The Lone, but Undefeated Soldier

The European edition of the Wall Street Journal today came out with an opinion article boasting the editorial's love for facts and historical as well as cultural research. Usually, I would blame such articles on the general political direction of a newspaper, but I could not find such support here. The background of the story was covered in an earlier post and relates to the Russian and Estonian dispute over the location of a memorial dedicated to the memory of Red Army soldiers who freed Estonia from Nazi occupation. The WSJ writes:

The Estonian government transferred the bronze statue of a Red Army soldier and exhumed remains of Soviet troops to a military cemetery near the capital. Estonians are generous to keep them at all. The Soviets annexed their country in 1940 and only let go 51 years later. France doesn't have a memorial to the Nazi occupation.

Indeed, France does not celebrate Nazi occupation. But is it a paradox that some Estonian citizens do; not without governmental support? On May 8, 2005, right before the May 9th Victory Day in Russia, and on VE day celebrated by the majority of EU members and the United States, Estonia unveiled a monument to the Wehrmacht soldiers and the 20th SS division who fought for the "freedom" of Estonia. The memorial was unveiled near a Memorial Complex to Soviet soldiers.

Just over a year later, on June 29, 2006, the North-Eastern Estonian city of Sinimae saw the erection of another monument dedicated to veterans of the Estonian (and Baltic) SS divisions. Despite protests by Russia's Jewish Community Federation to the European Union, Estonia saw no real sanctioning or serious warnings with regard to its actions. To top off the history of memorials commemorating SS members (note that there is a stark difference between being a regular Wehrmacht soldier and an SS division member), on numerous occasions Russian authorities have notified the European Union regarding annual marches of Estonian SS veterans celebrating the Nazi movement in the capital Tallinn.

Many historians would argue that Estonian nationals joined the Wehrmacht and SS divisions to free their country from Bloshevism and create an independent Baltic republic or Baltic states under the protectorate of Nazi Germany. Yet, looking through the Resettlement plans developed by Nazi Party officials before their Eastern campaign, the fate of the Baltic states, including Estonia, was to be incomparably worse than that which the Red Army brought along. Two thirds of the population were to be deported, while the remaining were to be exterminated within ten years. There are numerous document on the issue, but I cite the work of two Polish historians on the resettlement issue to clear myself of a bias toward a Russian interpretation of World War II events:

The Plan stipulated that there were to be different methods of treating particular nations and even particular groups within them. Attempts were even made to establish the basic criteria to be used in determining whether a given group lent itself to Germanization. <...>The Plan considered that there were a large number of such elements among the Baltic nations. Dr. Wetzel (author of Nazi resettlement plan - RTTT note) felt that thought should be given to a possible Germanization of the whole of the Estonian nation and a sizable proportion of the Latvians. Himmler's view was that almost the whole of the Lithuanian nation would have to be deported to the East. Whatever happened, Lithuania, Latvia and Estonia were to be deprived of their statehood, while their territories were to be included in the eastern area of German settlement. This meant that Latvia and especially Lithuania would be covered by the deportation plans, though in a somewhat milder form than the Slav - "voluntary" emigration to western Siberia.

Denial and revision of history in most cases leads to the development of ultra-nationalistic tendencies in society; the Germans have, to the great tragedy of the world, learned this in 1945. In a way, revisionism and denial of history took its toll on the Soviet Union. As I stipulated previously, it is up to Estonia to revise its own history, and erect, displace, and ultimately destroy monuments to anyone it wants. But its behavior must be noted by the European Union, in particular Germany, holding the EU presidency. The fact that Estonian shows of revisionism occur right around the Victory Day celebrations in Russia show the deliberation the Estonian government is showing in trying to mock Russia and its history.

Even if the small Bronze soldier monument will some day disappear, the story of the millions who gave their life to the altar of Nazi defeat will be remembered honorably by the majority of the World's citizens.

Video of the Week

One of the older, and thus better songs of the St. Petersburg Rock Bands - DDT. "Veter" (Wind)... Listen, Watch, Enjoy.

Financial Times - Russia 2007 (Key Points)

The Financial Times has recently come out with its annual report on Russia, focusing mostly on economic, business development issues, but keeping in mind the general macroeconomic factors, as well as the tendencies that are developing in Russia's foreign policy:

Yet, seven years into Vladimir Putin’s presidency, Russia is more than ever a country of two tendencies. Private business shows progressing dynamism, but ever more political and economic power is being concentrated in a small circle around the president, in a regime critics call increasingly authoritarian. That dichotomy, perhaps, underlies the debate over exactly what kind of Russia Mr Putin – who under the constitution must stand down next March – will leave behind.

The report lists a plethora of economic achievements that the Russian government has achieved in cooperation with its state-run enterprises. The economic boom requiring massive capital investments into new infrastructure will result in a doubling of fixed capital investment in 2010 to $357 billion, according to projections by the Finance Ministry. New private sector inflow in 2006 was $42 billion compared with $1 billion in 2005, and a $8 billion outflow in 2004 as a result of the YUKOS affair. On the government side, the oil stabilization fund has grown to $100 billion in just three years, and foreign exchange reserves have ballooned to over $350 billion; this was accompanied by a reduction of government debt to just 10% of GDP. Yet questions remain:

The authorities expect the budget surplus to fall from last year’s 7.5 per cent to around 3 per cent in 2007 and 0.5 per cent in 2008. While the government can easily finance the extra spending, the inflationary effects will be more difficult to control. Also, structural reforms remain slow. For example, the government intends to liberalise domestic energy prices but not until 2011.

The report notes that the changes for the better have come at a cost, and have been followed by an increasing desire of the current bureaucracy to stay in power with a strong belief that the changes must span four presidential terms. With regard to Mr. Putin's successor, the report goes on to say that there are other candidates beside Mr. Ivanov and Mr. Medvedev (see article on potential candidates):

“Mr Putin’s favourite style is to make it impossible for any expert to foresee his decision before it is announced,” says Nikolai Petrov of the Moscow Carnegie Centre, adding that a third name could well emerge.

The most frequently mooted third candidate is Dmitry Yakunin, head of Russian Railways. Mr Yakunin is, like the frontrunners, a trusted friend from Mr Putin’s time in St Petersburg. Russian Railways provides an independent powerbase as one of Russia’s most strategically important enterprises.

The issues that will dominate Russia's foreign policy are the ones that have already been introduced to us: Iran, Kosovo, the presence of US ABM systems in Europe, expansion of NATO in Ukraine and Georgia, and most importantly expansion of Russian businesses into Europe. With regard to the reasons behind the resurgent Russian appetite for dominating the global arena, the report notes that:

For the US, Russian concern is only one consideration among many. But for Russia, its relationship with the west is central to its view of itself and of its position in the world.

Many in Russia’s political elite still regret the loss of superpower status that followed the collapse of the Soviet empire. After political and economic dislocation in the 1990s, they think their country deserves renewed respect following its energy-powered recovery during this decade. Like President Putin they want an end to US “unilateralism” and a return to multilateral co-operation with full weight given to Russia’s views. They also want greater recognition of Russia’s role as a global energy power and its dominant political position in the former Soviet Union.

However, with the presidential election looming, Kremlin officials may need to respond to increasing nationalism. Konstantin Kosachev, Mr Margelov’s counterpart in the Duma, parliament’s lower house, said in a recent FT article: “Russian politicians’ room for manoeuvre will be limited. Most Russians are disappointed by what is happening in their region and the explanation most commonly heard is that Russia is too soft. Any politician who is not tough risks losing support.”

As for the Russian business environment, the FT predicts that with the overall oil market approaching saturation, and the overall growth in oil revenues seeing a slowdown, the industry that will see the next boom is the banking industry:

For international banks, Russia’s growing clout is impossible not to notice. M&A activity is fast expanding out of the oil industry and reached a record $71bn last year, with more than $11bn spent by Russian companies on foreign acquisitions, according to Ernst and Young.

A further surge is expected this year as state energy champions gobble up Yukos’ remains and Russia’s Aeroflot joins the hunt for a stake in Italy’s Alitalia. Electricity monopoly Unified Energy Systems is seeking to raise up to $15bn this year by selling stakes in its power generation companies to fund a mammoth upgrade of its clapped-out infrastructure. Bankers expect up to $30bn in Russian IPOs this year.

The past months have seen the return of the remaining Wall Street banks that had fled Russia after the 1998 Ruble crisis. Pending deregulation of the retail banking sector upon Russia's entry into the WTO coupled with the growing wealth of middle-class Russians opens up the vast opportunities for retail banking services in Russia. Yet as always problems remain:

The Central Bank says bad personal loans doubled last year to 2 per cent. But the real number could be higher. Rushing to secure a place in the booming market, some western banks are repeating the mistakes of the 1990s and cutting deals they would not normally do, bankers say. In an attempt to bolster positions, global investment banks are extending bridge loans to state-controlled companies at below market rates, while accepting minimal fees for the honour of organising IPOs. Western banks, including ABN Amro and Barclays, recently extended a $22bn loan to Rosneft at between 0.25 and 0.5 per cent above Libor. “Some of these deals make no economic sense,” says one Moscow banker. “You don’t want companies to have blank cheques for whatever they want to do.” Barclays say that the loans have quick maturity and therefore justify low rates.

But as the ruble steadily appreciates as a result of record capital inflows, the mushrooming debt of state-controlled companies is taking the place of the government debt of the 1990s, say economists, including former prime minister Yegor Gaidar. For some economists the growing debt could lead to a new need for a devaluation. “When the current account falls to zero, Russia is going to face significant new challenges,” Mr Aleksashenko says.

Finally, Russia's prime business, oil & gas development has seen much turmoil in the press recently. Starting with the YUKOS affair and recently continuing with Russian companies attempting to regain a fair share in oil & gas fields controlled by world energy giants such as Shell and BP (see article). In the report Igor Yurgens, of Bank Renaissance Capital notes that:

Some actions by the Russian state have damaged the country’s image – sometimes unnecessarily. The Yukos case was a tragedy which could have been tackled differently. But in the cases of Gazprom’s treatment of Ukraine and Belarus, or Royal Dutch-Shell and the Sakhalin-2 project, sometimes I think there is a cultural gap between Russia and the west. In the substance of most of those conflicts, I would say the Russians were right. But the way things were explained to the outside world was clumsy, and the behaviour sometimes appeared uncivilised. Gazprom is now hiring public relations experts, which shows they understand things need to be rectified.

Despite taking the right steps to secure control over its strategic resources, Russian state-controlled companies Gazprom and Rosneft, face significant operational and financial problems in the future:

The state’s undeniable voracity for new energy assets may still be held back by its own inefficiencies, analysts and bankers say. Debt levels at Rosneft and Gazprom are ballooning.

Most importantly, the Kremlin and state-controlled companies recognise they need foreign technology to develop complicated new provinces like the Arctic. But as with Gazprom’s snap decision last year to develop its vast Arctic Shtokman gas field alone, any foreign participation is likely only on Moscow’s terms. Foreign oil majors such as Norsk Hydro, ConocoPhilips and Total may be invited to take part in Shtokman only as contractors, Gazprom has said.

For the reasons stated above, Mr. Putin's economic adviser Arkadiy Dvorkovich, sees state ownership in the oil & gas industry slowly falling back over the years to come, through new equity issues, and co-operational development of new projects.

The entire report is available online at FT.com and is broken down into 12 parts, which includes an interview with the most likely candidate to succeed Mr. Putin so far, Mr. Ivanov (the interview was already mentioned in the blog in an earlier post)

Why Russia is so Upset about the ABM in Europe?

I am surprised that all of the principal English-speaking publications, as well as most of the Russian publications have forgotten the huge military concessions that Russia, under Putin made to the US in 2001-2004 to promote a greater cooperation between the two countries and to clear away all the cold war contradictions.

In 2002, Russia closed down its radio-tracking military complex in Lurdes, Cuba, and thus put an end to its 40 year military presence in the country, right next to its former arch-enemy. During its operation the base accounted for 80% of the total espionage information coming from the US to Russia. The complex had the ability to track information coming from most of the countries in the Western Hemisphere. The base was used by the Foreign Intelligence Service of Russia to connect with its operatives and to assure US compliance with the START I and START II treaties (Strategic Arms Reduction Treaties). The base cost Russia $200 million annually, and up until 2001, there were talks of significantly expanding the base. However, after the warm relations with Washington, Russia decided to close the base, due to the expensive financing (hardly valid at the time) and the base's little use. The decision was made without Cuban consent, and at the time Russia did not have the necessary capabilities to substitute the system with a global space satellite mechanism, which only this year has begun to be implemented. At the time, however, the US had in place such a system, and was rapidly developing it further. (primary sources: Nezavisimaya Gazeta (06.11.2001); BBC (27.01.2002) all sources in Russian)

In January 2001, Russia began to withdraw personnel form its eavesdropping post and naval base in Cam Rahn Bay in Vietnam. The base was originally leased to Russia for free, but those terms were to expire in 2004, after which Russia would have to pay $300 million a year. Under a pretext of high prices, as well as the unlikely appearance of the Russian navy in the Indian ocean, Russia began a haste withdrawal. At the time, it had been reported that China and the US were competing to sponsor their own base there for $500 million annually after Russian forces withdrew. (primary sources: Agentura.ru; Lenta.ru (02.05.2002) all sources in Russian)

In both cases, Russia was trying to convince the US to halt the development of its global ABM system, by stating that Russia's intentions were peaceful and involved further closer cooperation between the two sides. The strategy did not work, the US installed and began to test its first ABM outpost in Alaska in 2004, and is now engaged in a the dispute we are all seeing about its ABM system installment in Europe. It is highly inappropriate for the US to call out Russia for initiating Cold War tensions.

Estonian "Terror" or a Badly Organized Protest?

The events that have been unfolding in Estonia, highlight Russia's attempts to stir public opinion in Europe through the use of its youth groups, particularly the "Nashi" folks, and the local Estonian organization "Nochnoi Dozor" (Nightwatch); perhaps for the first time Russia is exporting its youth groups abroad. However, the way the protests were organized gives little reason to believe the protests will have any effect in Europe, and will certainly not position Estonian law enforcement agencies as repressive. The New York Times reported:

Police arrested 600 people and 96 were injured in a second night of clashes in Estonia's capital over the removal of a disputed World War Two Red Army monument, the police said on Saturday.

Russia has reacted furiously to the moving of the monument. On Saturday, it said police used excessive force to crack down on protesters and demanded Estonia investigate the death of a Russian citizen in the riots.

Despite the fact that Estonia's actions to move around the monument of the Soviet Soldier is undoubtedly its internal affair, and legally does not interfere with anyone, it is also clear that Germany has had the decency to separate Soviet memories from the memories of the soldiers of all races, and backgrounds who fought to free Europe from fascism, and thus has not taken action to remove monuments dedicated to Soviet Soldiers from the prime locations in and around Berlin. Such decency is depicted in the amount of money that the German government provides to keep intact the burial sites of Soviet soldiers in Germany; much more money than the Russian government usually dedicates to the graves of Soviet soldiers in Russia.

And finally, numerous times media reports in rural Russian villages show how very old veterans, their children still continue to preserve the graves of German soldiers who fought and died in the Soviet Union. No matter what the history of the country, no matter its suffering, it must have the decency to separate the state from its peoples, and the actions of the state from the beliefs of its people. Unfortunately, the officials and a lot of the citizens of the Baltic states and to a lesser extent Polish officials do not have this decency.

With regard to the actual protests, as a support to the local "Nochnoi Dozor" youth movement, Russia sent its pro-government youth group "Nashi", which has also been organizing massive protests around the Estonian consulate in Moscow. This was probably the right thing to do, especially since Estonia's population is 1/3 Russian, and strong links should exist. But, as usual with ex-Soviet republics using foreign non-violence tactics, they turned violent and followed with drunk rampage through stores, streets, and unfortunately by a death, which arose in a violent fight (most likely not inolving the Estonian police). Gazeta.ru in its covergae of the events reported that the protesters were throwing "rocks and glass bottles in the direction of the police" and later referring to the Moscow channel TV3 the youth protesters "emptied out two retail stores <...> one liquor store <...> and broke several glass windows in the City HQ building". So in reality, Estonian police really had all the pretexts to arrest over 600 people, and dissolve the demonstrations using usual equipment.

Despite Russia's attempts to use the arrests as a pretext to intenraionalise the issue, it will most likley have little support. The EU in the past has wanted little to do with sanctioning its Baltic members for indirect support of pro-fascist groups. The New York Times also reports that:

Russian President Vladimir Putin expressed his concern about removing the monument and the police crackdown on riots in a telephone conversation with German Chancellor Angela Merkel, who holds a rotating chairmanship in the European Union.

``In response, Merkel spoke in favor of finding a prompt solution to the situation and of both sides exercising restraint,'' a Kremlin press release said.

The issue has a lot of fun moments. Kommersant reports of Vladimir Zhirinovski, the leader of the LDPR party, a rag-tag group of nationalists and buffoons which always manages to get into the Lower Parliament of Russia, appearing at the rally by the Estonian consulate in Moscow. He threatened Estonia that "the Pskov Paratrooper division will be conducting military exercises close to Estonia's border, and will accidentally get lost in the woods. They will carry out a night of hell there". The always politically correct Mr. Zhirinovski is of course ramping up potential votes for his party.

Compressing the Spring

The US plans to deploy its ABM systems have dominated in the posts for this blog, and rightfully so. This week was filled with related events, threats, interviews regarding the ABM deployment. I firmly believe that this issue will be the dominant issue in the diplomatic classic East-West confrontation in the months to come; with Putin extremely determined to end his presidency with a firm assertion that Russia has the ability to protect its interests, no matter what.

On Monday Robert Gates during his visit to Moscow met with President Putin and other officials to discuss US plans to deploy the ABM complex, and most importantly to offer cooperation on this issue: a potential linking of Russian and US systems and the ability for Russia to initiate inspection checks to the newly-built facilities. These plans were publicly rejected by Russia's newly-appointed Minister of Defense Anatoliy Serdyukov and Mr. Ivanov (Russia's first-vice-premier). Russia continues to remain skeptical that Iran posesses any type of threat to Russia and to Europe. Similarly, the US, in the face of Ms. Rice has called Russia's concerns over plans to deploy the ABM systems as "ludicrous", the New York Times reported.

In his annual address to parliament, President Putin made it clear that Russia will respond immediately to US plans by withdrawing from the Adapted Conventional Armed Forces Treaty in Europe, which was based on an earlier treaty of 1990 during the dissolution of the Cold War and the Soviet Union. Russia's claims are that it is the only nation to have fully ratified the treaty and refuses to continue to fulfill its obligations unless other members (specifically NATO members) ratify it. NATO today has declared its surprise over such actions as it believes Russia was never fulfilling its promises under the treaty.

Because of numerous confusions in the press, it is important to go back and determine the realities of the treaties. An adapted copy of both treaties (1990) and (1999) can be found on the Arms Control Association Websites. The New York Times reports today that:

The agreement in question, the Treaty on Conventional Armed Forces in Europe, known by the initials C.F.E., was signed in 1990 by the N.A.T.O. nations and the nations of the former Warsaw Pact, including Russia. It required the reduction and relocation of much of the main battle equipment then located along the former east-west dividing line, including tanks, artillery pieces, armored vehicles and attack aircraft. It also established an inspection regime.

Under the treaty, more than 50,000 pieces of military equipment were converted or destroyed by 1995. With its initial ambitions largely achieved, it was renegotiated in 1999, adding a requirement that Russia withdraw its forces from Georgia and Moldova, two former Soviet republics where tensions and intrigue with Moscow run high.

The fact of "force withdrawal" remains very controversial. NATO members in 2002 had accepted that Russia fulfilled all of its requirements under the treaty, specifically regarding the fact of the withdrawal of TPE (treaty prohibited weapons) from Georgia and Moldova and other territories. Russia claims that its obligations essentially stop here, and a withdrawal of forces is a gesture of goodwill; NATO members claim that Russia made promises to withdraw its troops also. The treaty was originally signed to ensure the collective security of Europe and security from a "blitzkrieg-type" attack when one state would concentrate a large number of weapons on another's border. Thus, severe caps on TPEs were implemented (specifically tanks, jet fighters, light-armored vehicles, cannons, etc.) From this, troop presence would not be an issue to collective security, neither would the US ABM bases (a clear missile deterrent system).

In addition to the above, Russia's attempt to withdraw from the treaty is set to completely confuse all negotiating processes, as the treaty seems to be read differently in every country. With Russia having ratified it but slow on implementation, and NATO, having not ratified it accusing Russia of slow progress. Even before Russia's announcement, the Guardian reports that:

The Bush administration has this week been struggling to convince sceptical European partners that the missile shield is a good idea.

In an interview yesterday, Germany's deputy foreign minister, Gernot Erler, revealed that at least six allies, including Germany, raised doubts about the project at a Nato meeting last week — amid fears of another cold war on European soil.

The CFE treaty is not the first treaty Russia has threatened to withdraw from. Russian officials initially opened up their protests by suggesting likely withdrawal from the treaty limiting production of medium-range missiles. It is a paradox that both treaties are virtually outdated, with Russia and US scrapping their medium-range missiles, while six other countries still possess them. With regard to the CFE treaty, the militarization and force-withdrawals have mostly been achieved already, and Russia remains the beneficiary under the treaty due to its massive territory. While other countries had to scrap their weapons, Russia shifted its TPEs beyond the limit-free Urals in Siberia. Yet the treaties are highly symbolic and are the essential foundations of collective security in the post Cold War period.

The Financial Times in its editorial reports that, the US was the first country that began breaking such treaties, through its 2001 unilateral withdrawal from the ABM treaty:

However, Thursday’s decision is strategically important because it signals Russia’s growing readiness to tear up the post-1990 diplomatic order. Moscow believes today’s strong Russia can revisit the deals done in the 1990s by a weak Russia. The Kremlin also argues the US has repeatedly acted unilaterally, including over Iraq and over recent plans for Czech and Polish missile defence bases. If the US can set aside bilateral or multilateral pacts, says Moscow, so can Russia.

These developments take the world into perilous waters. While there is no open ideological conflict between east and west, there are deep differences over democracy and the rule of law. It will be dangerous if these disputes prevent Russia, the European Union and the US co-operating on matters of mutual interest, including energy, the war against terrorism and nuclear non-proliferation.

The US is entitled to look after its own security. But it must accept security is often easier to build in partnership with others than alone. America, not Russia, was the first to pull out of a cold war arms pact when in 2001 it abandoned the 1972 Anti-Ballistic Missile Treaty. Washington’s recent effort to explain its missile defence plans to sceptical European states, including Russia, is long overdue.

Russia is behaving irresponsible in a diplomatic sense and is severely threatening collective security in Europe. But the US is doing the same, yet indirectly. Analysts have rightly pointed out that withdrawal from both treaties will make Russia's position worse: it has barely the right capital to finance development and deployment of medium-range ballistic missiles, and to engage in a large-scale rearmament of its European part. These capabilities are dwarfed by 10 times by the US military budget. But clearly Russia has no choice. Its policy of countering NATO's dominance must start now, at a time when relations are moderately cool. The fact of no ideological difference between the East and the Wets means no serious threat to confrontation will occur. Yet, it is worrisome if Russia and the US scrap its commitments to security in Europe, especially given the experience of the 20th century . We are living in a different world, but relations among countries sour easily, and alliances and counter-alliances form just as fast.

The end goal of its diplomatic game is not to scrap its commitment to European security, but to make the rest of Europe aware that such issues as the ABM deployment if pushed unilaterally by the US without NATO approval could bring instability. Yet, the threats that Russia has made show that it is engaged in almost full-scale bluff, the US knows and understands this, Germany understands this even better. This poker game is very long, and the stakes may rise with every day, unless serious negotiations start soon, Russia will turn its bluff into serious actions. If treaty withdrawal will occur, there is a marginal prospect of US rearmament in Europe, quite an unhappy prospect.

Oleg Deripaska's Expansion

Russian businessmen continue their foreign expansion. As reported in an earlier post Russian oligarchs have been increasingly looking abroad for a variety of reasons; from pursuing investments of similar business companies to increase the capacities of their key businesses in Russia to a simple buyout of exotic investments. Kommersant reports that Oleg Deripaska, the owner of Basel (Bazoviy Element) has amassed a 30% stake worth EUR 1.2 billion in Strabag, an Austrian construction player with areas of business in key international markets. Strabag's Russian businesses include the construction of the new "Moskva" hotel, the North tower of "Moskva-Citi", as well as being one of the front-runners in the competition to construct Gazprom's St. Petersburg headquarters. Basel achieves two key goals through this strategy: one - grabbing a big stake in the Russian construction market, and two - getting the ability to expand in the international construction markets.

Final Words on Yeltsin

Boris Yeltsin's funeral in Moscow today has shown how much he has achieved for Russia and for the rest of the world. Despite the serious mistakes in leadership, his contribution can be measured by simply looking at the variety of those that attended the funeral. Most of them owed much to Yeltsin, and for most of them the death of Yeltsin became a uniting factor, a reconciliation of previous disputes and differences.

Mikhail Kasyanov and Vladimir Putin, now bitter opponents since the opposition of the former to the Kremlin through membership in the "Other Russia" were all seen expressing their deepest condolences, with Mr. Kasyanov visibly in tears. Ukrainian prime-minister Viktor Yanukovich, Belorussian President Lukashenko, former UK premier John Major, two former US presidents George H.W. Bush and Bill Clinton, the latter giving a hug to Yeltsin's wife Naina as if they were members of a family. All of Russia's dominant political parties, except for the Communists, were represented no matter how big their difference were with Yeltsin's presidency. They knew very well that they owed their existence as parties to Yeltsin.

Despite criticisms in the Russian and Western press that Putin did not express publicly his gratitude to Boris Yeltsin, to whom he owed his present position, it is clear that Mr. Putin did a lot to highlight in the most positive light the first Russian president's achievements and heroism. The unprecedented funeral procession followed by a similarly unprecedented media coverage all served to finish Boris Yeltsin's legacy with a bright, down to earth, honorable period, and to forever preserve his name in history as the person who brought Russia democracy. No matter what the cost, as is usual in Russia's "achievements". President Putin did what he had to do.

Foreign Policy Issues for the Coming Months

The key issues that will dominate Russia's foreign relations agenda are the approaching EU-Russia summit and the continuing negotiations on Kosovo's independence. Both issues appear to be in various degrees of gridlock.

Russia continues to oppose the plan of Marti Ahtisaari that virtually does not account for the opinion of Serbia on the issue of independence of its province, Kosovo. Russia insists that resolution 1244 regarding Kosovo, in particular the guarantees it must provide to the Serbian minority such as an opportunity to safely return to their homes, has not been implemented fully. In recent Security Council hearings, the majority of the Western partners have supported the notion that resolution 1244 has been satisfied and the situation in Kosovo has improved. Yet, Russia has go as far as saying any attempts by the US to force a vote on Kosovo's independence in the Security Council will see a Russian veto, a sign that negotiations will drag longer. The UN Security Council has sent a commission into Kosovo to investigate in detail the situation. The outlook for a successful resolution of the Kosovo issue in the near months is unlikely.

With regard to the EU, Kommersant reports that:

EU Trade Commissioner Peter Mandelson set a grim tone three days before the talks in Luxembourg by saying that EU-Russia relations were at their lowest point since the Cold War. Russian Foreign Minister Sergey Lavrov and his counterparts in the EU had to play down this pessimistic rhetoric.

European Union officials said on Monday they hoped to resolve a dispute holding up a partnership agreement with Russia before a summit next month.

After new talks with in Luxembourg, Russia stressed its desire to conclude the new pact to cover energy, trade, economic cooperation and human rights.

EU foreign policy chief Javier Solana said after the talks that the parties had reached some progress in settling the dispute, but there was still a lot to be done.

Russia To Start Investing its Fund in Higher-Yield Investments

After a long waiting period and continuous urging of key Russian and Western economists, Russia has finally taken a step toward an active management of its stabilization fund, which has amassed over $100 billion in windfall oil revenues since its inception three years ago. The Financial Times reports:

A reserve fund will be kept at 10 per cent of gross domestic product – enough to support budget spending for three years even if oil prices were to halve. Any surplus after using a set portion of energy revenues for budget spending will go into a “future generations” fund for longer-term projects.

The reserve fund is projected to hold about $142bn and the future fund $24bn when the divide occurs next February, and both could continue to grow rapidly if energy prices remain high.

Mr Kudrin told the Financial Times the reserve fund would be invested in a conservative portfolio of government bonds – as the stabilisation fund is now. But the other fund could invest in higher risk assets, aimed at maximising returns.

“There we will have corporate shares from various sectors, including oil and gas, so we will have a bigger income,” Mr Kudrin said, adding that the money could eventually buy assets such as real estate.

He suggested Russian or western fund managers could be appointed to manage the fund – a contract likely to attract vigorous competition.

The plan demonstrates the turnround in Russian public finances, fuelled by record energy prices, since its 1998 crisis. Russia has built gold and foreign exchange reserves of $356bn – the world’s third biggest – in addition to its petrodollars fund.

Russia has been often criticized for sitting on a big chunk of money, while the growth in its economy was slowing down. Some economists still argue that the amassed capital in the fund should be invested into domestic projects, at a much higher rate than the current investment pace of the "National Project" program. Russia's still underdeveloped infrastructure, and most importantly underdeveloped community areas would potentially profit from such investments. Yet Russia has understandably avoided such an approach. The "vertical of power" that Putin has been constructing still fails to ensure a fast and accurate implementation of government initiatives. Middle-level corruption takes an even bigger toll. The government is afraid that the amassed investments will dwindle rapidly if such capital expenditures are undertaken.

At least the investment of the fund into higher-yielding securities will generate some additional revenue for to ensure a future balance in the budget, but the problem of capital underinvestment in the economy still remains

President Putin on Boris Yeltsin's Passing

Boris Nikolaevich Yeltsin, the first President of Russia, has passed away. His presidency has inscribed him forever in Russian and in world history.

A person who began a new era has passed away. A new democratic Russia was born during his time: a free, open and peaceful country. A state in which the power truly does belong to the people.

The first President of Russia’s strength consisted in the mass support of Russian citizens for his ideas and aspirations. Thanks to the will and direct initiative of President Boris Yeltsin a new constitution, one which declared human rights a supreme value, was adopted. It gave people the opportunity to freely express their thoughts, to freely choose power in Russia, to realise their creative and entrepreneurial plans. This Constitution permitted us to begin building a truly effective Federation.

We knew Boris Nikolayevich as a brave and a warm-hearted, spiritual person. He was an upstanding and courageous national leader. And he was always very honest and frank while defending his position.

Boris Yeltsin assumed full responsibility for everything he was called to take on, for everything he aspired to. For everything he tried to do and did do for the sake of Russia, for the sake of millions of Russians. And he invariably took upon himself all the trials and tribulations of Russia, peoples’ difficulties and problems.

And today I would like to express my most sincere and profound condolences to Naina Iosifovna and to Boris Nikolayevich’s friends and relatives.

We grieve with you. We will do everything to ensure that the memory of Boris Nikolayevich Yeltsin, his noble thoughts and his words “take care of Russia” will always act as our moral and political watchwords.

I declare 25 April 2007 a day of national mourning.

Boris Yeltsin Remembered through Photos

Boris Yeltsin Late 1980-s

On top of a tank during the "Putsch" of August 1991

In the White House (Moscow) during the August 1991 "Putsch"

Late 1980-s

With George Bush Senior

With German Chancellor Helmut Kohl

Good Times with Bill Clinton

During the election campaign of 1996

With Yasser Arafat

At the Davis Cup Final

Photos are courtesy of Gazeta.Ru (the original source is not available)

Putin's Legacy in the Face of Yeltsin's Death

Kommersant, one of the most influential Russian newspapers reporting on Boris Yeltsin's legacy has contrasted it with that of President Putin:

Vladimir Putin in his seven years as president has proved that a return to the past is possible: nationwide elections of governors were cancelled, rules of elections into the Lower House of Parliament were tightened, many rights of ordinary Russians were limited, practically all media networks were transferred to the government. Many opposition leaders believe Yeltsin's appointment of Vladimir Putin as his successor was the biggest mistake of the first president. But Boris Yeltsin has never admitted this. At least publicly.

This is one of the biggest open criticisms of President Putin in the media (outside of opposition newspapers and radio stations) thus far. Kommersant's Kremlin correspondent Andrey Kolesnikov wrote that Vladimir Putin should be held accountable for the liberties that Boris Yeltsin created that were later diminished.

Boris Yeltsin's Legacy

Boris Yeltsin was a man who tried to steer the rusting and almost broken country known as Russia onto a path of democracy. He gave the country the liberties it desired, but along with it his presidency was dominated by massive economic chaos, brutal use of force, and almost complete disregard for Russia's ordinary citizens. Mr. Yeltsin was a highly controversial figure: the extent to which he participated in Russia's downfall in the 1990-s is debatable and has no definite answer. Was it Mr. Gorbachev who wrongfully implemented the glasnost reforms, or was the destruction done before, with the giant Soviet Union moving to the end of the cliff, and Mr. Yeltsin taking the driving seat at the point of freefall?

Without a doubt Mr. Yeltsin was at his best in times of deep trouble. He was unbeatable at political sturuggles, playing off his opponents as if in a chess match. It is a miracle he managed to stay in power for almost ten years with the support for him largely gone after the 1994 Chechen crisis.

The Economist argues in its Obituary on Mr. Yeltsin that the:

reforms worked. Russia has a booming consumer-goods market. The robber barons were a lot better than the “red directors” they replaced, whose thinking and loyalties were still rooted in the Communist-run planned economy."

Yet it also admits that:

If the economic reforms now look better than they seemed at the time, his political failures look worse. Shelling Russia’s parliament in 1993, supposedly to dislodge Communist and other hardline deputies who had seized control there, reintroduced the virus of violence into Russian political life. So did the shameful Chechen war of 1994-96, which unleashed the might of the Russian war machine on the small breakaway republic. His rigged victory over the Communist Gennady Zyuganov in the 1996 presidential election spawned a habit of official vote-rigging that has largely destroyed the credibility of Russian elections.

His mistakes were greatest when prompted by his family and their cronies. While keeping the old man topped up with vodka, they hijacked Russia’s political and economic destiny, enriching themselves and discrediting both democracy and capitalism in the eyes of millions of outraged and contemptuous citizens.

Though I believe the economic reforms implemented by the "Chicago Boys" in 1991 under leadership of Yegor Gaidar were flawed from the start, they may have been the only ones. The privatization schemes, and the creation of an oligarchy whose fights spilled into the free press, which they controlled would ultimately bring disbelief among the many Russians about the way freedom was given to them. This is why the fall of an "independent" NTV channel in 2000-2001 was followed by minuscule protests and complaints by the people. This is why the major oligarch of Yeltsin's time Mr. Khodorkovskiy spends his time in jail, with the majority of the population more happy about it than not. This is why so many misalignments have occurred between the view of Russians on democracy and the view of the West on Democracy in Russia. And this may be the reason that Russia has an almost all powerful desire to become a dominant empire again.

The question that stands now is what will be the official statement coming from President Putin, how will the death of Mr. Yeltsin be portrayed in the Russian media, and on what scale will the funeral be held for Russia's first president? Will the secret agreement that many believe is in place between the Yeltsin family and the Kremlin of non-interference into each other's relations be changed? These are questions that will be answered in the current weeks.

Doing Business in Russia and Russians doing Business Abroad

This week's issue of BusinessWeek carries two interesting articles on Russia's internal and external business environment. In "The Kremlin's Big Squeeze" BW talks of BP's struggles and major successes in the Russian market through the TNK-BP joint venture, as well as the looming desire of Gazprom to take a stake (majority or minority) in the $31.3 billion in revenue and $6.7 billion in net income business that provides 25% of BP's commodity output. The question is whether Gazprom will get in at the expense of BP or TNK, or both:

The question is what TNK-BP might be able to get for its stake. Speculation in the market ranges from cash to asset swaps to partnerships in other energy projects with Gazprom. If the terms are acceptable to BP and its Russian partners, development at Kovykta might pick up speed. Company officials say it would cost $20 billion to develop the field and build pipelines. But that wouldn't be profitable without exports—most likely to China and South Korea—which could be permitted if Gazprom were on board.

A deal with Gazprom on Kovykta may not solve all of TNK-BP's problems. Some figure that pressure on the company will continue until Gazprom gets a big stake in the entire venture, not just the Kovykta field. Gazprom last year declared its interest in buying out BP's Russian partners, which could happen after the end of 2007, when the joint venture agreement allows for changes in the company's share structure.

Would BP want to work that closely with Gazprom? It might mean ceding some strategic decisions to Gazprom's management, which has close ties to the Kremlin. Still, BP shows no signs of losing interest in Russia. The company has a minority stake in a venture with state oil giant Rosneft to drill for crude on Sakhalin Island. And last year BP acquired 35 new operating licenses in the country and plowed $1.25 billion into TNK-BP. This year it's likely to invest about that much again.

Despite the tension over Kovykta, BP has tried hard to maintain good relations with Moscow. It snapped up $1 billion in Rosneft shares last year when the Kremlin canvassed support for the company's initial public offering in London. And by bidding in a controversial March auction of assets of bankrupt oil company Yukos, it helped legitimize their sale to Rosneft. That may be the price for global oil companies that want to do business in Putin's Russia.

Note: the Kovytka field is a recent addition to Russia's oil/gas reserves boasting 1.9 trillion cubic meters in reserves.

In another article, titled "Rubles Across Russia", BW talks about the very hungry Russian companies that have signed up for $13 billion dollars of M&A deals in 2006 out-of-Russia, and originally attempted to participate in over $70 billion of such deals. The key highlights are Vneshtorgbank's acquisition of a 5% in European Airbus owner EADS, the $2.3 billion acquisition of Oregon Steel Mills by Evraz Inc, and the recently announced collaboration between Unicredit and Aeroflot to bid for Italian flagship air-carrier Alitalia:

Russian money, though, doesn't always get a warm welcome. Gas giant Gazprom (OGZPY) sparked a media furor in Britain last year when it said it might bid for Centrica PLC, Britain's No. 1 gas supplier. Russian companies lost international deals worth $50 billion in 2006, in part because of political attitudes, Foreign Minister Sergei Lavrov told a meeting of business leaders in Moscow in February. As a result, Gazprom and others have hired Western public-relations consultants to polish their image.

Despite such obstacles, there's little doubt the Russian acquisition trend will intensify. Many big Russian companies see expansion into international markets as a necessary step in their development. Energy and metals groups want to move beyond raw materials into higher-profit areas such as refining and manufacturing. Steelmaker Evraz, controlled by tycoons Roman Abramovich and Alexander Abramov, is rumored to be considering a bid for Ipsco Inc. (IPS), a pipemaker in Illinois. (Evraz had no comment.) Russia's telecommunications companies are on the prowl, too. Altimo, a holding company that owns mobile-phone operator VimpelCom, has taken out a $1.5 billion loan to fund acquisitions in India, Indonesia, and Vietnam. "The saturation of the market means we are looking beyond Russia's borders," says Altimo Vice-President Kirill Babaev. These days, any such deal should come as no surprise.

Russian Art Auctions in New York

As a break from politics, Monday's Kommersant reports of Russian art auctions in Christie's and Sotheby's auction houses in New York. The two renowned auction houses sold over $70 million dollars worth of paintings ($50mln for Sotheby's and $20 for Christie's). The painting that was expected to yield the most cash was Vasili Vershagin's "Solomon's Wall" fetched $3.6 million from an unnamed Russian collector. The painting was first acquired by a wealthy American businessman and senator, George Hearst.

However, Sotheby's struck gold with its $4.3 million sale of Mikhail Nesterov's "Vision of St. Sergius When a Child" (pictured below). Reuters also reports that this third-annual Russian art sale for Sotheby's follows "in the footsteps of last year's sale, which sold for a record-breaking $46.7 million in Russian art in New York".

Analyze This!

The saddest part of the story that happened during the two “Other Russia” demonstrations in Moscow and St. Petersburg is the realization that Russia has, is, and most likely will have an image problem in foreign press. The Economist has been comparing Russia’s OMON-style demonstration dispersement to Robert Mugabe’s efforts in Zimbabwe.

It is clearly no longer a case of misunderstanding on the part of the foreign press. One can blame the disdain for Russia’s external policies on the aspect of a “resurging empire” syndrome. However, such logic fails when Russian internal events are being hammered in influential newspapers.

Russia’s internal policies have not brought much positive adjustments to Russia’s image abroad. There is no real need felt in the Kremlin that the image should be improved; investments are flying at a high pace, key European leaders are listening in to Russia’s opinion on key global issues, so is the US. However, Russia is exploiting its current “buzz” status. It may exploit it to a point when the West develops a solid unifying position on Russia, and the Kremlin would be pushed in a corner; from there on history will continue to repeat itself.

Russia has a very clear duty of ensuring that its internal actions be monitored with a positive attitude in the foreign press. This must be done not for the sake of “reporting to a vassal”, but for the sake of promoting a “goodwill” image, the image that will serve Russia well in the future. Goodwill garners respect on the international arena; so do commodities and other “fixed” assets of a country some might say. True, but when these resources are used to resolve conflicting situations, they usually result in a “win-lose” scenario. Creating a “win-win” scenario in the press requires a country’s solid reputation based on its goodwill intentions.

It is perfectly fine for Russia’s MPs to complain and demand that the US not interfere into Russia’s internal affairs, by attempting to sponsor NGOs and support some sort of a liberal rag-tag opposition group. However, this will not mean that Russia’s efforts internally will not be analyzed and highly scrutinized externally. If not the US government, a publication in the Economist, or the New York Times does just as much damage. Damage to the flow of investments, damage to the multi-billion dollar corporations that are tied to Kremlin Inc, damage to the way millions of Russians are viewed when they visit foreign countries, damage to the effectiveness of Russia’s attempts to regain a prominent position in future global decision-making processes.

There is no getting away from the fact that before making the decision the Russian administration made on its actions against “Other Russia” it should have scrutinized how those actions will impact Russia’s future.

Weekend Video

A video clip to brighten up your day. Laypis Trubetskoy view of the globe, and a very accurate too. Great music too. Enjoy:

Dangerous Tendencies

The Financial Times has caught on to the news of the Russian Economic Forum in London that has been actively losing its key guests:

Senior Russian business leaders and officials have abruptly pulled out of a premier Russian investment conference starting in London on Monday under what some participants said were Kremlin instructions, amid a chill in UK-Russian relations.

The 10-year-old Russian Economic Forum has long been a must for Russian oligarchs and ministers to woo London’s investment community – and a key social event for the Russian business world.

Senior Russian attendance has waned in the past two years, partly as the Kremlin sought to build up a Russian-based conference, the St Petersburg Economic Forum, in June. But this year has seen unparalleled last-minute pull-outs by company chiefs, including Alexander Medvedev of Gazprom, Sergei Bogdanchikov of state oil company Rosneft, Pyotr Aven of Alfa Bank, and Vladimir Yevtushenkov of the Sistema conglomerate.

Officials including Arkady Dvorkovich, president Vladimir Putin’s economic adviser, and Kirill Androsov, a deputy economy minister, also withdrew, and the finance ministry will not be represented.

Alexander Shokhin, head of Russia’s main business lobby, said he decided on Friday not to attend because the “forum’s efficiency has fallen”.

This is becoming a dangerous tendency stemming from the direct links of key Russian businesses to the Kremlin. What we may see in the future is a decreasing trend of state-linked companies raising capital in London (an unsustainable tendency in the long-run). Whenever government has the ability to exercise immediate control over half of its economy one must worry on the economic impact of such activities on the bottom line of Gazprom, Rosneft, TNK-BP, and others.

Update: The New York TImes on US ABM in Europe

In Friday's issue, the New York Times discusses the plans of the US to engage in closer talks with Russia about a linking of US and Russian ABM systems in the future:

The package includes American offers to cooperate on developing defense technology and to share intelligence about common threats, as well as to permit Russian officials to inspect the future missile bases.

American officials said the initiatives were proposed at least in part at the urging of European allies, and reflected an acknowledgment at the highest levels of the Bush administration that it had not been agile in dealing with Russia — and with some NATO allies — on its plan to place defensive missiles and radar in Poland and the Czech Republic.

The offers of cooperation will be laid out for Russian officials in the coming weeks in a series of high-level meetings being scheduled by senior American officials, in particular Defense Secretary Robert M. Gates and Secretary of State Condoleezza Rice. If those talks go well, they will continue over the summer and fall between President Bush and President Vladimir V. Putin.

However the New York Times continues to note the ultimate reasons behind Polish and Czech motivation to so readily accept the systems on their territory:

The missile defense proposals for central Europe also have become a proxy issue for Russian officials who still rankle at American and NATO expansion east after the collapse of the Soviet Union.

Yet even among some officials in Poland and the Czech Republic, support for the two missile defense bases has more to do with binding the United States closer to their capitals against a future Russian threat than about deterring a future Iranian missile threat.

American officials have not announced the timetable for the coming talks. But in Moscow, Igor Ivanov, the secretary of Russia’s Security Council, said that Mr. Gates was due there for Kremlin meetings on Monday and that Ms. Rice would visit in May.

It is also clear that the US initially played on Polish and Czech wishes when choosing th location of the system. The US places its ABM system not where it would most likely yield the best "defensive" results from the start: the system will not be able to protect new EU members, such as Romania and Bulgaria, and long-term partners of NATO and the EU - Belgium (it is a paradox that NATO headquarters are located in Brussels).

It is far-fetched that Russia will follow the US's attempt to further promote its system which traces its start from a call Mr. Bush made to Mr. Putin several weeks ago. Russia has no threats that would be deterred by the US ABM system, the US undoubtedly has. And with all honesty, Poland and the Czech Republic do not share those threats.

The US is acting accordingly in building up credibility for its system by attempting to explore all the options on the table. If it continues to do so, then it will most likely accomplish its task. It is also evident that Russia is succeeding at its favorite game of all-out bluff by threatening to start burning bridges with Europe and the US. It is very difficult for the US State Department to discern what is really the opinion of the Kremlin and how far it is likely to go. The approaching presidential elections are being followed by an aggressive anti-American campaign in the media. Add on top of that Iran, where Russia's true position continues to balance on the wire between pure-play business interests and the real pursuit of building an Iran-Syrian foundation in the region, and the situation become too darn confusing.

The US must be extremely careful. Such issues have the ability to bring outrage in the eyes of key Russian MPs and most importantly key Kremlin administration officials. As for Russia, its only hope is to continue to stir the feelings of the Europeans, who have been placed in the very uncomfortable position of mediator. German social-democrats and a possible victory of Ms. Royal in France could add more eggs in Russia's basket when negotiating with the US on the issue. It is clear, however, that the US ABM question will be active for the next six months at least, thanks to Russia's diplomatic strategy.

Update

UPDATE: the post titled "US ABM Update : Patriot Missiles Again?" contained a misstatement. I misinterpreted the Patriot Missile to be an offensive weapon, it is not so; Patriot systems are analogues of the S-300, also ABM systems. I bring my apologies. The citations coming from the Financial Times and some other commentaries, however, remain intact.

My apologies.

Russian Economic Forum in London Losing its Guests

In Friday's newspaper, Kommersant reports that the annual Russian Economic Forum in London, which was expected to be attended by a record number of governmental-linked company executives as well as Kremlin administration members, and government members has lost the majority of those guests. The most likely reason that Kommersant cites is the apparent notice "from above" to focus attention from London to the annual St. Petersburg Economic Forum on Russian investment. Members not attending include the head of Gazprom Export, head of Vnesh Ekonom Bank, as well as Arkadiy Dvorkovich, the deputy Economic Development minister.

Kommersant also states that the simple desire to shift such forums to Russia is a subsidiary motivation; the key is the rapidly cooling diplomatic relations between Russia and Great Britain over actions the British side is taking regarding Mr. Berezovskiy; the exiled Russian tycoon who recently stirred worldwide press by claiming to organize an internal coup in Putin's government.

French Candidates Make their Final Appeals

International Herald Tribune reports:

In the southwest city of Toulouse, Ségolène Royal, the Socialist candidate, addressed about 17,000 supporters three days before the first round, vowing to usher in a 21st century-style socialism and exhorting voters to propel her into the runoff.

She called for a "massive mobilization" to avoid a repeat of the party's 2002 humiliation when the Socialists were eliminated in the first round by Jean-Marie Le Pen of the National Front.

Lashing out at her main rival, Nicolas Sarkozy, she declared to wild cheers: "We will not go down on our knees before George Bush," adding that "in Europe we will defend the emergence of a multipolar world."

Without naming Sarkozy, she said, "His program is him, my program is you."

That's my girl!

Financial Times' list of Russian Presidential Candidates

The Financial Times publishes the most extensive list that has appeared in foreign press of candidates that could potentially succeed Mr. Putin. Apart from Mr. Ivanov, Russia's former defense minister and current first vice-premier, the candidates are as follows:

VLADIMIR YAKUNIN, 58

Head of Russian Railways and a close confidante of Vladimir Putin from his St Petersburg administration days. Spent time as a diplomat, prompting speculation that he had KGB links. Not associated with the siloviki or the liberal group in the Kremlin, and has an independent power base in Russian Railways, one of Russia's most strategically important enterprises.

SERGEI CHEMEZOV, 54

General director of Rosoboronexport, the arms export monopoly. Served as a company representative in the 1980s in Dresden, East Germany, where he told an interviewer he lived in the same apartment block as Mr Putin. Has a power base in Rosoboronexport, which has taken control of the massive Avtovaz, maker of Lada cars.

SERGEI NARYSHKIN, 52

Deputy prime minister (since February 2007) responsible for external economic activity. Another Leningrader who got to know Mr Putin in the city mayor's office. Regarded as highly competent and close to the Kremlin siloviki. Mr Naryshkin's recent promotion sparked speculation that he could emerge from the shadows as
Mr Putin did in 1999.

VLADIMIR PUTIN, 54

Despite Mr Putin's consistent denials that he might seek a third term, the idea refuses to die; the speaker of Russia's upper parliament house called again last month for constitutional change to allow him to run. Has promised to retain "influence" after stepping down - and has never ruled out the theoretical possibility of returning as president in 2012.
Joint favourite comes from a rival clan in the Kremlin

DMITRY MEDVEDEV, 41

Mr Medvedev is both first deputy prime minister responsible for Russia's "national projects" - multi-billion-dollar social investment programmes - and chairman of Gazprom, the gas monopoly. He is seen as associated with a liberal Kremlin faction.
Like many around the president, he was born in Leningrad - and studied law, like Vladimir Putin, at Leningrad State University. He got to know Mr Putin as a legal adviser in the St Petersburg administration in the 1990s. Previously Mr Putin's Kremlin chief of staff, he was handed the national projects dossier in November 2005 - a potential vote-winner that could turn out to be a poisoned chalice if the projects fail to deliver.

So far there is more probability of either Mr. Ivanov or Mr. Yakunin to head the state after 2008, with Mr. Medvedev taking the Prime-Minister's spot. However, undoubtedly, the men listed by the Financial Times will be the ruling elite of the Kremlin in 2008-onward.