Putin’s Musical Chairs of Corruption

You no doubt have seen and maybe read many pieces dissecting Putin’s moves on the Kremlin and military leaders.  I am not sure anyone not from Russia can really know all the motivations behind the many moves.

However, Anders Aslund the chairman of the U.S.-Ukraine Foundation’s Friends of Ukraine Network (FOUN) Task Force on Reimagining, Reconstruction, and Recovery of Ukraine has an opinion piece in the Kyiv Post defines the corruption and nepotism of Putin’s moves.

Sounds about right to me.

Kyiv Post

OPINION: Russian Government Changes: More Corruption and Nepotism

Putin says he wants to decrease corruption to increase military effectiveness but really is redirecting the proceeds to himself and his cronies while preferring endless– and profitable – war.

By Anders Aslund

May 19, 2024, 10:49 am

A dominant idea in the many comments about the government changes in Russia is that Putin wants to render the military more efficient by reducing corruption. But is that really the case? I would rather suggest that Putin wants to redistribute the rents from corruption to himself and his closest friends and reinforce competition among nepotistic elites. He has shown no interest in ending the war but seems to prefer eternal war. My main guides are Vladimir Milov and Meduza.

Vladimir Milov‘s analysis starts with Putin’s actual objectives. He is a kleptocrat and a dictator, having indicated no desire for any succession. He is not interested in reducing corruption, but he wants to steer its fruits to him and his cronies. Since 2004, Putin and his cronies Gennady Timchenko, Arkady and Boris Rotenberg, and Yuri Kovalchuk have lived on Gazprom money. My late friend Boris Nemtsov and Milov assessed that they embezzled a total of $60 Billion during the four years 2004-7, mainly through no-bid public procurement and asset stripping. Their revelation sank the Russian stock market in 2008.

An excellent Sberbank analysis from 2018 showed that the Putin group continued tapping Gazprom on about $15 billion a year. But Putin has stopped that boondoggle based on overpriced exports to Europe, by cutting Gazprom’s exports of gas to Europe from 153 billion cubic meters in 2021 to merely 30 billion cubic meters in 2023. As a consequence, Gazprom made a net loss of $6.8 billion in 2023. The whole Putin larceny scheme has suddenly ended. What will Putin steal now?

Milov offers the obvious answer: arms procurement. On Saturday May 11, Putin received his old friend from the KGB in Dresden in the 1980s, Sergei Chemezov, whom he has made chief executive of the all-dominant state-owned armaments company Rostec. Chemezov arrived with his adept, long-time minister Denis Manturov, who was promoted to First Deputy Prime Minister for the economy the next day. Note that Prime Minister Mikhail Mishustin was not invited to this important meeting.

Milov explains that 70 percent of the expenditures of the Defense Ministry is arms procurement, half of which is controlled by the non-transparent giant Rostec; 20 percent is salaries, leaving a maximum 10 percent for discretionary expenditures. Russian military expenditures have skyrocketed. Officially, they amount to $120 billion, but 30 percent of the Russian budget expenditures are classified, so Martin Kragh has assessed that they are probably not 7 percent of GDP but 10 percent of GDP, about $160 billion. Nothing in Russia is more secret than arms procurement, which allows the Putin circle to extract big money. Presumably, Putin will let arms procurement replace Gazprom for his personal enrichment.

Putin does not appear to have all that involved in arms procurement previously, so his novel business orientation required a change of guard at the Defense Ministry to contain the undesired larceny of former Defense Minister Sergei Shoigu. Navalny’s Anti-Corruption Foundation made one outstanding film about the stunning corruption of Shoigu and another about his blatantly corrupt deputy Timur Ivanov. The FSB appears to be cleaning out the top military cadres that stole more than they were supposed to.

I knew Russia’s new Defense Minister Andrei Belousov quite well in the 1990s and early 2000s. He belonged to the circle of liberal economists around late Professor Yevgeny Yasin at the Higher School of Economics, which also included Elvira Nabiullina, but he was always the most Soviet among them, though soft-spoken, cautious and courteous, focusing on politically neutral forecasting. I knew also his father Rem (=Revolution+Engels+Marx) Belousov, who was a conservative Marxist Leninist Professor of Economics at the Academy of Sciences and Andrei was a very loyal son.

Belousov is no strongman. It is inconceivable that soft Belousov, who lacks executive experience, would at the age of 65 clean up the huge, corrupt Defense Ministry. Belousov’s economic views presumably suit Putin because he favors centralized state planning, state ownership, and high taxes, while he dislikes oligarchs. But most of all, Belousov is loyal to the powers that be, that is, Putin. He might succeed in raising Russia’s taxes with Putin’s support.

Gen. Valery Gerasimov, the long-lasting chief of the General Staff, is likely to continue commanding the war in his old incompetent Soviet fashion. His mediocrity may suit Putin. He manages to avert Russian defeat, but also Russian victory, allowing Putin to maintain his desired eternal war to the benefit of his domestic repression. How many Russians who die and how much the war costs Russia is hardly important to Putin as long as the Russians don’t rise against him.

The big issue that most have missed is that Putin is opting for more nepotism. Milov and Meduza have seen it. Putin does not want any successor but competing nepotistic camps that check one another. His Prime Minister Mikhail Mishustin stays on, but his powers have been constrained. Instead, several nepotistic groups have risen at the expense of meritocracy.

Chemezov and Manturov have gained some power. Nikolai Patrushev was dismissed as national security secretary, but his son Dmitry was promoted to deputy prime minister and got two of his people appointed ministers.

The powerful brothers Yuri and Mikhail Kovalchuk control Rosatom, most television, and much of Russia’s banking. Their chief politician, former Prime Minister Sergei Kirienko, remains first deputy head of the presidential administration, and his team has expanded with the new industry and trade minister Anton Alikhanov as well as Yuri Kovalchuk’s son Boris as chairman of the Auditing Chamber.

The Rotenberg brothers have got the transportation minister Roman Starovoyt. The juiciest new appointment is energy minister Sergei Tsivilev, who is married to the ambitious Anna Putina, daughter of Putin’s cousin.

No clan has received a nod from Putin, but all Putin cronies apart from the chief gas oligarch Gennady Timchenko have gained more representation in the government. This government appears to have been formed to promote nepotism and corruption.

The most important development might be that Putin moves his main embezzlement from Gazprom to arms procurement and presumably other parts of the state, such as construction. The leadership of the Russian Defense Ministry is likely to be further weakened under Belousov and the Russian military may become even more dysfunctional.

Putin has reinforced the competition between various groups within the regime so that nobody can threaten him, engaging ever more in corruption and nepotism. Putin has already proven that he could not care less about Russians’ lives or welfare. Now he suggests that he is more interested in a prolonged war than in victory.

The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.

Anders Åslund is a senior fellow at the Stockholm Free World Forum and Adjunct Professor at Georgetown University. A leading specialist on the East European economies, he has authored 15 books, most recently Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy. He has advised the Russian and Ukrainian governments and earned his D.Phil. from Oxford University. He is also a member of the Friends of Ukraine Network.

ROBERT MCCONNELL
Co-Founder, U.S.-Ukraine Foundation
Director of External Affairs, Friends of Ukraine Network
The introduction is Mr. McConnell’s and does not necessarily represent the views of the U.S.-Ukraine Foundation or the Friends of Ukraine Network.

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