07/10/2006 12:00 AM

The G-8 in St. Petersburg

A Former Superpower Rises Again

By and

The leaders of the G-8 group of major industrialized nations are meeting this week for the group's first summit in Russia. The Kremlin, bolstered by billions of dollars in oil and gas revenues, comes to the meeting with an important message: The West should finally accept the fact that Moscow has returned to the world stage.

Host city St. Petersburg is gearing up for its global debut. On Saturday morning, the heads of state of the world's leading capitalist economies will meet at the Constantine Palace on the city's outskirts. It will mark the first time that a G-8 summit is being chaired by a former KGB officer.

Russian President Vladimir Putin ought to be pleased. The elaborate palace, built by Grand Duke Constantine, was renovated at a cost of €220 million ($280 million). Twenty new luxury villas, complete with saunas and swimming pools, were built in the neighborhood to house the prominent guests attending the G-8 summit. The city's airport will be closed to civil aviation for three days. Stray dogs and rats have been purged from St. Petersburg's city center. Five thousand homeless were registered and fingerprinted so that they could be shipped out to the countryside. An additional 80 security cameras were installed along Nevsky Prospect, the grand avenue between the Moscow train station and the Winter Palace, the residence of the former czars.

St. Petersburg has recently witnessed a spate of apparently racially motivated attacks on foreigners. A Senegalese man was shot in early April and a man from Mali was stabbed in February. A student from Cameroon was killed last Christmas, preceded by a student from Congo.

According to Mayor Valentina Matviyenko, the killings had nothing to do with racism. Some may call St. Petersburg the "capital of xenophobia," but Matviyenko believes the attacks were simply ineffectual "attempts to discredit the G-8 summit" -- and, by extension, Putin. The president plans to use the meeting in his native city as a stage to flaunt what he believes are Russia's strengths: tight management, self-confidence and a renewed vigor.

Second fiddle no longer

Moscow's political elite has been steadily drumming a new message into the heads of its guests from around the world, a message that has already taken hold in their own country: Russia, reborn from the ashes of the Soviet Union and newly awash in oil and gas revenues running into the billions of dollars, no longer feels compelled to play second fiddle to the world's major powers.

Russia's newfound self-confidence stems mainly from the perception that the vast nation, which stretches from the Baltic to the Pacific, has already "been a global power for several years when it comes to economic growth," as Vladimir Putin announced shortly after the country's national holiday on June 12. His sentiments echoed the staccato chants of a new national youth movement, Nashi (Ours): "Russia was and will always be a superpower."

Emboldened by Putin's comments, even the generally measured Economy Minister German Gref, has begun speaking in nationalistic superlatives. According to Gref, the annual World Economic Forum in February, a truly essential date for decision-makers, ought to take place in Russia in the future. "After all, what is Davos? A village in Switzerland. St. Petersburg is the world's most beautiful city."

Dmitry Medvedev, first deputy prime minister and a candidate to succeed Putin in 2008, added his contribution to the current round of self-congratulatory statements coming from the Kremlin with a comment on the dollar crisis: "The current state of the economy in the United States -- the home of the world's only reserve currency -- is questionable." For this reason, he added, it is Russia's "moral right" to search for new alternatives. According to Medvedev, the ruble could serve as an additional global reserve currency. Indeed, on July 1, just two weeks ahead of the St. Petersburg summit, the Kremlin announced that the Russian currency is now "freely convertible."

Shortly before the G-8 summit, the Kremlin also called for a new political and moral reserve currency, a counterweight to the US's dominant worldview. In a speech to a group of ambassadors in late June, Putin said, without specifically naming the United States or the Iraq war, that the principle of domination known as "Quod licet Jovi, non licet bovi" -- "What Jupiter is permitted, the ox is not " -- should not apply to questions of international conflict resolution. Instead, he said, "uniform, universal standards" based on international law should apply.

Much of the toxic rhetoric Moscow is currently hurling westward isn't necessarily wrong merely because it is being met with such displeasure in the European Union and the United States. The contention that the West employs what Putin and his entourage call "double standards" in its dealings with Russia is occasionally echoed elsewhere in the world, in China, Latin America and the Arab states, for example. But the new Moscow is adopting an excessively vigorous, almost boisterous tone leading up to the G-8 summit, all the while openly campaigning for its right to be a member of the same club it so vehemently criticizes. It's as if a total school outcast had suddenly decided to invite home the most popular children in his class, but only under the condition that they appreciate the honor being bestowed upon them.

Playing chess with energy supplies

When the leaders of the world's most powerful industrialized nations come together on Saturday in the marble ballroom of St. Petersburg's Constantine Palace, the talk will center on petroleum and natural gas. The security of the world's energy supply is the main topic at this G-8 summit.

The West is well aware that Russia is now a key player when it comes to energy. Putin's realm has the world's largest natural gas reserves, and Gazprom, the country's monopolistic gas supplier, is already the third-largest corporation on the globe. Russia is second only to Saudi Arabia in oil production. Its booming economy has grown by six percent on average each year since 1999.

US President George W. Bush, the first and so far only politician who, upon gazing into Putin's pale-blue eyes, was convinced that he had discovered the "soul" of the Russian president, will have two options in St. Petersburg: either he pursues the brusque approach taken by Vice President Dick Cheney, or he observes the rules of diplomacy.

During a visit to the Lithuanian capital Vilnius in early May, Cheney fired a series of broadsides against Russia, triggering a slugfest between the two powers ahead of the G-8 summit and, at the same time, rhetorically ratcheting up already tense relations between Washington and Moscow.

Graphic: Among the Greats

Graphic: Among the Greats

"No legitimate interest is served when oil and gas become tools of intimidation and blackmail," Cheney said in a remark directed at Russia, which four months earlier had state-controlled Gazprom shut off the flow of natural gas to neighboring Ukraine -- a response to Kiev's refusal to accept a substantial price hike. Moscow's energy policy, the US vice president said, is only part of an overall change in direction, a return to the strong state. "Yet in Russia today," Cheney added, "opponents of reform are seeking to reverse the gains of the last decade. In many areas of civil society -- from religion and the news media, to advocacy groups and political parties -- the government has unfairly and improperly restricted the rights of her people."

What liberal Moscow newspaper Kommersant later dubbed "the sharpest attack on Russia an American leader has made since the end of the Cold War" was only heightened by the fact that Cheney followed up his tirade by then traveling to oil- and gas-rich Kazakhstan, where he had nothing but praise for that country's autocratic long-term ruler, Nursultan Nazarbayev: "All Americans are tremendously impressed with the progress that you’ve made in Kazakhstan in the last 15 years."

Appearances like Cheney's -- the man who many believe used lies to push for the Iraq war -- make it easy for Putin to stand before the cameras of his state-owned television networks and complain about double standards in the West's treatment of Russia, his eyes narrowed and his words issuing forth from clenched jaws.

Putin, of all people, should know that morality takes a distant third place to natural gas and oil in the global competition for fossil fuels. Russia's relations with the despotic rulers in neighboring Uzbekistan, Turkmenistan and Kazakhstan are currently blossoming, thanks to long-term supply contracts. But the administration in Washington has its own share of veterans from the oil and gas industry: Bush, who, following in his father's footsteps, earned his wealth in the oil business; Cheney, who formerly served as CEO of Halliburton, a giant in the petroleum services industry; and Secretary of State Condoleezza Rice, a former board member at Chevron.

According to the Russian president's logic, he doesn't need to take criticism about Moscow's democratic and human rights deficiencies seriously as long as the West remains more interested in oil prices and pipelines. In his address to the nation, he made it clear that Russian-American relations have reached their lowest point since the end of the Soviet Union. "As the saying goes," he said, his comments directed at the United States, "comrade wolf knows whom to eat, it eats without listening and it's clearly not going to listen to anyone.''

Next page: The architect of the new Russia

Putin, now in the seventh year of his presidency, is clearly the architect of the new Russian state. Just as clearly, energy policy is the foundation on which he bases his construction plan. He calls the natural resources sector his "Holy of Holies," the core of his strategy to restore Russia to its place among the ranks of global powers. The re-nationalization of the oil and gas industry has been largely successful, with men from Putin's organization now holding the reins to the country's oil and gas companies.

In the 20th century, military might was the currency of the world's most powerful nations, but today the international balance of power is based on access to oil and gas, says Andrew Kuchins, Eurasia director at the Carnegie Endowment. Russia, he believes, will increasingly "be in a position to compete outside its actual weight class."

Since the days of former President Boris Yeltsin, Moscow's oil earnings have jumped nine-fold, to current annual revenues of $150 billion, while prices on the world market have almost quintupled. Real average wages in Russia are growing by 10 percent annually, and the economy has grown by an average of six percent a year since Putin took office, although that growth has now flattened somewhat.

Compared with its giant natural gas reserves, the world's largest country has relatively limited oil reserves, with 75 percent of known reserves already tapped. But when it comes to natural gas, Russia already meets a quarter of European and 40 percent of German demand. As a result, the Gazprom monopoly is not only the country's biggest corporation and taxpayer, but also the crown jewel in Putin's energy policy.

Putin promptly thwarted attempts by reform-oriented Economy Minister German Gref to dismantle the natural gas giant and make it more efficient by installing a former colleague from his days in St. Petersburg, Alexei Miller, as head of Gazprom. Under Miller's leadership the company, faithfully pursuing the Leninist principle of capitalism in a state-owned monopoly, has turned into a powerful tool in the hands of the Kremlin leadership.

The Gazprom juggernaut

Gazprom employs 250,000 people and maintains a web of 175 subsidiaries that rake in billions in revenues, mainly from exporting natural gas to other countries. Gazprom's minority shareholders view the company as one of Russia's most inefficient business operations.

The fact that despite its inefficiencies Gazprom, with a current market capitalization of $250 billion, has already managed to become the world's third-largest corporation, behind Exxon Mobil and General Electric, is enough to put a self-satisfied grin on the face of CEO Miller as he sits in his wood-paneled conference room. "Being number one in the world isn't a long way off," he says.

The gas giant's sheer size practically forces foreigners to to treat the Kremlin and Miller with a certain degree of deference. In a speech to Moscow investment fund Hermitage Capital in late June, former German Chancellor Gerhard Schröder, now on Gazprom's salary roll in his capacity as chairman of a Baltic Sea pipeline consortium, said: "The Europeans shouldn't act as though the Russians ought to be grateful for the chance to supply oil and gas to Europe."

Putin himself couldn't have put it more pointedly. The message behind Schröder's statements is that Russia's friends can look forward to well-heated houses, while everyone else would be well advised to dress warmly. Moscow novelist and leading Communist ideologue Alexander Prokhanov even sees the day coming when Gazprom, "with its steel tongs, will build a new version of a Russian geopolitical empire."

At the beginning of the year, the Ukrainians discovered what this could mean for Moscow's former allies. Despite valid supply contracts and established prices, Gazprom closed the spigot on its natural gas deliveries to reformist Ukrainian President Viktor Yushchenko -- not exactly a friend of Moscow's -- and his people shortly after midnight on New Year's Day. Gazprom's official explanation for the action was that it wanted to charge prices in line with the world market.

The move, coming only minutes after Russia assumed the G-8 chairmanship for the first time in its history, was also a delayed wake-up call for Moscow's trading partners in the West. The fact that the Kremlin was using natural resource reserves as a foreign policy weapon in its conflict with Ukraine was nothing new. What was new was that in a time of exploding world oil prices, the specter of a new energy crisis appeared in the middle of winter, prompting CNN and other broadcasters to pay especially close attention to the incident.

Moscow's attempt to chastise Ukraine as it was drifting away from its sphere of influence had the same effect on world natural gas markets as the October 2003 arrest of Mikhail Khodorkovsky and the ensuing destruction of his Yukos oil company had on the oil industry: the realization that Putin and his strategists are fully aware of the value of their trump cards and are prepared to use them.

While a horrified Europe remains enmeshed in its debate over diversification of its energy supply, Gazprom has already moved on. In early June, the Russian monopoly announced plans to invest $2 billion in the just-nationalized Bolivian natural gas industry. Negotiations are also underway with Algeria and Libya for joint exploitation of those countries' reserves, with the Russians hoping that gas deliveries from the two North African producers can help satisfy rapidly growing demand.

The new Great Game

Finally, in Central Asia, the main theater of the geostrategic showdown between Russia and the West, Putin is already closing in on his goal of gaining long-term control over the region's natural resources. Turkmenistan has signed a 25-year contract to supply the bulk of its natural gas production to Gazprom, Uzbekistan is exploiting its reserves with Russian assistance and Kazakhstan is contemplating a 20-year agreement with the Russians.

The Ukrainians aren't the only ones to know how it feels to be dependent on Russian gas while attempting to strike out on their own politically. Belarus, Georgia, Armenia and Moldova have also gotten their share of subtle threats. The West, Putin told Angela Merkel after a meeting with the German chancellor in late April, would be well advised not to test Russia's patience with its never-ending criticism.

"What will we do when we hear the same accusations, day in and day out?" Putin asked rhetorically two and a half months before the G-8 summit. "Of course, we will begin looking for other markets."

Next page: The fall of the Soviet Union

When the leaders of the world's most powerful industrialized nations come together on Saturday in the marble ballroom of St. Petersburg's Constantine Palace, they could also seize the opportunity to search for common values.

One question they could raise is why, in Putin's Russia, Marshall Stalin is once again being openly celebrated, whereas Stalin's record as a mass murderer is being almost completely glossed over. Or perhaps they could consider why the G-8's current chairman has called the collapse of the Soviet Union the greatest geopolitical catastrophe of the 20th century.

Whatever questions are raised, Putin will certainly be well equipped to respond. He could cite Japanese Prime Minister Junichiro Koizumi, for example, who bows his head to honor dead Japanese war criminals in an annual pilgrimage to Tokyo's controversial Yasukuni Shrine, as proof of his general contention that the West applies a double standard.

Putin would like to decide how modern Russia should deal with its Soviet history, because that remains the most sensitive issue in the nation's image of itself. To this day, millions of people from Kaliningrad to Vladivostok have trouble understanding how their realm fell apart in late 1991, after Russians, Belarusians and Ukrainians met in a forest near Brest and formed an alliance against the central leadership, driving nervous Soviet President Mikhail Gorbachev from the Kremlin.

Triumph and defeat have been as much a part of the Russian empire as the change of seasons since the defeat of the Tatars. The Muscovites conquered Siberia, annexed the Ukraine, the Caucasus, Turkestan and the Russian Far East. But by overestimating their strength, they also quickly lost some of their territorial gains. The Russians' last great dream of becoming a "Third Rome" ended in 1917 with the overthrow of the czar and Lenin's takeover of the Kremlin.

By the end of the Soviet era, 145 million Russians ruled over more than 100 non-Russian ethnic groups and 110 million Eastern Europeans. In the end, the union forged by Lenin was the world's largest country, stretching across 11 time zones. It produced more coal, oil and tanks than the wealthy United States, possessed 45,000 nuclear warheads, an almost 4 million-strong military force and a leadership that had long dreamed of global revolution. And, on the strength of its missiles, it saw itself as being at least an equal to Washington, the world's other superpower. But then those aspirations came to an abrupt end.

The end of the Soviet Union

The world could "breathe a sigh of relief," said President Boris Yeltsin when his Russian Federation declared itself the legal successor to the USSR. Caught up in the euphoria of change, Yeltsin relinquished any lingering claims to Russia's former role as a superpower. His country wanted to be "strong and democratic, but never again an empire." From then on, Yeltsin said, the country's role would not be defined by its size but by the affluence of its citizens. The Russian leader called upon the West to help the country make the transition from authoritarian collectivism to free entrepreneurship, because it was "simply obligated to save democracy in Russia."

With those words in mind, it was clear to the Russians that what happened then was happening in the name of democracy. Even the country's first stabs at mastering the new system sent millions into permanent shock.

When Yeltsin's government lifted controls on prices in January 1992, the cost of goods rose tenfold. Industrial production came to a standstill and unemployment skyrocketed. Workers were forced to wait months for their wages. Almost overnight, the country reverted to a medieval bartering system.

Instead of establishing the intended broad class of new entrepreneurs, the ensuing privatization campaign created a club of oligarchs who acquired former state-owned companies at bargain basement prices. One the group's illustrious members was former Komsomol official Mikhail Khodorkovsky.

Aside from its economic outcome, hardly anyone had foreseen the political consequences of Russia's shock therapy. When the Russian parliament refused to stand behind Yeltsin, he ordered military tanks to fire on the building, leading to 200 deaths. In November 1994, the country's intelligence agency launched the war in Chechnya. The war claimed 80,000 lives in its first phase alone, which ended in 1996 with a defeat for Moscow.

Boris Yeltsin, by then perceived as the destroyer of the Soviet empire, was a man without a plan and without visions. He was an ad hoc politician in the style of the boyars, but he was no democrat. He was a man who ran the country from his tennis club with the help of his bodyguards, and who disappeared from the political stages for months after undergoing quintuple heart bypass surgery. For Russians, he became a symbol of unpredictability and recklessness because he left them unprotected against predatory capitalism and the concepts of the International Monetary Fund. The majority soon realized that instead of learning from the West "how to live in a civilized way," they were experiencing the bitter opposite.

Although Yeltsin won another election in 1996, it was only with the financial backing of the oligarchs. Two years later the country descended into full-blown agony. After floating the ruble, the government stopped servicing its debts and millions of Russians lost their entire savings. Russia was finally pronounced an international problem case.

Vlad the great

Yeltsin's successor, Vladimir Putin, understood the depressive mood that had taken hold of the nation. He spoke of Russia's "traditional values," and he said that the country would not resemble the United States or Great Britain in the foreseeable future, and that Russian democracy would "never copy the liberal model of the West." He also insisted that "only a strong state can guaranty freedom."

Putin's words were balm for the souls of his anxious fellow Russians. Even after the fall of communism, no more than one in six citizens ever voted for one of the new liberal parties. Two-thirds of Russians soon came to mourn the collapse of the great Soviet Union.

Putin's first move was to conjure up a virtual rebirth of Russia as a great power. Soldiers wearing uniforms from the early 19th century carried the national flag and the presidential standard at the Kremlin Palace at his inauguration on May 7, 2000, the mixture of czarist, Soviet and post-Soviet symbols conjuring up Russia's former role on the geopolitical stage.

The new man in the Kremlin promised to nationalize major industries, crack down on crime and reestablish the military's standing. He also tried to revive the Russians' pride in their own country, treating oligarchs like the losers in a changing world and democrats like Chekists (a term used throughout the Soviet era to refer to members of secret police organizations).

He brought back the old Soviet national anthem, with lyrics that now praise Russia as a "holy power." He reintroduced the military's use of the red flag, banned under Yeltsin, and then, in a grand national celebration in 2005 to mark the 60th anniversary of the Soviet victory in World War II, he revived the powerful myth of the Great War for the Fatherland. Against a backdrop of thousands of marching veterans, and before dozens of heads of state and leaders of the Russian Orthodox church, pride in the past morphed into a new awareness of being a great power.

Both Stalin and former Communist Party Chairman Leonid Brezhnev, once a symbol of stagnation and until recently the object of ridicule, are suddenly reemerging as heroes of a new television series -- both as men who helped the people achieve true (military) might.

In the new version of Soviet history, good and evil are kept neatly separated. "Ninth Company," Russia's first movie about the Soviet war in Afghanistan, only managed to become a $20 million box office hit last year because it glossed over the country's humiliating defeat in the Hindukush region. Even Russia's youth now sees the campaign as a "fight against terrorism" and a powerful deed.

A newfound national pride

This new sense of national pride has also helped polish the image of an important symbol of power in the past, the military, despite the fact that the East-West conflict ended 15 years ago. Putin is shown launching the latest addition to the navy's fleet of submarines or commissioning a new super-missile that will "defeat all existing missile defense systems" -- as if the number of nuclear warheads were still an indispensable attribute of being a major world power.

In the six and a half years since the end of the Yeltsin era, the man in charge at the Kremlin has achieved the seemingly unthinkable: one in two Russians now sees the country as the US's equal. Thirty-eight percent are convinced that Putin is responsible for Russia's new prominence, praising their president as the "most successful leader of our country since 1917" -- even more successful than Brezhnev or Stalin. Reformers Gorbachev and Yeltsin, who aimed to create a Western-style democracy, are tied for last place.

Next page: Freedom of speech and other prickly issues

On Saturday, there will also be talk of freedom of speech and of the press -- openly or between the lines. Bush, Cheney and Rice have recently expressed sharp criticism of the conditions in Putin's state. A few US senators, led by Republican Senator John McCain, even went as far as to call for Russia's exclusion from the G-8.

But even Russians haven't failed to notice that Italy, during the reign of media czar Silvio Berlusconi, dropped to 42nd place -- behind Namibia and South Korea -- in an international comparison of freedom of the press issued by the organization Reporters Without Borders. At last month's World Newspaper Congress in Moscow, Putin coolly rejected all criticism, saying "the conditions for the media in Russia are becoming more favorable from year to year."

To be sure, more than a decade and a half after the fall of communism, Soviet-style press censorship no longer exists, and there are no longer any party ideologues to suppress articles. The government owns only 10 percent of the electronic media, there are 53,000 periodicals and there is plenty of independent media criticism of the Kremlin leader.

On the other hand, Reporters Without Borders ranks Russia 138th on its list, just ahead of Belarus, Saudi Arabia and Cuba. Still, that fact hasn't prompted any protestors to take to the streets in Moscow, because there is a wide divide between perceptions of press freedom in Russia and abroad.

Ivan Everyman experienced the diversity of opinion during the Yeltsin era as a reflection of the decline of the state, as did Putin and others like him. To this day, members of the intelligence community blame the media's reporting on the atrocities Russian troops committed during the first war in Chechnya for the military's defeat in that campaign.

To advance his campaign to restore Russian self-confidence, Putin wanted to see the country marching to a different, more tightly controlled tune and a clearer journalistic landscape. Instead of the people controlling the government through the media, Putin's notion was that the leadership ought to control everything happening outside the walls of the Kremlin.

In 2000, two of the most important media entrepreneurs during the Yeltsin era -- Boris Berezovsky, a major shareholder in ORT, the country's leading television network, and Vladimir Gusinsky, owner of television station NTW -- were forced to leave the country after refusing to comply with Putin's demands for patriotic reporting.

Building a Kremlin-friendly media

Instead of imposing an outright ban, the president used the tax authorities and Kremlin-controlled judiciary to achieve his ends. In the Gusinsky case, state-controlled natural gas giant Gazprom acquired the station. Today, Gazprom Media is the majority owner of two of the country's leading television stations, traditional newspaper Izvestiya and former cult radio station Echo Moskvy. Steel corporation Severstal and oil company Surgutneftegas, both companies controlled by Putin associates, gained control over Ren TV. The last major, privately owned, multiregional television station, TW-6, closed its doors in 2002.

Patriotic stations run by the military, the church and the state quickly filled the empty airwaves. Putin's media offensive was bolstered by new legislation that complicates reporting on the war in Chechnya, imposing possible criminal penalties on anyone who so much as interviews Caucasian underground fighters.

Russian TV viewers can now watch violent or pornographic programming, or soap operas, to their hearts' content, but the government controls informational programs. According to the Russian journalists' union, 90 percent of the news broadcast by stations available nationwide is devoted to stories about the power of the state -- or to Putin himself. Gavin O'Reilly, the president of the World Association of Newspapers, asked Putin directly: "Why is it that the state is still accused of promoting an atmosphere of caution and self-censorship among journalists, fearful for their livelihoods if they step very visibly out of line?"

It is not just opportunism when even the country's formerly liberal newspapers now pay homage to the president. According to Alexei Pushkov, "Russia could fall apart if it fails to reestablish itself as a major power, both economically and militarily." Pushkov, a former speechwriter for Gorbachev, now hosts a television program titled "Post Scriptum," in which the "enemies of Russia" -- Americans, the citizens of the Baltic states, Poles, Georgians -- are routinely blamed for the country's own misfortunes of the past 15 years.

TV journalist Olga Romanova conducted an experiment earlier this year. "I didn't go on the Internet for three days, nor did I watch any Western satellite channels," she says. "After those three days, it was my understanding that Russia is surrounded by enemies, and that Putin is our greatest hope."

Using his treatment of the media industry as a model, Putin has also streamlined the country's political institutions in an effort he calls the "reform of power." As a result, 77 percent of government bureaucrats are now veterans of the military and intelligence services. The country's governors were forced to abandon their seats on the Federation Council, largely depriving the Russian upper house of parliament of its powers. The Kremlin drafted a new election law that essentially rendered most parties insignificant, enabling its own party, "United Russia," to acquire a two-thirds majority in the Duma and recklessly rewrite parliamentary rules of procedure to suit its own needs.

The system of direct election of governors has also been eliminated, with candidates now being selected by the president. He established the "People's Chamber," supposedly as the "conscience of the nation," but its decisions are non-binding. By contrast, a restrictive law was enacted to curb the activities of non-governmental organizations (NGOs) with funding from abroad that had voiced criticism of the country's gradual return to autocracy.

Next page: The modern czar

As in the days of Czar Nikolai II, politics are dictated "by the royal court," says Dmitry Trenin of the Moscow Carnegie Center. "The president as a modern czar is the only functioning institution." Indeed, a few months ago the country's constitutional court openly admitted that this was the case. Because the Russian president, it argued, is the "direct representative of the entire people," whereas the people are the "only source of power," Putin is entitled to any powers he desires -- even if they are not listed in the constitution.

Such bizarre interpretations of the law would set off a storm of outrage anywhere else, but Putin's hybrid policies prevent the development of a significant democratic opposition. He offers autocratic rule and elections simultaneously, freedom side-by-side with authoritarianism. He is a man who pledges his support to practically any target group.

This may explain the puzzling fact that, 15 years after the end of the totalitarian Soviet system, one in two Russians once again perceives the politics of the strong state as a positive phenomenon. The people have "decided to return to the familiar and quiet Soviet Union," wrote the Moscow magazine Profile -- and to a state of permanent rules of play and a predictable future.

Another set of key issues on the agenda when the world leaders come together on Saturday will be the fight against poverty and for social justice.

That's when Tony Blair, the prime minister of Britain -- where, according to the Organization for Economic Cooperation and Development, 11.4 million people live below the poverty line -- will be well advised not to hand out any advice to Vladimir Putin, the president of Russia, which is currently stockpiling $250 billion in gold and foreign currency reserves.

Putin sees himself on the right track. Dramatic increases in oil and gas prices have filled his national treasury in record time. Finance Minister Alexei Kudrin has announced that Moscow will no longer be a "customer of the Paris Club" of creditor states as of August 21, when Russia plans to pay off its remaining $20.8 billion in Soviet-era debts in a single early payment.

Russia's Dutch disease

This departure from being a debtor nation is deeply satisfying to Moscow's ruling elites. But Putin's former economic advisor, Andrei Illarionov, who resigned in 2005, sees Russia's fixation on its natural resource billions as negligent. According to Illarionov, experience shows that in countries like Saudi Arabia, Nigeria and Venezuela, whose gross domestic products are largely attributable to natural resource exports, the majority of the population becomes less affluent instead of benefiting. The phenomenon, known as " Dutch disease," which has now taken hold in Russia, leads to an overvalued currency as a result of high export earnings and reduces the competitiveness of other industries by making it more difficult for them to sell their products. The name is derived from the experiences of the Dutch when they discovered natural gas in the 1970s.

Indeed, growth has been slow in Russia's manufacturing industry, and this despite World Bank expert Itzhak Goldberg's contention that Russian companies are among the world's most innovative. With the exception of fighter jets and missiles, and to some extent software, the giant country still produces very few exportable goods.

According to former Putin advisor Illarionov, his country fulfills only one of the key criteria for G-8 membership -- by which he means Russia's sheer size. But, says Illarionov, when it comes to competition, combating corruption and protecting private property, Moscow has no place in the club of the world's economic leaders.

The reformers within the Russian government are content with quiet warnings, and many are happy to stop pushing so long as they continue to receive their pay. Economy Minister Gref began a push for privatization more than six years ago. When Putin scuppered his plans and ordered him to do the complete opposite, he nevertheless remained in office. "Every monopoly creates poverty in the country," he says with resignation.

Twenty-five million Russians still live below a poverty line that doesn't even account for the skyrocketing costs of real estate and apartments, public transportation and, most of all, healthcare. Adequate free medical care is no longer guaranteed in Russia, with preferred treatment going to those who pay cash and under the table.

The average life expectancy of Russian males is just shy of 59, and the country's population is shrinking by about 700,000 each year. Putin has recognized the problem and made combating it a top priority. But all attempts to confront the situation with heavily funded "national projects" fail in the face of the Russian reality of rampant corruption and an insatiable caste of government bureaucrats.

The number of Russian citizens who say that government corruption is more widespread under Putin than in the Yeltsin era has tripled since 2001, says Georgy Satarov, head of the Indem research group. According to a study by the Russian Academy of Sciences, Putin only earns high marks when it comes to family policy and reliable pension payments.

The fight against poverty, Gref stresses, is an acid test for the government. "Unless we address this problem," he says, "we cannot possibly speak of a favorable social climate in our country."

Next page: Gazprom and the new Russian model

When the leaders of the world's most powerful industrialized nations come together on Saturday in the marble ballroom of St. Petersburg's Constantine Palace, the question will also be raised about the appropriate extent of state involvement in a time of globalization.

French President Jacques Chirac is someone who could put in a good word for his host, Putin. That's because the French have just decided to postpone privatization of the national gas company, Gaz de France. What's more, France, according to a new study, "is the only industrialized country in which the market economy is not perceived as being fair and legitimate."

But are the Kremlin's leaders even interested in support? "The choice of a model for developing economies should be based on its quality and not on who proposed it," Deputy Prime Minister Medvedev announced shortly before the G-8 summit, in a clear side-swipe against the US version of a free market economy. In his other job, Medvedev happens to be the chairman of the board at Gazprom.

Putin's state is using Gazprom as an example of how it perceives global trade relations. Gazprom executives and the Kremlin alike have vocally complained about the company's lack of unrestricted access to lucrative Western European pipelines and distribution networks. Vladimir Putin calls it "unfair competition in world markets."

In late June, when a planned merger failed between Russia's largest steel producer, Severstal, and Luxembourg company Arcelor, Putin tersely announced that Russia knows how to use its resources to protect its interests. Moscow newspapers called the failed deal evidence of "anti-Russian sentiment" and a "dampening" of relations ahead of the G-8 summit.

For his part, Putin long ago pushed a "Natural Resources Law" through the Duma, relegating foreign companies to the role of minority investor in the exploitation of Russian natural resources. He also had a list drawn up of "strategic businesses," which ultimately included 39 instead of the 17 industries originally planned. The goal, again, was to shield key sectors of the Russian economy from foreign access.

When asked in June whether even telecommunications would be classified as a strategic sector in the future, Economy Minister Gref responded with what may be his most sarcastic comment to date. "For heaven's sake, no," he said, adding that, after all, telecommunications is still one of the country's more competitive industries. "It'll be dead the minute we call it 'strategic,' and we'll all find ourselves without our mobile phones."

Recreating the Soviet system

Self-irony is indispensable when Putin's political clique, equipped as it is with its Marxist-Leninist training earlier in life, attempts to position Russia in the global market. But the direction itself is predetermined, as the president tries to "re-create the Soviet system in which he was raised," says political scientist Nina Khrushcheva, the great-granddaughter of former party leader and head of state Nikita Khrushchev. It's an endeavor than can result in American chicken legs being rejected for supposedly lax hygiene regulations, or in Georgian wine disappearing, for similar reasons, from the shelves of Moscow wine merchants for the first time in generations.

Even if, as has been announced, the Americans were to abandon their resistance to Russia's joining the World Trade Organization, this would not immediately wipe away deeper-seated disagreements between Moscow and its Western partners, because a free economy cannot function in a country that lacks a free society.

Russia is "prepared to maintain international relations, but it prefers to prevent other countries from being interested in Russian affairs," exiled Russian political scientist Isaiah Berlin said 60 years ago. According to Berlin, the majority of this Slavic people have a propensity for "insulation," though not necessarily isolation -- in other words, for "withdrawing from the rest of the world onto an island."

A current study by Moscow's Levada Center reinforces Isaiah Berlin's theories, arguing that the tendency toward isolationism and xenophobia is constantly on the rise in Russian society. According to the study, the number of those who agree with the slogan "Russia for Russians" has increased from 43 percent in 1998 to 58 percent recently -- in a country that is home to 160 peoples and ethnicities.

At a time when calls for an independent "Russian" direction are on the rise in Moscow once again, pragmatism appears to be the best strategy for Western leaders in dealing with the Kremlin. And nowhere are Russia's claim to be a major power and raw reality as disparate as in foreign policy.

Disparate foreign policy

In the last 15 years, the arsenal of Russian diplomats has included everything from confrontational rhetoric to gestures of cooperation, and from schoolboy-like attempts to curry favor with the West to dully posing as a major power. Moscow was weak and too dependent on Western support, which explained its untiring efforts to demonstrate "what kind of a country we will become," to quote Boris Yeltsin. It was forced to look on helplessly as NATO intervened in the Balkans and pushed its alliance deep into Eastern Europe.

Since the 2001 terrorist attacks in the United States, Putin has been trying to reclaim Russia's role on the foreign policy stage. He joined the global anti-terror alliance, supported the intervention in Afghanistan, accepted the installation of US bases on Russia's southern borders in Central Asia and didn't even raise any significant objections to the Iraq war.

But from the Russian perspective, the West never rewarded it for this about-turn. When the "rainbow" revolutions supported by the Americans broke out in Georgia, Ukraine and Kyrgyzstan, countries directly at Russia's doorstep, the Russians' geopolitical self-image reached an all-time low, and an outraged Moscow decided to fight back.

The Bush administration is now forced to look on, with irritation, as Russia regains its influence in the post-Soviet states of the Commonwealth of Independent States (CIS). When Tashkent asked the Americans to leave Uzbekistan last year (the Americans had criticized the regime all too openly), Moscow promptly offered the Central Asian nation its own security and cooperation pact.

Rival China has turned into a replacement for America, with Putin meeting with his Chinese counterpart, Hu Jintao, five times last year. He suggested Russia might be interested in an oil pipeline similar to the planned pipeline to Japan and, together with Hu, upgraded the Shanghai Group, an alliance that includes Moscow, Beijing, four Central Asian countries, as well as India, Pakistan, Mongolia and Iran as observers. The group, which US experts have already christened the "NATO of the East," has criticized the US campaign in Afghanistan, suggesting that Russia may have plans to play a role in the Hindukush region once again.

Russian foreign policy has replaced a position of weakness for one of strength, says political scientist Trenin. "Post-Soviet humiliation is a thing of the past. Russian leaders have taken a liking to playing rough."

In Trenin's view of the future, the Kremlin will establish closer ties to Belarus, expand its influence in the resource-rich countries on the Caspian Sea, push for changes in the currently anti-Russian governments in Georgia and Moldova and try to obstruct Ukrainian membership in NATO.

Putin's team no longer feels intimidated by Western criticism of Moscow's foreign policy offensive. On the contrary, it even feels validated as a result. Western displeasure stems from the fact that Russia "has begun to pursue its own, independent policies," says Mikhail Margelov, head of the foreign policy committee in the upper house of the Russian parliament.

But this independence is often limited to a stubborn emphasis on Russia's special role. When the United States and Western Europe cancelled aid payments to the Palestinians after the Hamas government was voted into office, Putin's foreign minister defiantly offered Palestinian President Mahmoud Abbas "emergency economic assistance."

As recently as 2004, Moscow was touting Iran as a "strategic partner," insisting that Tehran was not developing nuclear weapons. A short time later, the Russians sharply criticized Iranian President Mahmoud Ahmadinejad and then signed a deal to supply missiles to Iran -- two "completely mutually exclusive things," says Russian expert Ariel Cohen of the Washington Heritage Foundation.

Is Russia a new, old superpower? The Kremlin has set up an elaborate backdrop in St. Petersburg for its return to the world stage. But while it may impress the Germans and the French, the Americans are hardly likely to pay tribute to the newly strengthened country.

Politics and experts alike disagree over whether Russia has regained its position as a global power. Those who still see the Eastern realm as a colossus supported by clay feet offer convincing arguments. Russia ranks 14th in the world in terms of GDP, putting it behind India and Mexico. On a per capita GDP basis it even ranks among newly industrialized nations. Nevertheless, Putin's political system is only attractive to Belarusians, Uzbeks and Turkmen, and no one is buying Russian computers or automobiles, or waxing enthusiastic over a Russian Way of Life.

"A solid state entity cannot be built solely on the basis of national isolationism and an outwardly directed petro-imperialism," says Jutta Scherrer, a leading Russia expert EHESS school of social sciences in Paris. And according to Liliya Shevzova of Moscow's Carnegie Center, Putin's strategy of achieving stability by concentrating power only covers up the many smoldering conflicts he faces, adding that the current Putin team lacks the ability to modernize the country.

The other school of thought, whose adherents are mainly economists, expects Russia's Renaissance to continue unabated. In fact, the most optimistic believe that Russian economic growth will remain consistently high, possibly at five to seven percent a year until 2015.

There is general agreement that a world hungry for energy will be consuming 105 million barrels of oil a day in 15 years, an increase of more than one-fifth over current consumption. Its oil and gas reserves between the Baltic and the Pacific could indeed be Russia's most important instrument in acquiring power in the future -- as fossil fuel reserves essentially become the new strategic weapons of the 21st century.

In early June, Henry Kissinger, a former American secretary of state, winner of the Nobel Peace Prize and, at 83, still in demand worldwide as a political guru, was again a private guest of Russian President Putin. "It would be wrong to treat Russia like an enemy," the elderly statesman warned, adding that the Russians are a power once again, just as in the "days of Peter the Great."

Translated from the German by Christopher Sultan.


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