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Commentary: What's in It for Putin?


By Paul Starobin and Catherine Belton

With sufficient time and care, new shoots can take root in even the stoniest of soil. So it seems for the suddenly blossoming relations between the U.S. and Russia. There was President George W. Bush in the White House on May 13, announcing his agreement with Russian President Vladimir V. Putin for the two sides to cut their strategic nuclear arsenals by two-thirds. The next day, in Reykjavik, NATO's foreign ministers unveiled a U.S.-brokered pact to give Russia a major say on alliance decisions. And at the United Nations, the U.S. and Russia won Security Council approval of tightened military sanctions on Iraq, once Moscow's close ally. The Cold War does seem to be over, at long last.

All this comes as a prelude to Bush's arrival in Russia on May 23 for a visit with Putin. While some discussions, such as those on Russia's aid to Iran's missile and civilian nuclear programs, could be tense, the meeting is expected to reflect the strengthening relationship between the two Presidents. "September 11 was a decisive moment," says a senior Bush administration official, citing Putin's play for a new partnership with the U.S. by signing up in the war against terrorism. It is even looking less likely that Putin will oppose a U.S. effort to oust Iraq's Saddam Hussein.

What Putin wants and needs now, however, is a real payoff for Russia's economy from his new political alliance with the West. Unless more is done to help Putin rebuild his impoverished and impatient country, a backlash could jeopardize what he and Bush have achieved. The Russian press is mostly sour on the arms pact, seeing it as a kowtow to Washington. And in a recent poll, more than half of all Russians called NATO "aggressive."

Putin's top priority is opening Russia's market to the West for investment and trade. His aim, as his own modest slogan says, is to help his country "Catch Portugal," the European Union's poorest nation. On that score, the U.S. has done little to help so far. Since September 11, there's been only one major deal from a U.S.-based multinational--the Exxon Mobil Corp. decision to invest $4 billion over five years in a Far East oil project.

Of course, big projects take time to come to fruition, and some deals are in the pipeline. A U.S. business source in Moscow says that during Bush's visit, Boeing could unveil a project to build regional jets with Russian aircraft makers. Russia could also benefit from a new pact between Bush and Putin under which Russian defense companies could help build a U.S. missile defense.

Portfolio investment from the U.S. may also rise. The Russian stock market is up 56% so far this year, and that's catching the attention of American fund managers. Meanwhile, economist Peter Boone, head of research at Moscow brokerage Brunswick UBS Warburg, predicts that some 20% to 40% of Russian industry could go into foreign ownership over the next 5 to 10 years. The reason: Russian conglomerates are wringing productivity gains out of assets they bought for a song and will soon want to take profits by selling stakes to the West.

Investment projects could prove key if Russia's economy, largely based on oil, continues to slow. Right now, a mini-boom linked to high oil prices is sputtering, with economic growth of 9% in 2000 likely to dip below 4% this year. At $1,800, per-capita gross domestic product trails not just Portugal but Turkey and Hungary too. The U.S., at $36,500, is galaxies away.

Putin needs help, fast. For the West, this pragmatic leader could be as good as it gets for a chronically troubled country ruled in the past by the likes of Ivan the Terrible and Stalin. If Putin doesn't get a greater return on his policy of rapprochement, the West could lose a golden opportunity to bring Russia into the fold. Starobin and Belton cover Russian business from Moscow.


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