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Friday, 24 May, 2002, 12:28 GMT 13:28 UK
Russia's bid for economic greatness
President Putin shakes hands with President Bush
Will the US help Russia achieve its trade deals?


US President George W Bush and Russian President Vladimir Putin sealed their new strategic relationship on Friday, amid hopes of greater economic ties. But vested interests and lingering suspicion on both sides could spoil the party.

They are on nick-name terms, they joke together and they have promised to usher in new era of cooperation.

This could be history in the making, but behind the photogenic smiles of the Russian and US presidents lurks a myriad of thorny issues to resolve.

For President Vladimir Putin, there is the need to forge lucrative trade deals with the aid of his new Texan friend.

During a press conference at the summit, he candidly suggested that US company Boeing buy cheaper Russian steel to beat its European rival Airbus.

After swallowing his objections to US withdrawal from the Anti-Ballistic Missile Treaty and stockpiling of nuclear warheads, Mr Putin is hoping it's payback time.

WTO aspirations

Above all, Mr Putin wants help to join the World Trade Organisation.

This requires the US to officially grant Russia the status of "market economy" and to repeal legislation inhibiting trade links between the two countries.

However, progress on both these fronts has been agonisingly slow for Russia.

Jackson-Vanik law
1974 legislation penalising Russia for inhibiting the movement of Soviet Jews
Imposes trade restrictions on Russia
Moscow applied for market economy status in July last year and was hoping for a breakthrough at the summit.

But the US is still prevaricating over granting it such status, and any amendment of the Jackson-Vanik legislation has also stalled.

Republicans, who were continuing to obstruct amendments on Thursday night, are still fuming over Moscow's ban earlier in the year of US poultry imports on grounds of health.

Still thawing

A bemused Mr Putin has described the US procrastination as a "strange decision", commenting:

The Kremlin in Moscow
Putin faces critics in industry and in the Kremlin
"People who regard our relations not as US-Russian but US-Soviet still wield a lot of power in the United States."

However, US hawks are not the only faction to view the US-Russian relationship with hostility.

Mr Putin also faces considerable opposition at home to the prospect of US 'interference'.

"There are serious domestic complaints that economic reformers have to overcome," said Jeffrey Anderson, a director at the Institute of International Finance in Washington.

Oil upgrade

Mr Putin's team believe foreign investment is needed to upgrade Russia's technology in the oil and gas industry, so enabling an increase in exports.


US business men are not going to come flooding over just because Bush and Putin are friends

Professor Alan Smith
SSEES
The carrot for the US is a reliable source of oil, regardless of what might be happening in the Gulf.

On the eve of the summit, a $140m contract was awarded to a subsidiary of the US giant Exxon to upgrade Russia's Orlan platform.

But often the very people who control Russia's energy assets are the ones resisting changes to facilitate foreign investment, said Professor Alan Smith at London's School of Slavonic and East European Studies.

"Only if they become less influential, is there more chance of investment," he added.

Chicken-and-egg

To some extent, Mr Putin is banking on sustainable economic growth to increase his own power and dull the pain of further reforms.

Russian growth
1995: -4.1%
1996: -3.4%
1997: 0.9%
1998: -4.9%
1999: 3.5%
2000: 9%
2001: 5%
Growth in Russia was booming in 2000 at 9% and was still relatively healthy at 5% last year.

The devaluation of the rouble in 1998, combined with a default on public debt, increased the country's competitiveness and its output.

High oil prices and some tax reform also boosted revenues, helping Russia to achieve its dramatic bounce-back from the early 1990s.

"I thought it was a blip at first, related to the oil price, but growth is still positive," said Professor Smith.

Putin the Great?

The economy continues to be a work in progress, but it is clear that Mr Putin has grand ideas.


I criticised a policy of sucking up to Washington in the past

Vladimir Zhirinovsky
Nationalist
"Not unlike Deng Xiaoping, he wants to transform Russia from a stagnant, backward social system into a global market economy," said Alvin Rabushka from the Hoover Institution at Stanford University in California.

It seems part of this strategy is to normalise relations with the West and avoid any confrontation with the US.

However, many economists are sceptical that the rapprochement between Mr Putin and Mr Bush will herald a new age of economic enlightenment.

"It can't hurt investor confidence in Russia," conceded Mr Anderson, but he stressed that reform of corporate governance and legal structures are much more important.

Professor Smith was also doubtful, saying: "I am not sure that changes at the top are going to make a difference.

"US business men are not going to come flooding over just because Bush and Putin are friends."

The benefits of 'sucking up'

After the euphoria of the summit has dissipated, Mr Putin will return to the delicate task of appeasing domestic sensitivities while also pursuing his own agenda to open up the economy.

But if he can pull off new trade deals on the back of his relationship with Mr Bush, it will only bolster his bargaining power at home.

Already there seem to be some converts.

"I criticised a policy of sucking up to Washington in the past," said the firebrand nationalist Vladimir Zhirinovsky.

"But since September 11, they have themselves sought to cooperate with us. Why push them away?"

Mr Putin won't be able to convince all of his critics, but if he can keep the economy growing - will he care?


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