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Business: RenCap Cuts RTS '08 Target to 2,350
Renaissance Capital on Monday slashed its year-end forecast for the benchmark RTS Index from 3,000 to 2,350 and increased its equity risk premium for the country from 4 percent to 5.5 percent in a sign of continued investor jitters.

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Wednesday, September 03, 2008 Updated at 03 September 2008 0:24 Moscow Time.

The Moscow Times » Issue 3979 » Regional Dimensions

Andropov's Ghost Lives On

02 September 2008By Nikolai Petrov

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The open hostilities of the Georgian war have settled down, but the war of interpretations is still being fought.

The patriotic rhetoric continues against a backdrop of inflammatory and confrontational statements by government leaders. Politicians and analysts claim that no harm will come to the country's international reputation, that the furor in the West will die down and everything will return to normal relations. But this naive optimism is both groundless and foolish. Russia, Georgia, the Caucasus, the former Soviet republics and the rest of the world will never be the same as they were before the military conflict began on Aug. 8.

Vladimir Putin has initiated two major course changes to Russia's foreign policy. The first came on Nov. 9, 2001, when then he called U.S. President George W. Bush and offered a broad framework for cooperating with the United States in the struggle against international terrorism.

The second came last month. As strange as it might seem, the same logic motivated both moves. In 2001, it suited Russia to present the Chechen war as part of its struggle against terrorism. This provided the Kremlin with a free hand in the former Soviet republics as compensation for cooperation with the West in matters that it considered important. But contrary to the Kremlin's hopes, the West did not want to consider the former Soviet Union as being Russia's exclusive backyard.

From that point on, Russia resisted tenaciously, and this resistance found its culmination in the invasion of South Ossetia, after which President Dmitry Medvedev declared that the former Soviet republics constitute Russia's exclusive sphere of influence.

If before the Georgian conflict there was only a small hope that Russia would modernize both politically and economically, now this dream can be buried for good.

Putin's pet project, the 2014 Sochi Olympics, is also at risk of being boycotted by Western countries. But an Olympic boycott would be a minor affair compared to the risk of widespread destabilization across the entire Caucasus region. The situation in Ingushetia, for example, has worsened dramatically in what was already a dangerously explosive region even before these events.

Putin was right when he said the international community's decision to recognize Kosovo's independence was a double-edged sword. Now he thinks that sword will only deal a blow to his intended victim and not to himself.

But Putin could be in for an unpleasant surprise. The recognition of independence for Abkhazia and South Ossetia, ostensibly made on solid legal foundations, could come back to haunt the Kremlin. After all, the independence of the breakaway republics offers a clear precedent for the Chechen separatist movement to finally get what they want -- independence from Russia.

Russia's economy has experienced a boom in recent years, but it won't continue forever. Financial indicators already took a turn for the worse early this summer, and the broader conflict with the West will only make matters worse.

Chechnya fully measures up to the criteria Medvedev formulated for explaining his position on Abkhazia and South Ossetia. A current drive for signatures in Ingushetia's bid to secede from Russia is only the tip of the iceberg.

The Kremlin's hasty decision has opened a Pandora's box in the Caucasus that will be especially dangerous for Russia, which has repeatedly run up against ethnic separatist movements -- not only in Chechnya, but in Dagestan, Kabardino-Balkaria and Karachayevo-Cherkessia. The problem lies in using strong-arm methods that could unleash an unpredictable chain of events, where the smallest match, once ignited, could set off an huge explosion of interethnic conflict in the region.

Recent events underscore that Putin inherited much more from Soviet leader Yury Andropov leadership style then he ever did from his predecessor, Boris Yeltsin.

Incidentally, Putin frequently talks about Russia and the Soviet Union as if they were a single entity. But his version of a "kinder, gentler" Russia has not manifested itself.

During the Soviet era, the government's abuse of power was supported by the people only out of fear. Now, fear is no longer a necessary component because the people support the Kremlin's actions voluntarily.

Nikolai Petrov is a scholar in residence at the Carnegie Moscow Center.