Putin calls for oligarchs to pay up for privatization

By bne IntelliNews February 10, 2012

bne -

Prime Minister Vladimir Putin pulled out the heavy artillery in his populist campaign ahead of the presidential elections on February 9, when he called for the country's oligarchs to pay compensation for "dishonest" privatization in the 1990s.

Putin, meeting with Russia's oligarch club - the Russian Union of Entrepreneurs and Industrialists (RSPP) - discussed the relationship between business and society and said it was time to close the book on the 1990s privatization, which essentially saw a handful of businessmen close to then-president Boris Yeltsin waltz off with state assets worth billions of dollars in return for a few million handed to the cash-strapped government in what is known as the "loans-for-shares" scheme.

Putin called the 1990s privatization "a simple divvying up of the state pie", and said it was necessary to "turn the page," reports Kommersant. He said to do this he agreed with the idea of political rival, liberal politician Grigory Yavlinsky, that those who benefited from the 1990s privatization should pay compensation.

"There are different options," he said, "it should be discussed with society and the expert community, so that society really accepts the closing of the problem of the 1990s, of the dishonest, speaking directly, privatization, of all the auctions. This should be ... a one-off payment, or something like that, but we should consider it together."

"We need to establish the social legitimacy of private property itself and social confidence in business," Putin added. The move appears to be in direct opposition to the "deal" Putin struck with the oligarchs after Mikhail Khodorkovsky was jailed during his first term as president, under which most of the remainder have been allowed to keep their riches and freedom in return for supporting the Kremlin's line.

The move clearly aims at the Communist and nationalist vote, which support renationalization of Russia's main industries, as well as widespread anger over the last two decades over the "theft" of the country's Soviet industries. The suggestion may also represent a shot across the bows for the oligarchs, should they be tempted to jump ship to the opposition.

There was no mention of specific sums, and Alexander Shokhin, the head of the RSPP, told the Financial Times Putin was "talking about a symbolic fee which would demonstrate the readiness of business to legitimize."

The discussion also put Putin's rival presidential candidate Mikhail Prokhorov on the spot. The fortune of Prokhorov, who was present at the meeting in his role as a business leader, stems from the controversial auctions in the 1990s, and he had little room for manoevure in trying to defend the process. "Everything that was done then was legal even if it wasn't just," he said.

Predictably, Putin's move is questioned by analysts. "While the PM believes this will bring closure to the painful questions over the origin of Russian large private business, we believe this step may open a Pandora's box of new issues," writes Alfa Bank's Natalia Orlova in a research note. "In the present weak institutional environment, and with the weak legal system in particular, Putin would become the sole guarantor of "cleaned" property rights."

"This highly populist measure is the heavy artillery in Putin's arsenal to win in the first round and was somewhat expected as a result of the so-called leftward lean in Russian politics, where liberals have lost popularity with the majority of Russians," writes Troika Dialog's Chris Weafer. "The ideas aired by Putin are not new and were initially suggested by Mikhail Khodorkovsky prior to his arrest in 2003."

Turning up the heat on the oligarchs generally goes down well with voters. Underlining the point, state TV channels this week ran yet another documentary attacking their fortunes. However, Putin may himself have become too closely associated with certain oligarchs and questionable privatization for his stance to be credible in the eyes of many.

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