DATE=10-31-03

TYPE=INTERVIEW

NUMBER=3-812

TITLE=RUSSIA-ECONOMY

BYLINE=DAVID BORGIDA

DATELINE=WASHINGTON

CONTEN=

MR. BORGIDA: And now joining us, Robert McMullin, a Russia Analyst at the Center for Strategic and International Studies here in Washington.

Thanks for being with us on Newsline.

MR. MCMULLIN: A pleasure to be here.

MR. BORGIDA: The stock market there took a pretty big hit for a few days. It appears to have recovered somewhat today. How would you assess this whole controversy? Is it Vladimir Putin, with the strong show of state power? Is it retribution for opposition party support? What do you make of it?

MR. MCMULLIN: Well, clearly there has been a sea change. The jury is still out on what the ultimate outcome is going to be, but we can tell several things just based on the events of this week. First off, particularly with Voloshin's protest resignation, the so-called siloviki, or those in power in the Kremlin, have carried the day, so to speak.

However, there is a flipside to that. And that is that the newly appointed Chief of Staff is seen as a fairly moderate guy. Clearly, Medvedev is a Putin man, but is not from one of the power ministries. He's not a former KGB agent. And that is seen as a positive move; i.e., Putin is keeping some balance in his team and not letting the former KGB guys carry the whole day for them.

MR. BORGIDA: So it's a little of both, as I gather from what you're saying. There are those, though, who fear that this is a return of the heavy hand of Soviet power. Do they have any reason to be that concerned?

MR. MCMULLIN: Well, there is certainly cause for concern on the part of businessmen doing business in Russia, both locals and international -- foreign investment. The key to it will be whether this stops at Yukos or whether it continues beyond Yukos, to re-examine the privatization of other companies as well.

MR. BORGIDA: Well, let's talk about that. Because there is some concern, I think as our Lisa McAdams has been reporting out of Moscow, of what's going to happen next? Will there be more of this? Give us a little elaboration on that. Do you think there will be more of this to come?

MR. MCMULLIN: Putin has said, in fact in a meeting at the Kremlin last night with Russian bankers and foreign investors, he said that it will end with Yukos. This is not about revisiting privatization. It is not about undoing the good that they have done in the last 10 years. Many people want to take him at his word and believe him. No one can say whether that's going to be the case or not.

There's another thing to consider, and that is, is Putin in fact in full control of events right now? Clearly, the President of the Russian Federation exercises a great deal of power over what happens. But there are other people acting on his behalf who would probably like to go a good deal further than they have already gone.

MR. BORGIDA: There are some who say that this arrest would not have taken place without Mr. Putin's authorization. Let's expand the discussion just for a moment to the future of political and economic reform in Russia. Do you see this controversy and this moment in time having any impact on the bigger picture of reform?

MR. MCMULLIN: Absolutely. It has already had a very strong near-term effect. Since the investigation of Yukos began this summer, capital flight out of the country has increased significantly. In fact, it had reversed to where the former money that had left Russia was starting to flow back in and be reinvested, which was a very positive sign for the Russian economy.

But since the investigation began this summer, capital flight has begun again. And this will accelerate it, no question about it. Because those who have money, and significant amounts of money, are not going to want to reinvest it in Russia until they are convinced that their investments are secure and will not be confiscated by the government, as might be happening in the case of Yukos.

MR. BORGIDA: So would you fear, then, any European, American, Western, investment in Russia and the infrastructure would be a bad idea at the moment? Or is this actually, in the world of psychology and investment, would this be a good time to invest?

MR. MCMULLIN: Well, you might get a better price at this time, but clearly there is significant country risk involved with that as well. This might be a good time to step back for at least a couple of weeks and see how things develop. Things developed very quickly this week. I mean, every six hours there was a new piece of news that would either shake the markets or bring them back. But clearly there is cause for concern. Many people are very hopeful that there will not be significant long-term impact.

MR. BORGIDA: An interesting topic. We'll keep an eye on all the events in Russia certainly regarding Mr.~Putin and the business community. Robert McMullin, a Russia Analyst from the Center for Strategic and International Studies here in Washington. Mr. McMullin, thanks for being our guest. We appreciate your insights.

MR. MCMULLIN: My pleasure.

(End of interview.)

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