News & Current Affairs

September 15, 2008

Insight: Who runs Russia?

Insight: Who runs Russia?

Vladimir Putin (L) and Dmitri Medvedev

Vladimir Putin (L) and Dmitri Medvedev must agree policy decisions

Getting to the bottom of the shadowy depths of Kremlin decision-making is tricky. Machiavellian power struggles, dark paranoia of security chiefs and long fingers of corruption can turn seemingly rational and transparent explanations inside out.

But even public signals are instructive, and in the wake of the Georgia crisis, Russia’s leadership is taking stock and has several messages for the West.

The first key question about Russia is – who is really in charge?

The standard answer is President Medvedev as Commander in Chief. He, and only he, ordered Russian troops across the border to hit back when Georgia attacked on South Ossetia.

But presidential power is now the tip of an iceberg. What murky currents swirl beneath the surface is less clear.

Dmitry Medvedev says he was caught unawares and admits his relative inexperience.

“I was on holiday on the Volga when the defence minister called,” he said at a conference of the so-called ‘Valdai Club’ of foreign academics and journalists who specialize in Russia.

“I’ll never forget that night, knowing the consequences there would be when I gave the order to return fire… especially when I’d only been president for 95 days,” he said.

But what about Russia’s ex-president, now his prime minister, who was also at the conference?

“However much authority I have, whoever I may be talking to, none of the troops or tanks would have moved an inch until President Medvedev’s order,” was Vladimir Putin’s attempt to deny his own importance when we asked about his role, thereby indicating that his clout and involvement were considerable.

Bridget Kendall
1998 to present: BBC diplomatic correspondent
1994-98: Washington correspondent
1989-94: Moscow correspondent

What is more, at the outset of the crisis, when Mr Putin was in Beijing for the opening of the Olympic Games, he was already thinking about Russia moving swiftly to recognize the two enclaves at the heart of the crisis.

He had taken the time, he told us, to inform the Chinese leadership that Russia would understand if Beijing chose not to react.

Double act

It begs the question – who is really driving policy, the president or the prime minister?

The choreography and timing of our audiences with both were instructive.

A pair of three-hour meetings, two elegant luncheon settings, two declarative statements for Russian TV cameras at the start, and even two carefully informal blue suits with matching ties.

All to signal, perhaps, that their status is equal – a dual leadership exercising power in tandem.

I never thought I’d need to use harsh rhetoric when I began this job. But there are some moments as president when you are left with no choice
Russian President, Dmitri Medvedev

Indeed one senior government official made a point of emphasizing the duality, constantly referring to them in the same breath.

Policy decisions had to be cleared with both, he said. And what was wrong with that? A double act surely strengthened, not muddled governance, requiring a green light from two instead of one.

We met Mr Putin first. Almost the entire discussion was devoted to foreign policy.

He was burning to give his point of view. He seemed supremely confident, engaged and in charge. His anger at the way he felt Russia had been treated in recent years blazed through, as though it was his own personal animosity which is now firing and fuelling current policy.

It was hard to remember he was no longer president.

Economic policy, supposedly at the heart of his new job as prime minister, came up sporadically and he admitted he is still mastering his new brief.

When he did comment directly on Dmitry Medvedev, the impression he left was curious.

Mr Putin seemed to want to play up the differences between them, as though suggesting a “good cop, bad cop” routine.

He described himself as “conservative” and with an uncharacteristic flash of self-deprecation admitted his penchant for blunt speaking was sometimes a liability.

Whereas he described Dmitry Medvedev as bright, young and highly educated, with modern and – he stressed this twice – liberal views.

“He’s a good lad,” said Mr Putin a touch condescendingly, as though recommending his young protege to a would-be employer for a new job.

The aim, it seemed, was to send a signal to the West that Dmitry Medvedev is indeed more flexible and reformist than Putin himself – and was forced to act tough because the crisis left him no option.

Moral high ground

So the US and its allies should understand they had made a big mistake by allowing this conflict to happen – and they would make an even bigger mistake unless they made the compromises Russia now wants.

When we met Dmitry Medvedev he underscored the point.

“I never thought I’d need to use harsh rhetoric when I began this job. But there are some moments as president when you are left with no choice,” he said.

“I very much don’t want the Caucasus crisis to destroy Russian co-operation with Europe and the United States,” he elaborated, and suggested he felt frustrated at his new role of “President of War”.

He’s a good politician, I think I have a better opinion of George than most Americans
Vladimir Putin on George W Bush

“A whole month has been lost on this war… I’d rather have been doing other things,” he said. “Yesterday when I met the defence and finance ministers, instead of talking about car and tractor production, we had to discuss where to deploy the Russian army. Priorities have had to change.”

So what, then, at this juncture does Russia want from the West?

The first message is that the Russian government is in no mood to compromise.

It insists it occupies the moral high ground in this crisis and sees no reason to give way.

This was tantamount to Russia’s 9/11, President Dmitry Medvedev declared to us, a defining moment in national policy and in relations with the outside world.

That conviction was echoed from top to bottom in our discussions with government officials, mainstream academics and journalists, all of them insisting Russia had no choice but to respond militarily and take South Ossetia and Abkhazia under its wing.

Any suspicion that Russia cunningly laid a trap that Georgia rashly walked into was dismissed as an outrageous lie.

The idea that by deploying troops deep inside Georgia and unilaterally recognising the two disputed enclaves’ independence Russia had gone too far was rejected out of hand.

The suggestion that by invading Georgian territory, and asserting its right to redraw the map, Russia made itself look like a bully, was also thrown out.

Instead President Saakashvili was blamed for triggering the conflict.

The United States had nudged him into it and rashly armed and trained his men while Europeans had looked the other way.

Any Western criticism to the contrary was hypocritical, given interventions in Kosovo and Iraq, and yet another example of anti-Russian hysteria and unfair stereotyping, based on prejudices left over from the Cold War.

Red line

Curiously both Mr Putin and President Medvedev were carefully respectful when it came to President Bush.

“He’s a good politician, I think I have a better opinion of George than most Americans,” said Mr Putin, at the same time complaining that he had twice tried to get the US president to intervene.

Instead it was Vice-President Cheney and the US Secretary of State Condoleezza Rice, with their Soviet expertise, who were targeted as villains, suspected of fueling anti-Russian sentiment in the US administration and egging Georgia on.

“We need to get rid of stereotypes. The US president has too many Sovietologists in his entourage,” observed Dmitry Medvedev caustically.

A Russian tank crosses a main route in Georgia

Russia is keen to avoid accusations of annexing Georgian territory

The second message that came through clearly was that Russia’s “red line” – any move to extend Nato to Russia’s borders by seeking to incorporate Georgia or Ukraine – still stands.

What Russia really wants is a new discussion on European security arrangements to replace Nato with something else entirely.

But short of that, attempts by the United States or Nato to rearm Georgia or to extend formal invitations to either Georgia or Ukraine to join the alliance seem likely to prompt a furious Russian response.

“Russia has zones that are part of its interests. For the West to deny it is pointless and even dangerous,” said President Medvedev.

“It’s unjust, it’s humiliating, and we’ve had enough. It’s something we are no longer prepared to endure,” he said. “You have a very clear choice here. Let there be no doubt about it.”

What exactly Russia would do to try to prevent this further Nato enlargement was left unclear.

“We’ll do all we can to make sure it doesn’t happen,” said Mr Putin carefully, talking about Ukraine.

Although on Georgia he noted Russian tanks had been within 15 kilometres of Tbilisi and could have taken the capital in four hours.

Economic concerns

So the hints of a threat, but not exactly – and that is interesting. Because the third message that came through was that Russia would like to think a major East-West confrontation can still be avoided.

There may well be powerful forces in Russia’s military and security elite, ultra nationalists who would like to see their country retreat from global integration and rely once more on internal resources – economic and military – as in Soviet days, to reclaim influence geographically and show the outside world Russia’s might can no longer be ignored.

Roubles being sorted at the Goznak mint in Moscow

Russia’s stock market value has fallen by 50% since May this year

But diplomatic and economic isolation does not seem to be what the Kremlin leadership currently wants to embrace.

The haste with which both Mr Putin and Mr Medvedev shrugged off the notion that Russia might have to pay a price for this crisis was telling.

They denied that the loss of nearly 50% of Russia’s stock market value from its all time high in May had much to do with the Georgia crisis.

A far more likely cause, they argued – with some justification, given what is happening on Wall Street – was the impact of global financial instability.

In comparison to many other countries, they insisted, Russia’s economy was in good shape – signs of capital flight were temporary. Foreign investors would be back. Russia’s energy resources were needed by everyone and it had weathered economic storms before.

The fact only Nicaragua had joined Russia in recognising Abkhazia and South Ossetia was also dismissed as unimportant, even if the glaring lack of overt diplomatic support for Russia’s actions appears to be a sensitive point.

When the leader of South Ossetia told us he intended to follow up independence by amalgamating his tiny republic with North Ossetia and becoming part of the Russian Federation, he was hurriedly slapped down. Within hours he had issued a retraction.

Outright annexation by Russia of what is, after all, legally speaking Georgian territory is an accusation Moscow seems anxious to avoid.

Yes, Russia wants to claim that the ball is now firmly in the court of the US and its allies – that it is up to them, not Russia, to decide how this geopolitical crisis plays out.

But behind all the moral outrage, I felt there was also a nervousness, a worry that if Russia’s bluff is called and further tensions with the West ensue, it might force a stand-off from which neither side could back down.

“There is a chill in the air and a loss of trust,” said Dmitry Medvedev, “but I don’t think this is a corner turn that will lead to a long confrontation. This is not what we want. And it’s not what you want either.”

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September 7, 2008

US lenders ‘face state takeover’

US lenders ‘face state takeover’

Home repossessed in US

US mortgage giants Freddie Mac and Fannie Mae are set to be put under government control in an attempt to rescue the firms, media reports say.

Treasury Secretary Henry Paulson will outline government plans at a news conference at 1100 (1600 BST).

The move to shore up the shareholder-owned firms, which hold or guarantee half the US mortgage debt, would be the US’s largest ever financial bail-out.

In July, Congress approved a plan aimed

at offering them more liquidity.

This followed huge losses by the two firms as result of a big increase in defaults and repossessions in the US housing market.

‘Management told’

On Saturday, a senior politician, Barney Frank, chairman of the House Financial Services Committee, said US Treasury Secretary Henry Paulson had told him the government would use its powers to ensure the continued and stable functioning of the companies.

The Washington Post, quoting senior administration sources, said the firms would be put under a legal status known as “conservatorship” which would greatly reduce the value of the two companies’ common stock.

BBC Business Editor Robert Peston
This is an event of profound significance for the global economy
BBC Business Editor Robert Peston

Other securities – including company debt and preferred shares – would be guaranteed by the government, the paper added.

The New York Times reported that senior executives at Freddie Mac and Fannie Mae were informed about the plan on Friday.

The Wall Street Journal said it would include changes in the top management.

There would also be quarterly infusions of cash to keep both firms afloat, the papers say. The total cost to taxpayers is not known but could amount to billions of dollars, they add.

The government was being forced to step in because it was dangerous for the US economy for doubts to persist about the two firms’ viability.

Struggling homeowners

HAVE YOUR SAY

Government control over larger portions of the economy can only end badly

TB, US

The two contenders for the US presidency, Barack Obama and John McCain, have been briefed on the takeover by Mr Paulson.

“We’ve got to keep people in their homes,” said the Republican candidate, John McCain.

“There’s got to be restructuring, there’s got to be reorganisation, and there’s got to be some confidence that we’ve stopped this downward spiral,” he added, saying that the takeover of Fannie Mae and Freddie Mac must not benefit executives at the two companies.

The Democratic Party candidate, Barack Obama, said any action should be focused “on whether it will strengthen our economy and help struggling homeowners”.

“We must not allow government intervention to protect investors and speculators who relied on the government to reap massive profits,” he said, adding “we must protect taxpayers, not bail out the shareholders and management of Fannie Mae and Freddie Mac”.

Fragile

On Friday, America’s Mortgage Bankers Association reported that at the end of June, about four million homeowners with a mortgage – representing a record 9% – either were behind in their payments or faced repossession.

In the past year, the financial crisis has taken a heavy toll on both Fannie Mae and Freddie Mac.

The country’s two largest buyers and backers of mortgages lost a combined $3.1bn between April and June.

Both companies say they have the resources to weather the losses, but their shares have fallen sharply on fears that they could go bankrupt as borrowers default.

The rescue plan passed by Congress in July gave the US government the authority to buy shares and offer liquidity to companies to keep them afloat.

Many analysts believe their collapse would be a major shock to the already fragile global financial system.

Together, the two firms own or guarantee about $5.3 trillion worth of home loans – about half the outstanding mortgages in the US.

That is about 25 times as big as the obligations of Northern Rock – which was nationalised by the UK government earlier this year, and twice the size of the UK economy.

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