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Moscow Times
April 27, 2005
Editorial
Putin's Credibility Gap

President Vladimir Putin is suffering a credibility crisis among investors, and he knows it. Perhaps that is why he spent part of Monday's state of the nation address blaming events before his presidency for his failure to fulfill promises made in his previous five annual speeches.

As Putin told it, efforts to raise the standard of living -- a key goal named in last year's speech -- have been difficult because the population slid into dire poverty during the reign of his predecessor, President Boris Yeltsin. Terrorism, he suggested, has grown into an increasingly complex challenge due to the Chechnya peace accord signed in 1996. But a key reason that reforms are slow, he said, is "the largest geopolitical catastrophe of the 20th century" -- the 1991 collapse of the Soviet Union.

As far as the ordinary Russian was concerned, Putin was preaching to the choir. But his attempt to spread the blame fell on largely deaf ears in the business community. No one would disagree that Putin has faced an unenviable task from the day he accepted Yeltsin's offer to assume the presidency in 1999. Obviously, no one would try to hold him accountable for events before his time.

Rather, Putin's credibility gap is firmly rooted in what he has promised to do and what he has managed to deliver over the past five years. In a sign of how little credence investors gave his speech, the stock market did not move an inch --a compelling reversal from years past when it yo-yoed to his words.

In the speech, Putin took a broadly pro-business line that rightly called for legislation that would set in stone the areas open for foreign investment and for an amnesty on undeclared income aimed at bringing capital home.

Whether those reforms will see the light of day remains to be seen. But Putin did little to bolster his credibility by issuing a sharp reprimand to tax authorities, telling them that they had "no right to terrorize business."

Investors are all too aware that Putin has repeatedly refused to intervene in what some might call the biggest "terrorist" case of all, the back tax onslaught that tore apart Yukos. Putin has said he did not want to muddy a separation of powers between the branches of government.

More importantly, Putin promised to rein in the tax authorities during a March 24 meeting with business leaders -- and just days later, the tax authorities struck TNK-BP by hiking back tax claims against the company to nearly $1 billion.

So Putin's latest attempt to calm jitters about the tax authorities once again raises the question of what investors can expect from his promises -- a concern that Putin will have to satisfy if he is to convince them that they can take stock in his words.