By Ben Aris

29-08-00 "This is the end of the oligarchs in Russia," Boris Nemtsov, leader of the Union of Right Forces Duma fraction, triumphantly announced at the end of July. "The oligarchs are sick of being oligarchs. They want to be law-abiding taxpayers."
Yeah, right. And the weather in Siberia is nice. The era of the oligarchs is over but not because the oligarchs suddenly woke up and decided to be good guys. It is true that they are more law-abiding now than ever before, but this is because they had no other choice.
The so-called "oligarch meeting" between president Vladimir Putin and 21 of Russia's leading businessmen, on July 28, marked the end of the first phase in Putin's campaign to make Russia great. His enemies have been subdued and his personal grip on power increased. He has largely accomplished what he set out to do -- destroy the Yeltsin system of government. But the oligarchs were already defeated two years ago.
The meeting ended with what was dubbed the "war on business," which was kicked off by the arrest, in June of this year, of Vladimir Gusinsky, one of the seven classic oligarchs named by Boris Berezovsky in 1997. It should be borne in mind that Berezovsky invented the term "oligarch" for his own ends. Even in 1997, when the term came into common use, there were other big businessmen with political influence, such as Rem Vyakhirev of Gazprom and Vagit Alekperov of LUKoil. The one thing these classic seven had that other potential oligarchs didn't was banks.
Berezovsky needed oligarchs, as the more power these businessmen were thought to have -- and they did exercise real political influence -- the more power Berezovsky could assume himself. He thus engineered a self-fulfilling prophesy; every time anything significant happened in Russia over the next two years, Berezovsky was quick to take the credit. The more people believed Berezovsky wielded huge political power, the more power he actually would wield.

But a lot has changed since 1997 and the last oligarch meeting between Yeltsin and the country's then-leading 10 businessmen. The term "oligarch" has become a misnomer for all, except maybe two, of the original seven. Nearly all the 21 businessmen at the July meeting were just that -- businessmen, albeit powerful ones. None of the businessmen with real political influence -- Gusinsky, Berezovsky, Roman Abramovich of Sibneft or Aleksander Mamut of Sobinbank -- were there.
The crisis of August 1998 humbled all seven oligarchs; Vladimir Potanin of Sidanco, Mikhail Khodorkovsky of Yukos and Mikhail Fridman and Pyotr Aven of the Alfa Group have all been forced to retreat into their oil companies. Another three have disappeared completely, and only Gusinsky and Berezovsky still wield any real political influence.
Before the crisis all of the oligarchs (except Berezovsky) had political power as the banks they controlled were rich and the government was poor. The whole loans-for-shares debacle of 1995 was a way for the government, desperate for cash, to borrow from the oligarchs. Proof of the power this money gave the oligarchs was their ability to stick the government with such an amazingly bad deal.
These days, the tables have been turned. Their banks have all collapsed (except for Alfa Bank, which remains a bit wobbly), but more importantly the government no long needs to borrow money and has been running a healthy budget surplus since March. One of the areas where this changing relationship can be seen is in the distribution of state funds.
The use of commercial "authorised" banks to distribute state money has been replaced with a regional treasury system that is already working in the six regions with the worst records of abusing federal funds. It should be expanded to cover all 89 regions by the end of the year.
With no hold over the government, the oil-based oligarchs have lost their hold over the Kremlin and are increasingly looking at their businesses as businesses. The fact that oil prices have remained above $ 30 a barrel all year and that itis more profitable to produce than to rob has helped.
Meanwhile, in Putin's Russia, banks no longer wield political influence, but media does. "Since the [presidential] campaign... media has been transformed into the main instrument of political power," says Andrei Ryabov, a political analyst with the Carnegie Endowment in Moscow.

The attack against Gusinsky was almost certainly politically motivated because of his powerful media interest. But it was not the start of an offensive against the "oligarchs" as a class, which Putin promised earlier in the year. Nor was it the start of a "war on big business." It was part of Putin's drive to destroy the power centres that grew strong under Yeltsin.
It is still not clear if Putin ordered Gusinsky's arrest. The timing was embarrassing as the president was in the middle of an important state visit to Germany at the time. But it is clear that the raids and investigations that followed over the next six weeks were a combination of the security services and other organs having a pop at the oligarchs because they could and business rivals settling old scores. Both Aven and Potanin blame business rivals for the attacks on their respective businesses.
Putin's oligarch meeting was a cease-fire. Putin publicly declared (again) that the 1995 privatisations would not be undone and presumably privately reassured the businessmen that he would bring the state organs to heel at the same time. Even if Putin didn't order the war, he deftly turned it into an impressive show of how much control he has acquired since his inauguration in May.
The oligarchs were thus neatly tamed while Putin was in the middle of hard fights to reform the upper house of parliament, push through a radical tax reform and convince the international community he was a man to do business with. All of this he achieved between May and the end of July.
Then on July 27, the day before the oligarch meeting, the charges against Gusinsky were dropped. Gusinsky immediately left the country. NeitherNTV, his flagship channel, nor the Kremlin have given any explanation as to why the charges were dropped, leading to speculation that Gusinsky has cut some sort of deal with Putin. A few days after arriving in Spain, Gusinsky applied for, and received, a Gibraltar residence permit. Go figure.

The last oligarch that is still in the game is Berezovsky, who also controls powerful media assets. Berezovsky finally admitted to the extent of his control over Russia's largest television station, ORT, earlier this summer. He owns 49 % of the station, having previously admitting to only 8 %, and put his twenty-something daughter on the board of directors in June.
With Gusinsky's exit, Berezovsky is the most politically influential man in Russia outside of the Kremlin. He is widely credited with putting Putin in his current job, and the biggest question that Russia-watchers have is how independent is Putin from the "Family," the group of insiders that surrounded Yeltsin and is headed by Berezovsky. For his part, Berezovsky has been kicking and screaming about Putin's reforms since June. Is it all for show, or is the ueber-oligarch really in retreat?
It is foolish to write Berezovsky off. However, he does seem to be in retreat, despite his still considerable media holdings, which he is in the process of consolidating. Potanin explained it thus in an interview: "Berezovsky was good at the time when all the instruments of power were just laying on the ground. Berezovsky was smart enough to know how take them and put them in the right hands, and give advice on how to act. But now there are no instruments for Berezovsky or anyone else to take, as almost all the instruments are in the hands of the president."
If this is right then Berezovsky has been downgraded to "oligarch, ordinary class." He still has more influence than the others through his media holdings but has lost the power to dictate Russia's policy as he is without a door into the Kremlin's inner sanctum. The other oligarchs have also been downgraded to"businessman, first class," with political power in all countries in rough proportion to the size of their businesses.
The game is still on, but the first round has been won decisively by the president. While there is still plenty of room for corruption and abuse in this new Russia, if Putin really follows through on his stated goal of building an economy based on free-market principles -- and this is still a huge "if" -- then the political influence of all these men will be reduced further.