#7 - JRL 7255
Moscow Times
July 18, 2003
Just How Far Will Putin Let the Pendulum Swing?
By Simon Saradzhyan and Igor Semenenko
Staff Writers

Apart from the already evident economic damage to the country from the Yukos affair, President Vladimir Putin could be politically weakened if he continues to sit on the fence as two Kremlin clans do battle, analysts said.

"As the creator and keeper of balances, Putin needs to say 'break' and restore the balance," said Andrei Ryabov of the Carnegie Moscow Center.

If he does not, and one clan wins, he is liable to become overly dependent on the victorious clan going into next year's presidential elections, Ryabov said.

The powerful clan of siloviki from the security, law enforcement and defense agencies is cornering oil major Yukos in an attack against the corporate heavyweights that enjoy close ties with the clan of holdovers from Boris Yeltsin's team, still known as the Family, analysts said.

So far Yukos is losing ground, with key shareholder Platon Lebedev held in prison on charges of stealing state property in a 1994 privatization deal, analysts said.

If not stopped, the siloviki -- who seem to have little concern for what the attack on Yukos is doing to the markets and economy in general -- may take on other big businesses over other past privatization deals, said Alexei Makarkin, head of research with the Center for Political Technologies.

"The raid against Yukos opened the door for attacks on large business groups," Makarkin said.

The clan of siloviki, which is widely believed to be led by deputy heads of the presidential administration Viktor Ivanov and Igor Sechin, is trying to gain influence and resources ahead of the elections to have more leverage over the president, the analysts said.

Should Putin allow the siloviki to defeat the rival clan, he may find himself stuck with a team dominated by former security and law enforcement officials that is not at all qualified for building democracy and a fast-growing economy in Russia, the analysts said.

"Once one side wins, Putin may find himself with no one to rely on if he disagrees with the objectives of this side," Ryabov said.

More important, he may see domestic big business and foreign investors lose confidence in the stability of his administration, which would disrupt his plan to double GDP within 10 years, said Vyacheslav Nikonov, head of the Politika think tank.

Putin realizes what a Pyrrhic victory it would be if the siloviki are not stopped, and it will probably interfere to force the warring sides to settle, the analysts said.

"There is no questioning the pendulum will swing back," said Yury Korgunyuk, head of political studies with the Indem think tank.

"The question now is what amount of damage will be inflicted [before it does]."

One tacit compromise would be for the big companies to stop financing opposition parties, abandon attempts to form powerful lobbies in parliament and agree to larger taxation, while the siloviki would agree not to prosecute them for the shady privatization deals of the 1990s, analysts said.

Both Korgunyuk and Ryabov said the current battle of the clans somewhat resembles the standoff before the 1996 presidential election between the reformers and the siloviki led by Yeltsin's bodyguard, Alexander Korzhakov.

Korzhakov reportedly went so far as to propose canceling the elections to make sure Yeltsin did not lose to the Communists.

Yeltsin, however, acted swiftly, siding with big business and the reformers in his administration by firing Korzhakov and his allies in the security community. But after crushing the siloviki and winning the election thanks to the support of the wealthy businessmen, Yeltsin saw the political influence of the new oligarchs soar beyond his control. During his second term, he was increasingly unable to play one clan off against the other, which had been his management style in the first.

"It is not necessary to have different sources of power as long as you have picked a team of single-minded players who act jointly on one agenda you have set," Nikonov said.

Putin has set no clear agenda for his second term, apart from doubling GDP, and this may have been why the siloviki scrambled to boost their leverage with the president.