Shades of '90s instability return to Russia

The Yukos trial resumes Monday in Moscow amid woes fueled by a journalist's assassination and a run on banks.

Russia's image of order and stability, cited as President Vladimir Putin's key accomplishment, faltered last week as bailiffs began dismembering the once-profitable oil giant Yukos and panicked depositors staged a run on several of the country's top banks.

Also, Paul Khlebnikov, a leading Western journalist who covered Russia's secretive business community, was gunned down Friday outside his Moscow office in an apparent contract killing.

Though outwardly unconnected, these developments are fueling a sense of disarray among Russians worried the political and economic crises of the 1990s, which Mr. Putin appeared to banish, may be lurking beneath the surface.

"We see a slowing of reforms in every area. Everybody is very frightened," says Andrei Kolesnikov, a political expert with the liberal Kommersant newspaper. Events like the forced bankrupting of Yukos, he says, "are bad for Russia, bad for business, and bad for Russia's image abroad."

The Yukos case has roiled Russia's political waters since last year's arrests of top shareholder Platon Lebedev and CEO Mikhail Khodorkovsky in connection with the shady privatization of a state-owned fertilizer company a decade ago. The trial of both men on criminal charges including fraud, forgery, and tax evasion resumes Monday.

Critics say Mr. Khodorkovsky is the victim of selective justice, singled out for prosecution by a vindictive Kremlin because of his support for opposition parties and his personal political ambitions. They argue his chances of receiving a fair trial in Russia's servile court system are virtually nil.

"Courts here are subordinated to the authorities; they have no independence," says Yevgeny Yasin, director of the Higher School of Economics in Moscow.

Others argue that Khodorkovsky, who was Russia's richest man as recently as last year, is being punished to set an example to the other superwealthy oligarchs who control at least a quarter of the country's economic output. "In the 1990s Russia was a kleptocracy; Putin had to change that," says Alexei Pushkov, a TV commentator. The Kremlin took aim at particular oligarchs who "were most inclined to convert their money into political power," he says.

Meanwhile the endgame is fast approaching for the giant oil conglomerate Yukos. Last week the company failed to meet a deadline to pay a specially levied $3.4 billion tax bill, and the state froze some of its assets. Most experts believe the authorities do not wish to bankrupt the firm but rather to transfer ownership either to the state or to new, Kremlin-friendly businessmen.

A peaceful resolution of the case would require Khodorkovsky to voluntarily relinquish his 44 percent stake in Yukos in order to satisfy the tax bills, which now total almost $7 billion. As Yukos share prices plunged last week, Khodorkovsky indicated he might be willing to do that. But Finance Minister Alexei Kudrin denied receiving any offer from the beleaguered oligarch. The high-stakes game of brinkmanship seems set to climax in coming days. But there seems little doubt that Yukos's founder will be separated from his company and assets.

There were also echoes of Russia's 1998 financial crash in Moscow last week, as depositors lined up outside major banks to retrieve their savings and the national currency tumbled. Banking troubles were triggered by the Central Bank, which last May accused the midsized Sodbiznesbank of money laundering and withdrew its license. What should have been an isolated event turned into a chain reaction as rumors spread and public confidence evaporated. Guta Bank, one of Russia's 20 largest, closed its doors last Tuesday. Alfa Bank, the country's fourth largest, said that stampeding depositors had pulled out over $100 million by week's end.

"We have to call things what they are, and this is a banking crisis," the Kremlin's top economic adviser, Andrei Illaryonov said.

Funeral services for Mr. Khlebnikov, an American of Russian descent, were held in Moscow Sunday amid expressions of shock from Russian and foreign journalists. The editor of the business magazine Forbes-Russia was shot four times as he left his Moscow office.

Last April he published a controversial list of "the 100 richest Russians," which revealed that Moscow has more billionaires - 33 of them - than any other city on earth. Russia's tycoons detest publicity about their wealth, as it can lead to visits from gangsters or the tax police. But Khlebnikov defended his decision: "Russia is entering a new stage of capitalism, moving away from the shadow economy, moving away from a black-market type of mentality, towards a more civilized, transparent, open form of capitalism."

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