mixed.

Some MPs say it is now time to stand up to Mr. Putin, an argument long advocated  by respected
publications such as The Economist and the Financial Times, while others say Russia is too
important to antagonize since it is an emerging power with huge energy reserves and can help
solve international problems.

Moscow, however, would be unwise to push its "divide-and-rule" policy too far since
it runs the strong risk of overplaying its hand and causing yet more negative sentiment - and
that could lead to actions not in Russia's interest, as the UK government has already implied.

So it remains to be seen whether Moscow has learned from its "Olympic Victory" and can use soft
power more - and more wisely - in the future.

Putin and the West
Putin often makes comparisons between Russia and the West, explaining away
developments in Russia by pointing to apparently similar trends in Europe or

This is true up to a point - the West has no ready answer to a raft of problems such as AIDs,
drug abuse and crime and racial discrimination and attacks.

Nor is democracy particularly healthy, with sometimes low turnouts and voter apathy.

But the crucial difference between Russia and, say, the United States or the United
Kingdom, is that despite the mess in Afghanistan and Iraq, their values and their
wealth remain immensely attractive globally - and this is a function of their high
governance indicators and political stability.

As a result, their soft power remains colossal, while as the Defense Research Agency
points out, Russia's levers are mostly negative.

Moscow sees itself as a major power due to its energy resources, without
acknowledging that this is largely just a function of supplying raw materials to
much more advanced and developed countries in Western Europe.

Yes, Russia is building pipelines to export more oil and gas to China and the rest
of Asia, and Russian oil companies are expanding their refining capacity to move up
the value chain.

But Russia will still remain an exporter heavily dependent on energy.

Alexei Kudrin, Minister of Finance, says that over the next several years, this
dependency will fall as investment in other areas increases.

The way forward?
Rising commodity prices and a young dynamic president after Yeltsin have brought
greater wealth and stability to Russia.

Equally important, but far less remarked, is that Putin, like many other leaders,
found it relatively easy to fix the "big" problems in his first term, but is now
finding it harder to achieve change in his second term.

Finding policy solutions to reduce corruption - and then to implement them - will be
immensely difficult.

Moreover, political risk will increase over the next nine months or so due to the
State Duma elections in December 2007 and the presidential elections in spring 2008.

It will be up to Putin's as yet unknown successor to grapple with these problems -
if he wants to.

By Ian Pryde for RIA Novosti
Ian Pryde is CEO, Eurasia Strategy & Communications, Moscow. The opinions expressed in
this article are the author's and do not necessarily represent those of RIA Novosti.

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