Of Georgia, Russia, responsible stakeholders, and Western contradictions

In the current Georgian conflict, the West is a very sorry sight. Not because it doesn’t want to make vague “geopolitical compromises” with the new Authoritarians who cannot wait to act as “responsible stakeholders”, a term coined by Bob Zoellick when calling upon China. (This is the argument of Kishore Mahbubani in the FT recently- courtesy of Robert Amsterdam). With Russia some would say that due to acute gas dependency, the European part of the West has probably been doing these compromises for too long. The US for its part wasn’t doing enough business with Russia to really care (trade relations are very thin), contrary to how it deals with China. And Russia hasnt’ really been behaving like a “responsible stakeholder” lately. Anyway, NATO is hesitant and divided.

So “the West” is watching helplessly how Russia is tearing Georgia apart. Despite the cease-fire negotiated by France and supported by the US, Russia is not pulling out its troops of the country. It is staying in South Ossetia and Abkhazia, creating “buffer zones” around South Ossetia, and preparing itself to take a remote control over the Black Sea port of Poti by setting up a check-point just ouside of it.

Now, this conflict is a real hornets’ nest. Georgia’s attack on South Ossetia on the night from 7th to 8th of August was adventurous, to say the least. Yet it is right to say that Russia is overreacting and taking the opportunity to strengthen its domination and to show who’s boss. It is interesting to see in this war, as compared to the Chechnya war, how Russia – its diplomats, its former leaders – seems to be orchestrating a wider PR or public debating campaign to defend its stance. But PR and talk only hold when the substance is right. Seen coldly, Russia, would probably have gotten away with it if it had simply lashed back at Georgia in South Ossetia and retreated to its initial positions. It is Georgia that would have been the fool. NATO is certainly not willing to go to war over that country. But by overreacting Russia is shooting itself in the foot and revealing its deeper instincts. Two books I recommend in this context:

Yegor Gaidar’s new “Collapse of an Empire”. The Russian economic reformer muses over what he calls Russia’s imperial hangover and the temptation it has to revive its Empire, instead of becoming simply a nation like any other. (The latter was Yeltsin’s objective). He draws very interesting parallels with Germany post-1918, the disintegration of Yugoslavia etc.

Bertil Nygren’s “The Rebuilding of Greater Russia” (unfortunately an awfully expensive book). This Swedish post-Soviet security expert maps in an incredibly detailed fashion, quoting an infinite list of sources, Putin’s foreign policies towards the CIS from 1999 to 2007. The underlying ideology was one of a “liberal empire” of sorts (a term coined by the other economic reformer and outgoing CEO of Russia’s electricity monopoly UES Anatoly Chubais). The aim was to recreate a real sphere of influence in the region. But the method would be “banks not tanks”. This is certainly what Russia has been doing – cutting deals with Central Asian and other Caucasian countries to buy off shares in domestic companies, especially energy companies or banks, to offset sovereign debts, or simply do classic FDI e.g in telecoms.

With Georgia, Russian relationships have always been particularly difficult, the “banks not tanks” tactic did not work as well there. Georgia’s current territory is the result of various Soviet border redrawings and the population that ended up in that territory in 1991 is partly also the result of Stalinist deportations. Georgia was in Soviet times already quite a vociferous and nationalistic country (does anybody remember Gamsachurdia, the dissident, writer and first Georgian president who died under unclear circumstances? – here something in German, for whoever can read that language). Abkhazians and South Ossetians felt like second-rank citizens and resented Georgian domineering. When the country became independent, when mentalities were not ready for a truly democratic discourse, when socialism was no longer the glue, then ethnic nationalism stepped in. Result: civil war and ethnic cleansing. Georgians kicked out of Abkhazia (where they were the majority) and South Ossetia. With Russian tacit support. It all ended in 1994 with a Russian/CIS “international” peacekeeping force, the independence of which is of course a joke. But the West couldn’t do much – Russia sits in the UN Security Council, and thus has a veto. And it didn’t care much. So the conflicts were indeed “frozen”. Russia was playing a complex balancing act to avoid an explosive situation to get out of hand. Nothing indicates that it really wanted the breakaway regions to become independent. There are indications that Russia has changed tactics after the NATO summit in April in Bucharest, when Georgia and Ukraine were given concrete, if delayed, prospects of joining. Many also think that the recent independence of Kosovo played a role in this. Russia was handing out passports lavishly to South Ossetians and raising the stakes in the breakaway regions. Saakashvili’s attack can be interpreted as a “preemptive” strike, a mad act, a test for Russia, a test for the West…., we will probably never really know. It’s psychological. Like many wars. And like the red line Russia is drawing – take away the adjective “liberal”, there remains “Empire”.

What can the West credibly excommunicate Russia for?

• Not taking heed of the UN? NATO did not have a UN Security Council mandate to attack ethnic-cleansing-ridden Kosovo back in 1998. Nor did the US have one to attack Iraq in 2003.
• Not allowing independent peace-keeping forces into conflict zones? Well, look at UN troops troops in Kosovo after the NATO attack, look at the de-facto EU-protectorate in Bosnia. 
• Dismembering a sovereign country, supporting separatism, and exerting imperial power over those regions? Well, look again at Kosovo!
• Telling lies (on e.g. pulling out and respecting Georgia’s sovereignty)? Well, look at Iraq! There were neither WMDs nor Al-Qaeda units in Iraq, were there? That was psychological as well (I do not adhere to the thesis that the Iraq war was an oil issue)

Of course, the main difference is the democracy-factor. The EU does indeed exert a “soft” imperial influence in the Balkans, for instance. It is playing carrot and stick with the prospect of joining its area of peace, prosperity and rule of law. Serbia will be kept out if it doesn’t comply. Kosovo, saved from Serbian dominance and violence, as well. Serbia simply shouldn’t have started ethnic cleansing in 1998. In the Georgian case it’s a country trying, despite setbacks, to get itself into a sphere of peace, prosperity and rule of law. It does it in the face of resistance of a big neighbour and former imperial power that hasn’t made the real leap into political modernity. Iraq was ruled by a highly murderous tyrant, so that it seems that almost anything is better than Saddam. But the Russian government reasons in terms of crude power, not in qualitative terms such as democracy, freedom, etc. And in those terms “the West” cannot respond credibly, nor pretend to have the higher moral ground. The FT’s Clive Crook is right when saying that Iraq is a drag on the US in the management of the Goergian crisis. And with the US being weak, then what is the ever-divided and Russian-gas dependent EU? A show of ridicule.

Only Russia can stop itself. The question is whether Russian “banks” will be able to stop Russian “tanks”. Russia’s economy has been growing rapidly, but foreign investment, after reaching a peak last year, is receding. The stock exchange is in a mess. Inflation running high. Russian banks give a warning. I am quoting bne (subcription required):

“Georgia conflict to impact on Russian growth

bne

August 21, 2008Analysts are questioning Russia’s growth prospects in 2008, as the Russian Central Bank announced today that its international reserves dropped by $16.4bn from August 8-August 15, to $581.1bn from $597.5bn.Finance Minister Alexei Kudrin stated earlier in the week that gross capital outflow from Russia during the period of hostilities in South Ossetia had totalled around $7bn.”Following on investor nervousness over the Mechel case, where televised comments by Prime Minister Vladimir Putin criticizing the coal producer’s pricing policy and threatening sanctions wiped 40% of the price of the stock, the Georgian war has “substantially damaged the economic outlook,” according to Alfa Bank’s senior analyst Natalia Orlova.“The Russian banking sector is already experiencing a liquidity shortage,” explains Orlova. “The flight from the ruble, which occurred at the beginning of the conflict with Georgia, damaged local liquidity, triggering a jump in demand for repo to $10 bln and a substantial increase in interbank rates to 8-10%.” According to Orlova, if the capital inflow is not reestablished in September, the CBR and the Finance Ministry will have to pull out all the stops to support the banking system. The CBR may make an emergency cut in the reserves requirement and hike interest rates. Following June and July’s industrial slowdown, a hike in interest rates will further throttle funding to construction and construction-related industries, slowing production even further. Moreover, according to Alfa, attempts to battle inflation have proved short-lived because of market destabilization following the military conflict with Georgia. The ensuing flight from the ruble is forcing the CBR to focus again on liquidity rather than inflation control. And slower economic growth and a more volatile exchange-rate market scenario will also have a negative impact on the inflationary outlook, according to Orlova. Alfa Bank nevertheless retain their 7.5% GDP growth forecast for 2008. Graham Stack”