'Climate of fear' puts brakes on Russian economy

Russia's business community has recently been alarmed by similar, though much smaller, tax assessments launched against other companies, including the telecommunications giant VimpelCom and Japan Tobacco International. "These new tax claims demonstrate that someone in the state wants to demonstrate their reach into any sector of business," says Mr. Struchenevsky.

This week, Prime Minister Mikhail Fradkov announced a 25 percent increase in funding for the FSB, the former KGB security service, in part because the agency is needed to keep tabs on private companies. "We continue to require up-to-date information from the FSB that ... allows us to make decisions on levelling the playing field for competition, developing business, and creating an attractive investment climate," Mr. Fradkov said.

Some business people say attention from the authorities is seldom helpful or benign. "Bureaucrats are doing whatever they want," says Yevgeny, a private entrepreneur in the agricultural sector who didn't want his last name mentioned. "Unfriendly takeovers are increasing. If you're not 'protected,' you can lose your business." The best way to avoid all sorts of unexpected legal and regulatory troubles, he suggests, is to take on local officials as partners. Yevgeny says he isn't sure who's to blame but, "in Russia everything tends to start at the top and move downward."

Another factor fueling business unease is a pending official report on the 1990s privatizations by the Russian parliament's accounting chamber, due next month, which some fear might be used as a road map for further Yukos-style expropriations. Experts say that ferocious struggles have led to the report being inexplicably delayed three times while the chamber's head, Kremlin loyalist Sergei Stepashin, mysteriously resigned last month, only to be reappointed by Putin.

"There are forces who would like to use [the report] for their own purposes, and this has caused the postponements," says Igor Yurgens, vice president of the Union of Industrialists and Entrepreneurs, Russia's main big business lobby.

Mr. Yurgens, who says he's read "about 70 percent" of the still-secret document, insists the final version will blame bureaucrats and bad laws rather than businessmen for the quick-and-dirty sell-offs that transferred many of Russia's economic crown jewels into private hands at cut-rate prices.

But the liberal newspaper, Kommersant, which claims to have obtained a draft copy, says the report's main concern is to restore the state's property rights in disputed cases, and thus "could serve as the basis for the mass reevaluation of the results of privatization."

Despite the declining economy and rising turmoil in state-business relations, some still pin their faith on Putin. "I don't believe there will be any further Yukos cases," says Yurgens, who has met with Putin many times. "It's true that in our imperfect democracy, the role of the number one man is extremely important. But I am convinced that Mr. Putin's instincts are firmly on the side of the free market."

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