Page 30 - BNE_magazine_10_2019 kolomoisky

30 I Cover story bne October 2019
to go by then the ambitious 7% a year growth target the Zelenskiy government has set itself should be achievable.
It's lost in the mists of time now, but Putin also launched a deep structural reform plan to finally deal with some of the problems that lay fallow under Yeltsin, dubbed the Gref plan after then- minister for economic development and now Sberbank CEO German Gref. This programme started with a radical over- haul of the tax regime with flat income and corporate taxes, a new labour code, the introduction of a federal treasury system to stop the regions stealing so
What’s to be done with those who
are to blame?
But then there are the oligarchs. The burning of Gontareva's home has underscored that the biggest threats to Ukraine's success are the oligarchs. The anti-corruption laws are welcome but it is not the traffic cop taking a few hundred hryvnia for traffic infringements that
is the problem. Stopping state officials creaming off hundreds of millions of dollars from a state contract is a serious problem too, but the really insidious and destructive corruption is oligarchs cutting sweetheart deals where they can extract rents from the state or the people. The
jailed Vladimir Gusinsky, who was the biggest player in the TV business, and Berezovsky was driven into exile. Ber- ezovsky was also a big player in media, controlling ORT, now the First Channel, the biggest, but nominally state-owned, broadcaster.
Putin invited the survivors to his famous oligarch meeting and offered the unspo- ken deal: “keep what you have but get out of politics.”
The final step in the process was to fire all the elected senators from the upper house of the Duma that represented the regions and change the rules so they became appointed by the president. The elections for the Federation Council were a sham as even Anatoly Chubais, a young reformer who ran the national power company United Energy Systems, admit- ted that it was common practise to “buy” a senator, who could then lobby for legis- lation that suited a business’ interests.
This system worked well and Putin later supplemented it with the "ZAO Kremlin". Putin began having one on one meetings with the biggest oligarchs to make sure their investment plans dovetailed with those of the Kremlin. Putin acted more like an unofficial CEO of Russia's biggest business as the oligarchs followed his informal "suggestions".
Eventually the system started to break down as the oligarchs tried to go
their own way. Yukos owner Mikhail Khodorkovsky tried to build a privately owned oil pipeline to China against the Kremlin's wishes and was jailed for it. Other oligarchs close to the Kremlin like Mikhail Prokhorov got into politics but then suffered delusions of independence and were quickly sidelined. Prokhorov
is in the process of selling all his Russian assets. Putin has now retreated into an intimate circle of "stoligarchs" made up of his oldest friends to whom he gives the biggest private contracts.
The problem with ZAO Kremlin is that while Putin is the CEO and makes the biggest decisions, the concentration
of commercial power in the Kremlin's hands and the failure to set up strong anti-trust laws and the strong property
“Putin's solution to his "oligarch problem" was to capture the state back”
much money and an assault on the legendary red tape. In the end Gref only managed to implement about a third of the plans, but even that was enough to lay the ground work for an eight year long boom that saw the country trans- formed and lifted into the UNDP “high income” bracket – the first of the major emerging markets to do so.
Zelenskiy has an even more ambitious plan with over 500 laws due to be drafted and presented to the Verkhovna Rada before the end of this year. And Zelenskiy has full control of parliament so these are likely to be rammed through one after the other. The number of major changes that have already been made
in just the first few weeks, like lifting deputies' immunity and the launch of the anti-corruption court (ACC) after years of dithering under Poroshenko are already very impressive.
What is striking about the upcoming legislation is how detailed it is, including measures to collect taxes on amber min- ing and illicit gambling, to a transparent tax and regulation regime to boost trans- port by ships on the Dnieper. Although Zelenskiy said almost nothing about his plans during the two campaigns this year, clearly there was a lot of planning going on behind the scenes.
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glaring hole in Zelenskiy's reform plan is there are no plans for tough anti-trust legislation or a beefing up of the existing Anti-monopolies Service.
Putin didn't bother with anti-trust legislation either. During the 1900s Russia’s oligarchs more or less captured the whole country. Boris Berezovsky famously said that he, and the six
other preeminent oligarchs, collectively controlled half of Russia’s GDP. A World Bank study at the time found that the real number was closer to around 20%, but even that was significant. And as these “businessmen” controlled not only cash cows in raw materials and hydro- carbons, but also banks, newspapers and TV stations, they had significant politi- cal power – power they demonstrated when they lifted Boris Yeltsin’s ratings from low single digits in 1996 to get him re-elected that year in order to keep the gravy train on the tracks.
Ukraine is in an identical place today. If anything the wealth is concentrated amongst fewer oligarchs, who are pro- portionally even richer and much more deeply entrenched as they have had an extra decade to dig themselves in.
Putin's solution to his "oligarch problem" was to capture the state back. He rapidly