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July 1, 2003
Preferential Treatment
Why the Bushies are giving Russia a second chance. web only
By Robert Lane Greene
Robert Lane Greene is countries editor at Economist.com.

"Punish France, ignore Germany, forgive Russia." Most of the commentary on Condoleezza Rice's alleged statement about how the United States planned to treat the three European countries that defied it on Iraq focused on its apparent crassness. But the more important issue was: Why such different treatment for the three countries, all of whom were equally opposed to the war? The answer is old-fashioned power politics: Rice believes that, of the three, Russia looms largest in America's future. She is almost certainly right.

Almost all the news coming out of Russia these days casts the country in a negative light. This past week, Russia made headlines when its last independent television news channel, TV-6, lost its license and was replaced with a sports channel. Human rights groups worry that the media outlets that have not yet been shut down or brought under state control are cowed by the Kremlin into reporting favorably. Chechnya continues to smolder, despite the passage there in March of a referendum on a constitution. Rebels shot four people at a government building on June 30. Corruption and a stifling bureaucracy still hamper the economy and Russia recently acknowledged that it will not meet its goal of joining the World Trade Organization (WTO) in 2003. (Negotiations have moved slowly because Russia is unable or unwilling to expose some politically sensitive sectors, like agriculture and energy, to full liberalization and competition.) Then in early June, two defense-industry officials associated with the same private company were murdered hours apart from each other, a reminder that what there is of capitalism in Russia still has a strong whiff of gangsterism.

But is Russia really such a nasty, corrupt, barely-democratic basket case? The 2000 election that ratified Vladimir Putin's ascension to the country's presidency was marred by irregularities detailed in a critical report by the English-language Moscow Times. But the same report confirmed that Putin almost certainly would have won the election anyway. The only other candidate with a firm national base is the beefy, gray Communist leader Gennady Zyuganov, who has little appeal outside his own party. Putin has since remained genuinely popular, and should win the presidential election next year without difficulty.

Indeed, basket-case though Russia may be, the realist Russian-affairs scholar who serves as the president's national security advisor could give her boss plenty of reasons why the country still warrants the benefit of the doubt. And they are hard-nosed, pragmatic ones. The first is economic. Since its 1998 collapse and debt default, the Russian economy has rebounded strongly, growing by an average of 6.4 percent per year between 1999 and 2002, as compared to 2.6 percent in the United States (and 2.7 percent and 1.4 percent in France and Germany, respectively) over the same period. This year the finance ministry expects a net capital inflow into the country for the first time since 1991, reflecting growing investor confidence spurred on in part by reforms of the still-unwieldy tax code and bureaucracy. Corporate governance is also sharply improving.

The Russian economy is still heavily dependent on commodities, especially oil, of which it has the world's largest reserves outside of the Middle East. But it just so happens that that is one commodity for which demand has only continued to grow. And supply-fears concerning instability in the Middle East have only pushed prices higher. Russia also has the world's largest reserves of natural gas, a fact that made a recent state visit by Putin to Britain a huge success, as the two countries agreed on a pipeline and supply deal. At the time, Tony Blair went so far as to say that relations between the two countries have "rarely, if ever, been so good." Combine Russia's vast energy supplies with the fact that it is in no danger of being taken over by Islamist madmen, and you can see why the Bush administration wouldn't see the closure of a TV station or two as a reason to give Vladimir Putin a hard time.

And, speaking of Islamist madmen, Russia's cooperation is crucial on nuclear proliferation, an area in which it can be uniquely helpful. Russia has no desire to see North Korea or Iran get the bomb--both are far closer to Russia than to America, and either could provide a weapon to Chechen-sympathizing Islamists. True, one occasionally wonders why that calculus didn't stop Russia from providing Iran with nuclear help in the first place. (Though it should be pointed out that Russia's economy was in far worse shape, and Chechnya had yet to be become an Islamist cause clbre, when Russia first began providing Iran with nuclear expertise in the mid-1990s.) But there are signs that Putin will be pragmatic about trading the relationship with the Islamic Republic for improved relations with America: The foreign ministry again urged Iran to accept more intrusive inspections by the International Atomic Energy Agency in a statement on June 30. Supplying the Iranian reactor at Bushehr may be worth roughly $1 billion to Russian companies, but better economic relations with America, and the WTO membership which will require American support, would be worth much more in the long run.

And then there's Russia's cooperation in the war on terrorism. No doubt part of the price for positioning American troops and airfields in the former Soviet republics in central Asia was our keeping quiet about Russian brutality in Chechnya. This is not something America should be proud of. But, in the end, the benefits of basing American troops in central Asia proved critical during the war in Afghanistan. More recently, Putin's promise to increase Russian oil production in the event of "regional conflicts breaking out" as a result of the war on terror has also been a boon to the United States. This gesture has helped keep the price of oil more stable over the last year than it probably would have been otherwise.

Switzerland it's not, but neither is Russia the Union of Soviet Socialist Republics. As time goes by, Russia's realistic president realizes he can do better for his country by getting along with the United States. It can only be a positive sign that America's president feels the same way.

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