Page 36 - bneMag February 2021_20210202

36 I Cover story bne February 2021
way. Putin experimented with the ZAO Kremlin system in the noughties where he held one-on-one meetings with all the leading businessmen and tried to ensure their plans dovetailed with the Kremlin’s goals.
But the oligarchs proved too hard to control and he eventually replaced them with the stoligarchs – state-sponsored oligarchs, who are given the biggest budget-funded contracts personally
by Putin and who can then manually supervise the corruption and keep
the stealing to “acceptable” levels.
As bne IntelliNews has argued many times, most of the countries of New Europe have failed to set up working institutions to regulate business. Without strong property rights and a functioning independent judiciary then corruption is the system. The easiest
way to bind minions to a leader is give them positions of power where they can charge an economic rent. The power comes from an ability to take those jobs away again. So Russia didn't solve its oligarch problem after all. It just recast it in a different form that gave Putin more political power. It is the system employed by almost all the CIS countries.
On the flip side the reason why the Central European countries have flourished is they were handed those institutions fully formed by the EU.
But even the likes of Czechia and the Baltics still suffer from the bane of the oligarchic corruption. Only this week the government in Estonia fell when it transpired the Prime Minister was doing dodgy real estate deals. In Hungary one of the biggest oligarchs in the country is also a close personal friend of Hungarian Prime Minister Viktor Orban. Even the newly minted EU members have not solved their oligarch problem entirely.
Kyrgyzstan, Georgia and
Ukraine in trouble
Most of the other countries in the region are far less advanced and their oligarchs have had an extra decade on Russia’s oligarchs to entrench themselves.
If anything, the oligarch problem is getting worse. Kyrgyzstan just
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had its third colour revolution but Sadyr Japarov, who just took over and legitimised his presidency with elections on January 11, was in jail in December on kidnapping charges before the mob freed him. Not only is he an oligarch; he is also accused of having links to organised crime.
Georgia became a poster boy for democratic transition following the Rose Revolution in 2003 that
control of the parliamentary majority and the oligarchs are actively working to undermine him. Specifically, Ukraine has been rocked by a string of scandals that have upset the International Monetary Fund (IMF), including physically attacking the employees of the reform-minded National Bank of Ukraine (NBU), a Constitutional Court decision to strike down most of the anti-corruption legislation and most recently to cap the domestic tariffs for
“The reason why the Central European countries have flourished is they were handed those institutions fully formed by the EU”
catapulted Mikheil Saakashvili into
the presidency. He allied with the West and made some successful reforms, but he lost touch with the people and lost elections in 2012 to Bidzina Ivanishvili, a Georgian-born oligarch who made his money in Russia in the 1990s.
Ivanishvili said last week that he
was leaving politics as “mission accomplished”, but after his dominating Georgian politics for almost a decade the country has lost its poster boy
sheen and has reverted to type. Corruption and insider dealing is back with a vengeance and the country has seen a string of protests as a result. Ivanishvili has used his vast fortune to run politics from behind the scenes.
Things in Ukraine are even worse, where the oligarchs are increasingly taking complete control of the political process. About 100 out of the 422 active MPs
in Ukraine’s parliament are accused of being under the control of billionaire Rinat Akhmetov, and another 70 work for the oligarch Ihor Kolomoisky, who is also a personal friend of comedian- turned-president Volodymyr Zelenskiy, according to an investigation by bihus. info news site published on January 11.
Zelenskiy was swept to power in April 2019 on the promise of ending corruption, but since then he has lost
gas. All these scandals have been laid at the feet of oligarch machinations.
“We identified billionaires Akhmetov and Kolomoisky as the most powerful players in Ukrainian politics as early as April. And much of the Ukrainian public understands this, with even Zelenskiy’s own 95 Kvartal comedy troupe performing skits depicting
the two oligarchs abusing their excessive power,” Zenon Zawada of Concorde Capital said in a note. “While Akhmetov has been treading between the pro-Western and pro-Russian camps, never committing himself to either one, Kolomoisky has swung entirely to the pro-Russian camp since Zelenskiy’s election in spring 2019.”
Ukraine has a long history of abuse
by oligarchs. Under Leonid Kuchma, the country’s second president, the country’s gas transit business was notoriously corrupt, conducted via “independent” trading companies
such as Eural Trans Gas, controlled
by oligarch Dmytro Firtash, that siphoned off billions of dollars on behalf of the elite – both Ukrainian and Russian – among many other scams.
More recently Kolomoisky had inserted himself into the state oil procurement auctions and was extracting a 15% commission on all the deals, according