Russia's top liberal economist caught up in Putin purge, flees country

By bne IntelliNews May 29, 2013

bne -

Russian President Vladimir Putin's anti-corruption drive that escalated last November with the dismissal of the defence minister is starting to take on the appearance of a classic 1930s-style Stalinist purge. The latest victim is Sergei Guriev, Russia's top liberal economist and a close associate of Prime Minister Dmitry Medvedev, who fled the country at the weekend in fear of arrest.

Professor Guriev is the rector of the New Economic School (NES), one of Russia's top universities, and has been leading much of the thinking behind the government's reform programme. He was also responsible for writing the speech Medvedev gave at the 2009 St Petersburg Economic Forum that re-launched the privatisation drive, and he's closely involved with the Kremlin's economic policymaking. In short, he is one of Russia's most respected thinkers and his advice was widely sought from all sections of the elite: from the liberals, through to the oligarchs, and on into the government.

In the last week Guriev has resigned from his job at NES and also withdrew his name as a potential independent director on the board of Sberbank, as well as withdrawing from various other positions. He clearly has no intention of returning to Russia any time soon.

Given his importance in the academic and policy making worlds, the governments reaction to the news was restrained. Russia's Economic Development Minister Andrei Belousov described Guriev's resignation as a "pity," and added "Sergei is a qualified expert, and everything that is happening to him now is unfortunate," in what is something of an understatement.

Although details are sketchy, according to bne sources things came to a head at end of the last week. NES and Guriev have been under mounting pressure for some time, as the school is partly funded by the US philanthropist George Soros and, worse, by jailed oligarch Mikhail Khodorkovsky. The Prosecutor General of Russia has started an investigation into this funding as part of a wider crackdown on foreign funding of non-government organisations (NGOs). However, Guriev's association with opposition figure and anti-corruption blogger Alexei Navalny may also have been a factor in the case, say investors who know Guriev.

Pressure was growing on Guriev all last week and he even approached the Kremlin for help, according to bne sources, but found no solace there. By this weekend, he had decided that the risk of arrest was too great and decided to flee the country, according to reports. He is now in France where his wife, also a professor of economics at a French university, lives.

"Everything is fine. It's better in Paris than in Krasnokamensk'' Guriev told Russian wires on May 29, referring to region where Yukos founder Mikhail Khodorkovsky is in prison.

Guriev was questioned a month ago as a witness in a case against Khodorkovsky, Svetlana Petrenko, a spokeswoman for the Investigative Committee, told Bloomberg, without giving any details.

In 2011, Guriev contributed an expert statement to a Presidential Civil Society and Human Rights Council report on the legality of the second Yukos case. In this statement, Guriev maintained that Khodorkovsky was not guilty and also noted that he had no conflict of interest related to companies affiliated to Yukos or Khodorkovsky.

Clearly this annoyed the authorities. Last year Investigative Committee spokesman Vladimir Markin claimed that some of those involved in evaluating the legality of the second Yukos case were affiliated to organizations that had taken Yukos funds, without naming names.

The NES was raided by investigators believed to be from the Office of the Prosecutor General, at the end of last week, who seized Guriev's computers and correspondence, prompting his decision to flee, bne sources said. It is not clear whether he is under investigation himself, or merely being questioned as part of an ongoing investigation.

"It all smacks of a 1930s purge," complains one of Guriev's associates, who didn't want to be named. "He could well have just been caught up in somebody's fight or desire to settle scores. That's the problem with purges: everyone is guilty and merely accusing someone of something is enough to get them out of the way."

While the escalation in the anti-corruption drive started as just that - investigations into the defence ministry have since uncovered tens of millions of dollars of graft - things took a decidedly nasty turn with the crackdown on NGOs. The Kremlin insistence on labelling any organisation that receives foreign funds - and 95% of them do - a "foreign agent" is very reminiscent of Stalin's campaigns to stamp out "spies" and "saboteurs", which were a convenient excuse for his failure to create a workers' paradise.

Putin is not Stalin, and his goal is probably a more mundane effort to take back control over a government that has run out of control in the last decade, drunk on the billions of petrodollars that functionaries have been siphoning off.

In this sense, the current crackdown is more-or-less a repeat of 2000 when Putin first took office and immediately took on the oligarchs, who had overrun the Kremlin and were helping themselves to billions of dollars of state assets. The only difference this time is the target is not businessmen, but bureaucrats.

While most of the press attention has been focused on the plight of the obviously worthy NGOs, state-owned companies and high officials are in just as much danger of getting caught up in the purge as liberals. Three senior Duma deputies have recently been forced to resign, the heads of state-owned utilities company RusHydro and Rostelecom have been put under investigation, and even the mighty Gazprom is being subjected to an audit and its subsidiaries are being investigated for graft. No one is being excluded.

If Putin's goal is to scare everyone, then it's working. As bne pointed out last week, investment in Russia has fallen to next to nothing, despite the basic good health of the economy, due to owners being afraid of political attacks.

But private bankers tell bne that owners and oligarchs are tightening up their ownership structures and increasing transparency in order to strengthen their claims on their assets, which is a good thing and part of the point of the purge.

However, purges are by nature dangerous and unpredictable. Guriev is likely a victim, as really no one seems to have a bad thing to say about him. He is outspoken on economic issues, but usually fairly reserved on political issues and is not publically associated with the opposition movement. However, as in Stalin's day, people can get purged on the basis of little more than displaying hubris.

Guriev's case is damaging for Russia's image, but not greatly, as he is not well known outside the country. However, the fear amongst investors is that First Deputy Prime Minister Arkady Dvorkovich, who is on the board of NES as well as other vulnerable institutions, could be next in line. If that happens, then the banner headlines will be "back in the USSR" the day after his arrest.

Ironically his own words from a speech at the Reuters Investment summit earlier this year now look prophetic.

"The regime may fall apart overnight, and in a way that we don't know. It may be in a peaceful way, it may be in a bloody way," news agencies quoted him as saying. "If Putin fights corruption successfully, the opposition is gone. If Putin doesn't fight corruption, he's gone, and a new government will fight corruption."

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