Vilnius, December 2007
Dear Family and Friends,
Greetings again from Vilnius. I am sitting in a Japanese restaurant
overlooking the town square and listening to two Russian men talk at
the next table. I was a little worried when I saw that my flight last
Friday was full of Russian businessmen intent on drinking their way
through the two hour flight from Moscow. They were so loud that I
eventually gave up my first row seat and headed for the back of
business class.
We had been late leaving. The Lithuanian crew noted that the flight
always departs late from Moscow. “The Russians are drinking,” she
explained. The comment didn’t seem entirely fair. For 20 minutes, the
Aeroflot ground crew had shouted “Vil-knee-yus? Vilnius?” verbally
assaulting every passenger who walked past the gate. It seemed that the
newly opened airport had no working announcement system. Even the woman
security officer did her best. “Where is your friend?” she asked me as
I lingered in the boarding area, not wanting to head for the unheated
transit bus until the last moment. “I have no friends,” I responded to
communicate that I was not traveling with the lost passenger but
feeling lonely in a cold Moscow airport on a Friday night.
The man who boarded 30 minutes late was no strappling boisterous
drinker. He looked more like a dark-skinned mine-worker from the
Russian Far East and he bowed his head as he entered the plane and
sought refuge in the back.
Lithuania was the first of the central European states to declare its
independence from mother Russia in 1990. Lithuania had had independence
from Russia during the period between the two world wars and fought to
regain its status as soon as the USSR started to collapse. However even
in 1993, I found that of the three Baltic countries—Latvia, Estonia and
Lithuania—it was the Lithuanians who most often wanted to speak through
an interpreter. I was surprised to find that even now, three years
after joining the European Union in 2004, some of my government
counterparts preferred to speak in Lithuanian than in English.
Trying to buy a SIM card for my cell phone was a similar experience.
The only store open late on a Saturday afternoon was a tech store,
where the sole sales person did not speak English and had trouble
figuring out what I thought were obvious hand signals. I showed her my
phone and said, “SIM card?” but she still failed to understand. Then I
took the phone apart and showed where there was no SIM card and finally
she understood. Then the difficulty was in buying extra minutes. I
usually buy an extra $20 in minutes at the same time as the card but my
communications skills failed me again. I approached a middle-aged
couple who entered the store and asked if they spoke English. “Yes, but
only English,” was the response. “Could you please help me buy a SIM
card?” I asked. “But we only speak English,” they repeated as I
realized that Lithuanian was not among their languages.
Finally I exited the store and looked for some teenagers to help me. I
found a beautiful 17-year-old who then dragged her three girlfriends
plus boyfriend into the store to help me. When we had trouble figuring
out my new cell number, she used my phone to call hers so that my
number would show up on her caller-id. In response to my questions, she
told me that she had just graduated from high school and hoped to study
medicine in university. She was clearly the leader of the group and
determined to help a stranger. Her friends soon grew impatient, but
still smiled until we finished the purchase of the card.
Vilnius is a lovely town. The old city has been renovated with
cobblestone streets that discourage car traffic. Blinking Christmas
lights in red and white decorate the trees and street-lamps. The city
needs only snow to make it magical.
Unfortunately I will not be here long enough to see it. I needed only
two days for my meetings and will fly to Brussels tomorrow. Will be
back in DC on Friday night.
Sue
Tuesday, December 11, 2007
Saturday, December 8, 2007
Moscow and Money
Moscow, December 2007
Dear Family and Friends,
This evening I was lying on the leather backseat of my driver’s new Accord, typing my memos, as we drove to the airport when I started thinking about Putin’s Russia and what I could tell you of my week in Moscow. This is my last trip of the year before I head out to California for Christmas.
My driver was a handsome 30-something Muscovite who is honest and works hard. Roman’s father, Slava, is also a driver for our staff. Slava had picked me up at Moscow’s Sheremetyevo Airport on Saturday afternoon the week before. “I am very glad to see you,” Slava said as I handed him my luggage cart just outside of the arrivals area. “Roman sends you hello,” Slava said with his hand on his heart. “Please give him my regards,” I responded a little formally after 14 hours of flying. Then I asked, “Is Roman married now?” “No,” was Slava’s response. “Girls only want to marry oligarchs.” That was how I felt about Moscow. It is all about money.
In the three years since last I was in Russia, Moscow has become prohibitively expensive. “What happened to the Moscow Hotel?” I had asked Slava as we drove into town. “It is gone,” he responded, “There are no more three-star hotels in Moscow.” Then we passed the new Ritz Carlton. “The minimum room there is Euros 800 per night,” Slava explained and shook his head. For those in their 50s who had never joined the Communist Party and who were too young to benefit from the transition to a market economy--for people like Slava--Moscow provides few opportunities. For his son Roman, who is determinately honest, it is little better.
I had gone to Moscow to help put together a new project on Financial Literacy, which was quickly becoming a project on Financial Literacy and Consumer Protection (the latter being my expertise.) With three years away from Russia, I felt that I needed time to figure out the new lay of the land. I convinced the project task manager to let me do a technical mission, where I could talk with middle-level officials and get a feel for what economic reform is possible in today’s Russia.
Three years ago, Putin was moving quickly to consolidate power. He changed the appointment of the Regional Governors from direct popular election by the local electorate to appointment by Putin and his administration. Then he took on Mikhail Khodorkovsky, the oligarch who had gained control of the oil giant, Yukos. After many suspect transactions that were thought to have benefited him personally by billions of dollars, Khodorkovsky had started to become transparent—or at least as transparent as any of the world’s new rich are. It was to no avail. Khodorkovsky had also started a political campaign for the Russian Presidency and was a serious threat to Vladimir Vladimirovich Putin.
Putin’s administration conducted a trial on trumped-up charges of tax evasion where Yukos was not permitted to even use its cash in the bank to pay the taxes that had been suddenly levied. Khodorkovsky was placed in a harsh prison despite his white-collar crime. The people who know him say that he will eventually finish his prison term and emerge as powerful an enemy of Putin as he was before entering prison. It was the Khodorkovsky trial that made me decide to give up on Russia. No work on corporate governance could make any difference in that environment.
But then last June, one of my colleagues heard about my work on financial consumer protection in Slovakia. At a happenstance meeting at the coffee bar on G Street in Washington, he asked me to help him on his Financial Literacy Project. I have almost no free time between now and next July but I still agreed. “It is Russia,” is the common refrain of those of us who seem not to be able to stay away. No other country in the world is quite so fascinating for those of us interested in economic change. The parliamentary elections this week spoke volumes. Putin’s party (United Russia) was elected with more than 60 percent of the vote. As one of my colleagues explained, “We knew United Russia would win. We just didn’t know if it would be by 64.3 percent or 63.7 percent. The margin could only be within one percent.” Putin ensured that the state-controlled media put out only one message (favoring him) and then he encouraged his local administration to make sure that 70 to 80 percent of the electorate voted (presumably for United Russia.)
The party now has sufficient control to revise the constitution—including the restrictions on two consecutive terms that now threaten Putin from remaining as President-for-Life.
Not just the intellectuals are upset about Putin’s total control over the Russian Government and its administration. The hotel’s restaurant staff told me that they voted for the Communist Party, which gained only 11 percent of the vote. “I wanted to vote for the opposition,” explained the maitre d’ in the restaurant. The administrative staff voted in the same way. In Putin’s Russia, only the former ruling Communists have a chance to provide any sort of opposition to his total control.
The problem is that the control is being used to benefit the small group of people around Putin—and ingrain, even more deeply than before, a culture of corruption as the only way to get things done.
At the Hyatt, the receptionist asked if I had my police registration on my person. “You must always carry it,” the beautiful young blonde instructed with some concern in her voice. “What happens if I don’t?” I asked to see what response would be forthcoming. “Then you must pay,” she replied calmly. “How much should I pay?” I asked to press the point. “I don’t know,” she responded trying to get out of the conversation. “Would 1,000 rubles be enough?” I asked, thinking that I always had the equivalent of $25 in my purse.” “I think so,” she said, “but you should always carry the paper in your passport.” I had the impression that it was not always so easy to bribe your way out of police violations. Maybe more money would be needed. It is the same answer for all violations of the law. “Then you must pay.” I began to be grateful that my driver’s car had red license plates, indicating diplomatic status and avoiding the question of whether I had kept my hotel registration with me at all times.
“All projects in Russia involve watches,” explained another colleague who supervises a capital markets project in Russia. “You need to be aware of the watches,” she noted again touching her own watch on her wrist.
The Moscow local staff tell me that such corruption has never been so rampant as it is now. We agreed that, in general, corruption tends not to correct itself. It just becomes more and more engrained in the culture.
This is Putin’s Russia. In the meantime, Roman and Slava live in the city that has become the most expensive in the world.
As for my work, on Wednesday I gave a 30 minute presentation to a group of senior officials where I talked about the findings of our reviews of consumer protection in financial services. Not just in Russia but throughout central and eastern Europe, rising house prices have caused a doubling of loans to households for mortgages. At the same time, banks have started lending for luxury appliances such as flat-screen TVs. In Russia, the banks most active in consumer lending are also those that hide their fee and commission structures. A loan at 29% soon becomes one at 90% per annum as borrowers realize the true cost of their borrowings. Last year, legislation to require lenders to disclose the true “effective” interest rate was killed in parliament by the banks, presumably those benefiting most from the high lending rates.
An issue of commercial fairness and transparency has become a hot political issue. A year ago, Putin instructed his government cabinet to review ways of improving financial literacy and banking practices—and the Finance Minister asked for help. My colleague has been focusing on teaching budget management to high school students but I suggested that we needed to look at the laws protecting consumers and see if they are working properly. We agreed that I should start my work by conducting a seminar on the findings from the work in Slovakia.
So for 30 minutes late on Wednesday afternoon this week, I talked to a group of senior government officials, two rival banking associations, and a foreign business association and two foreign financial institutions. Then for an hour, each proceeded to tell the audience what their organization was doing to promote financial literacy. Indeed it was hard to close the seminar even 30 minutes after the scheduled closing time. In the follow-on meetings, government and private sector officials were similarly enthusiast.
Over and over again, the key seminar participants and especially the finance ministry officials said how much they appreciated our involvement in this area. I am not accustomed to being so appreciated and wondered just what I was walking into. But it means that I will probably be back in Moscow before the snow melts, squeezing time from other assignments—because it is Russia.
One of my colleagues tried to get me encouraged. She pointed out how successful projects in Russia have launched many an international career. “And how will this help me on the beach in California?” I asked, thinking about my future retirement but knowing that I would find the energy to come back to beautiful Moscow, with its overpriced hotels, corrupt police, and women on the prowl for the money of oligarchs.
Sue
Dear Family and Friends,
This evening I was lying on the leather backseat of my driver’s new Accord, typing my memos, as we drove to the airport when I started thinking about Putin’s Russia and what I could tell you of my week in Moscow. This is my last trip of the year before I head out to California for Christmas.
My driver was a handsome 30-something Muscovite who is honest and works hard. Roman’s father, Slava, is also a driver for our staff. Slava had picked me up at Moscow’s Sheremetyevo Airport on Saturday afternoon the week before. “I am very glad to see you,” Slava said as I handed him my luggage cart just outside of the arrivals area. “Roman sends you hello,” Slava said with his hand on his heart. “Please give him my regards,” I responded a little formally after 14 hours of flying. Then I asked, “Is Roman married now?” “No,” was Slava’s response. “Girls only want to marry oligarchs.” That was how I felt about Moscow. It is all about money.
In the three years since last I was in Russia, Moscow has become prohibitively expensive. “What happened to the Moscow Hotel?” I had asked Slava as we drove into town. “It is gone,” he responded, “There are no more three-star hotels in Moscow.” Then we passed the new Ritz Carlton. “The minimum room there is Euros 800 per night,” Slava explained and shook his head. For those in their 50s who had never joined the Communist Party and who were too young to benefit from the transition to a market economy--for people like Slava--Moscow provides few opportunities. For his son Roman, who is determinately honest, it is little better.
I had gone to Moscow to help put together a new project on Financial Literacy, which was quickly becoming a project on Financial Literacy and Consumer Protection (the latter being my expertise.) With three years away from Russia, I felt that I needed time to figure out the new lay of the land. I convinced the project task manager to let me do a technical mission, where I could talk with middle-level officials and get a feel for what economic reform is possible in today’s Russia.
Three years ago, Putin was moving quickly to consolidate power. He changed the appointment of the Regional Governors from direct popular election by the local electorate to appointment by Putin and his administration. Then he took on Mikhail Khodorkovsky, the oligarch who had gained control of the oil giant, Yukos. After many suspect transactions that were thought to have benefited him personally by billions of dollars, Khodorkovsky had started to become transparent—or at least as transparent as any of the world’s new rich are. It was to no avail. Khodorkovsky had also started a political campaign for the Russian Presidency and was a serious threat to Vladimir Vladimirovich Putin.
Putin’s administration conducted a trial on trumped-up charges of tax evasion where Yukos was not permitted to even use its cash in the bank to pay the taxes that had been suddenly levied. Khodorkovsky was placed in a harsh prison despite his white-collar crime. The people who know him say that he will eventually finish his prison term and emerge as powerful an enemy of Putin as he was before entering prison. It was the Khodorkovsky trial that made me decide to give up on Russia. No work on corporate governance could make any difference in that environment.
But then last June, one of my colleagues heard about my work on financial consumer protection in Slovakia. At a happenstance meeting at the coffee bar on G Street in Washington, he asked me to help him on his Financial Literacy Project. I have almost no free time between now and next July but I still agreed. “It is Russia,” is the common refrain of those of us who seem not to be able to stay away. No other country in the world is quite so fascinating for those of us interested in economic change. The parliamentary elections this week spoke volumes. Putin’s party (United Russia) was elected with more than 60 percent of the vote. As one of my colleagues explained, “We knew United Russia would win. We just didn’t know if it would be by 64.3 percent or 63.7 percent. The margin could only be within one percent.” Putin ensured that the state-controlled media put out only one message (favoring him) and then he encouraged his local administration to make sure that 70 to 80 percent of the electorate voted (presumably for United Russia.)
The party now has sufficient control to revise the constitution—including the restrictions on two consecutive terms that now threaten Putin from remaining as President-for-Life.
Not just the intellectuals are upset about Putin’s total control over the Russian Government and its administration. The hotel’s restaurant staff told me that they voted for the Communist Party, which gained only 11 percent of the vote. “I wanted to vote for the opposition,” explained the maitre d’ in the restaurant. The administrative staff voted in the same way. In Putin’s Russia, only the former ruling Communists have a chance to provide any sort of opposition to his total control.
The problem is that the control is being used to benefit the small group of people around Putin—and ingrain, even more deeply than before, a culture of corruption as the only way to get things done.
At the Hyatt, the receptionist asked if I had my police registration on my person. “You must always carry it,” the beautiful young blonde instructed with some concern in her voice. “What happens if I don’t?” I asked to see what response would be forthcoming. “Then you must pay,” she replied calmly. “How much should I pay?” I asked to press the point. “I don’t know,” she responded trying to get out of the conversation. “Would 1,000 rubles be enough?” I asked, thinking that I always had the equivalent of $25 in my purse.” “I think so,” she said, “but you should always carry the paper in your passport.” I had the impression that it was not always so easy to bribe your way out of police violations. Maybe more money would be needed. It is the same answer for all violations of the law. “Then you must pay.” I began to be grateful that my driver’s car had red license plates, indicating diplomatic status and avoiding the question of whether I had kept my hotel registration with me at all times.
“All projects in Russia involve watches,” explained another colleague who supervises a capital markets project in Russia. “You need to be aware of the watches,” she noted again touching her own watch on her wrist.
The Moscow local staff tell me that such corruption has never been so rampant as it is now. We agreed that, in general, corruption tends not to correct itself. It just becomes more and more engrained in the culture.
This is Putin’s Russia. In the meantime, Roman and Slava live in the city that has become the most expensive in the world.
As for my work, on Wednesday I gave a 30 minute presentation to a group of senior officials where I talked about the findings of our reviews of consumer protection in financial services. Not just in Russia but throughout central and eastern Europe, rising house prices have caused a doubling of loans to households for mortgages. At the same time, banks have started lending for luxury appliances such as flat-screen TVs. In Russia, the banks most active in consumer lending are also those that hide their fee and commission structures. A loan at 29% soon becomes one at 90% per annum as borrowers realize the true cost of their borrowings. Last year, legislation to require lenders to disclose the true “effective” interest rate was killed in parliament by the banks, presumably those benefiting most from the high lending rates.
An issue of commercial fairness and transparency has become a hot political issue. A year ago, Putin instructed his government cabinet to review ways of improving financial literacy and banking practices—and the Finance Minister asked for help. My colleague has been focusing on teaching budget management to high school students but I suggested that we needed to look at the laws protecting consumers and see if they are working properly. We agreed that I should start my work by conducting a seminar on the findings from the work in Slovakia.
So for 30 minutes late on Wednesday afternoon this week, I talked to a group of senior government officials, two rival banking associations, and a foreign business association and two foreign financial institutions. Then for an hour, each proceeded to tell the audience what their organization was doing to promote financial literacy. Indeed it was hard to close the seminar even 30 minutes after the scheduled closing time. In the follow-on meetings, government and private sector officials were similarly enthusiast.
Over and over again, the key seminar participants and especially the finance ministry officials said how much they appreciated our involvement in this area. I am not accustomed to being so appreciated and wondered just what I was walking into. But it means that I will probably be back in Moscow before the snow melts, squeezing time from other assignments—because it is Russia.
One of my colleagues tried to get me encouraged. She pointed out how successful projects in Russia have launched many an international career. “And how will this help me on the beach in California?” I asked, thinking about my future retirement but knowing that I would find the energy to come back to beautiful Moscow, with its overpriced hotels, corrupt police, and women on the prowl for the money of oligarchs.
Sue
Sunday, September 23, 2007
Trusting Mothers-in-Law: Travels through Armenia and Azerbaijan
Istanbul, September 2007
Dear Friends and Family,
Greetings from Istanbul. I am on one of those crazy trips where I spend one week in Armenia, take all day to drive into neighboring Georgia (with a change of drivers and cars at the border) to fly into Azerbaijan with just one week in Baku before flying to Istanbul en route to Moldova.
Armenia and Azerbaijan remain locked in war (and thus do not have direct air connections). If the Azeri politicians were to give up Nagorno-Karabakh and the contiguous area with Armenia, they would divide their country in half—and leave an island of Azeris in Armenia. Similarly if the Armenian politicians were to give up the area, they would be accused of abandoning their own people. In the meantime, the two countries maintain a military and economic blockade against each other, which hurts landlocked Armenia far more than Azerbaijan, since Baku sits at the edge of the Caspian Sea.
Perhaps it is because Armenia is landlocked but to me, it is amazing that the Armenian Government supports the the push for transparency of ultimate beneficial owners of the corporate sector. (The Azeris also keen but not to same degree.) Presented to the parliament of Armenia has been legislation on a par with that of western European countries—at least on the issue of transparency of ownership and control of publicly traded companies. When I asked one of my colleagues how they could support such moves towards transparency when so much is under cover, he had a simple explanation. “It is the mothers-in law of Armenia who own the country. Everyone puts their mothers-in-law as the shareholders of their companies.” This is a solution reflecting Armenian social culture. It appears that Armenian mothers-in-law are highly trusted.
One of the reasons I so like Armenia is that the municipal authorities have preserved their historical buildings. Republic Square in Yerevan is one of the most beautiful public places in all the Caucasus. By contrast, Baku in Azerbaijan feels like a city under construction. As one drives in from the Baku airport, it is the number of partially-finished apartment buildings that astonishes the new visitor. From the executive lounge of my hotel, I counted 14 new apartment buildings near the waterfront and six were missing walls, and in some cases, their roof. No doubt, it is oil money that is fueling such expansion in residential construction. Azerbaijan enjoys not just substantial oil and gas reserves but also its central location on the Baku-Tbilisi-Ceyhan (BTC) pipeline, which was built to transport Kazakh oil and gas to the west without going through Russia. The Azeri economy has doubled in less than three years but the serious wealth is concentrated with just a few.
When I was last in Azerbaijan in 2005, the political-economic structure was in flux. The country’s founder had died and his son had been made president in an election that was criticized by the international community--but not too heavily. The problem was the son had not always been presidential material, and as they say, “when he was young and foolish, he was young and foolish,” similar to our own George W. Bush in his early years. As the story goes, the son of the Azeri president had lost ownership of the most prestigious hotel in a gambling contest. In anger, the father closed all casinos in the country to ensure that his son did not lose anything more—or so goes the popular story.
In 2005, the tycoons of Azerbaijan were realigning themselves with the new President. Other threats have also been eliminated. One of the members of the founder’s extended family had been trying to clean up government and force some transparency but he has now been jailed and thus taken out of power. A journalist was trying to investigate and write about government corruption but he was killed in a mafia-style murder.
Much of the story about local politics was confirmed by the director of one of the project implementation units for projects financed by the international community. He wouldn’t even talk to me in our car where the driver would hear. Instead we stood on a downtown street corner, where the cars blow their horns nonstop due to the poor traffic circulation.
The drivers of Baku have good reason to be upset. The littering of the city with apartment buildings has increased the number of cars on the road, of which over one-third seem to be silver Mercedes C and E class. The apartment blocks are built on streets with a single lane of traffic on each side and no parking in the building.
In early September, there was a political crisis as one of the new apartment buildings collapsed. It was not quite finished and so the collapse killed a few workers and interior designers but not a large number of people. The city officials were quoted in the local English-speaking paper as saying that they did not know that the building had been built, suggesting that the building had not been formally approved by municipal authorities.
However that building may not be the only one to fall. Most of the new construction is 17-20 stories high—even though Baku is part of a major earthquake zone that plagues the Caucuses and caused the Armenian tremblings of 1988. From the partly-built sites, it appears that most buildings have just a few steel bars placed among the bricks. Probably they should be using heavily reinforced steel in concrete.
The bigger problem is that, according to the talkative director, all the local construction companies are owned by government ministers. How do you sue your builder for negligence if he (or she) is also a minister of government and can make your life very difficult?
Perhaps it would be better if in Azerbaijan, the mothers-in-law were also the owners of the large companies and could take on ministers who failed to follow city building codes.
Sue
Dear Friends and Family,
Greetings from Istanbul. I am on one of those crazy trips where I spend one week in Armenia, take all day to drive into neighboring Georgia (with a change of drivers and cars at the border) to fly into Azerbaijan with just one week in Baku before flying to Istanbul en route to Moldova.
Armenia and Azerbaijan remain locked in war (and thus do not have direct air connections). If the Azeri politicians were to give up Nagorno-Karabakh and the contiguous area with Armenia, they would divide their country in half—and leave an island of Azeris in Armenia. Similarly if the Armenian politicians were to give up the area, they would be accused of abandoning their own people. In the meantime, the two countries maintain a military and economic blockade against each other, which hurts landlocked Armenia far more than Azerbaijan, since Baku sits at the edge of the Caspian Sea.
Perhaps it is because Armenia is landlocked but to me, it is amazing that the Armenian Government supports the the push for transparency of ultimate beneficial owners of the corporate sector. (The Azeris also keen but not to same degree.) Presented to the parliament of Armenia has been legislation on a par with that of western European countries—at least on the issue of transparency of ownership and control of publicly traded companies. When I asked one of my colleagues how they could support such moves towards transparency when so much is under cover, he had a simple explanation. “It is the mothers-in law of Armenia who own the country. Everyone puts their mothers-in-law as the shareholders of their companies.” This is a solution reflecting Armenian social culture. It appears that Armenian mothers-in-law are highly trusted.
One of the reasons I so like Armenia is that the municipal authorities have preserved their historical buildings. Republic Square in Yerevan is one of the most beautiful public places in all the Caucasus. By contrast, Baku in Azerbaijan feels like a city under construction. As one drives in from the Baku airport, it is the number of partially-finished apartment buildings that astonishes the new visitor. From the executive lounge of my hotel, I counted 14 new apartment buildings near the waterfront and six were missing walls, and in some cases, their roof. No doubt, it is oil money that is fueling such expansion in residential construction. Azerbaijan enjoys not just substantial oil and gas reserves but also its central location on the Baku-Tbilisi-Ceyhan (BTC) pipeline, which was built to transport Kazakh oil and gas to the west without going through Russia. The Azeri economy has doubled in less than three years but the serious wealth is concentrated with just a few.
When I was last in Azerbaijan in 2005, the political-economic structure was in flux. The country’s founder had died and his son had been made president in an election that was criticized by the international community--but not too heavily. The problem was the son had not always been presidential material, and as they say, “when he was young and foolish, he was young and foolish,” similar to our own George W. Bush in his early years. As the story goes, the son of the Azeri president had lost ownership of the most prestigious hotel in a gambling contest. In anger, the father closed all casinos in the country to ensure that his son did not lose anything more—or so goes the popular story.
In 2005, the tycoons of Azerbaijan were realigning themselves with the new President. Other threats have also been eliminated. One of the members of the founder’s extended family had been trying to clean up government and force some transparency but he has now been jailed and thus taken out of power. A journalist was trying to investigate and write about government corruption but he was killed in a mafia-style murder.
Much of the story about local politics was confirmed by the director of one of the project implementation units for projects financed by the international community. He wouldn’t even talk to me in our car where the driver would hear. Instead we stood on a downtown street corner, where the cars blow their horns nonstop due to the poor traffic circulation.
The drivers of Baku have good reason to be upset. The littering of the city with apartment buildings has increased the number of cars on the road, of which over one-third seem to be silver Mercedes C and E class. The apartment blocks are built on streets with a single lane of traffic on each side and no parking in the building.
In early September, there was a political crisis as one of the new apartment buildings collapsed. It was not quite finished and so the collapse killed a few workers and interior designers but not a large number of people. The city officials were quoted in the local English-speaking paper as saying that they did not know that the building had been built, suggesting that the building had not been formally approved by municipal authorities.
However that building may not be the only one to fall. Most of the new construction is 17-20 stories high—even though Baku is part of a major earthquake zone that plagues the Caucuses and caused the Armenian tremblings of 1988. From the partly-built sites, it appears that most buildings have just a few steel bars placed among the bricks. Probably they should be using heavily reinforced steel in concrete.
The bigger problem is that, according to the talkative director, all the local construction companies are owned by government ministers. How do you sue your builder for negligence if he (or she) is also a minister of government and can make your life very difficult?
Perhaps it would be better if in Azerbaijan, the mothers-in-law were also the owners of the large companies and could take on ministers who failed to follow city building codes.
Sue
Wednesday, March 7, 2007
Tajikistan: The Land of Buzkashi (Chasing a Goat)
Istanbul, March 2007
Dear Friends and Family:
Greetings from Istanbul. I started this morning at 3:30, waking up ahead of my alarm, fearing that I might miss my flight from Dushanbe to Istanbul--and be obliged to wait another three days for the next flight out of Tajikistan.
Tajikistan seems to be a country that belongs neither to Europe nor to Asia and until September 11, 2001 was forgotten by both. Even today, the local radar on www.weather.com shows weather patterns for Saudi Arabia rather than central Asia. Tajikistan borders Afghanistan to the south, China to the east, Uzbekistan to the north and Iran to the west. The capital, Dushanbe, is at the bottom of a valley with mountain ranges on all sides. Indeed the US military employs Tajik pilots for their flights in Somalia because the pilots are so accustomed to flying in difficult conditions with changing winds.
Starting in 2001, the developed world could no longer forget countries like Tajikistan. Hundreds of millions of dollars of aid are given by governments in the hope that economic development will prevent isolated countries from becoming failed states. The US provides almost $25 million a year just in advisors on legal enforcement. The Chinese Government has promised to provide $650 million, including the building a mountain road from Dushanbe into Uzbekistan. The Aga Khan Foundation has just built a major bridge into Afghanistan.
Tajikistan has three main industries: aluminum, cotton, and narcotics transit. The aluminum plant is a legacy from the Soviet period. It generates air pollution into Uzbekistan and consumes so much power that most of the country has no electricity all winter. Even Dushanbe suffers from regular power cuts. Furthermore the aluminum plant was the first facility seized by the current President when he crossed the Uzbek-Tajik border in 1992 with 300 men. As recently as three years ago, the plant is thought to have financed one of the government institutions, whose leader came to contest power with the President—and is now in jail on charges of corruption. The senior officials seem to prefer to choose in their inner circles those with criminal or corrupt backgrounds. It is very convenient. When they become popular and powerful, senior officials can dismiss them and press charges—and then take credit for cleaning out the government.
Cotton is a still more complex story. Two international cotton traders provided financing for the local cotton industry through a series of intermediaries. During the Soviet period, the cotton gins were used to siphon off profits. In other central Asia countries, theft from the cotton sector was accomplished by under-reporting the total cotton production. In Tajikistan, it was more subtle. The cotton gins underreported the throughput rate for cotton processing.
Today the gins are owned by 25 to 30 well-connected intermediaries that finance the local cotton farmers, with refinancing from the same two international traders. The local intermediaries provide seed, fertilizer and tractors (not necessarily at market prices) and are repaid through the production of raw cotton sold to the gunnery (also not necessarily at market prices.) A few bad crop years has put some 30,000 farmers in hock to what are essentially loan-sharks. The government and the local representatives of the international community have spent several years trying to figure out what to do. The plans seem to benefit the intermediaries. So my question, is who owns the intermediaries? That, it seems, is a tricky question but knowing who owns and controls the key economic facilities is essential in understanding a country’s economy.
Last Sunday, the group with whom I am traveling decided to go watch Buzkashi, which literally means goat-grabbing. In a crude form of polo, men riding on horses compete to pick up the carcass of a headless goat. Buzkashi is most commonly associated with Afghanistan but is a common form of competition throughout central Asia. Last Sunday, we arranged with a tour guide to watch the spectacle. It gave interesting insights into Tajik economic life--and how relationships determine one's success in business.
We watched as several hundred horsemen descended into a valley and prepared for the competition. It seems that Buzkashi has no rules, except that the riders are supposed to act on their own. Of course, they work in teams, with some riders protecting the route for the rider with headless-goat in his hands. These informal alliances are necessary to win the valuable prizes for picking up the headless goat and taking the carcass across the finish line. However there is no umpire, just a rider with a loudspeaker telling the crowd who has done what to whom and why all of this is for the greater glory of the Republic of Tajikistan.
The business world seems to be similar. The rules seem to be non-existent and their are no umpires. Informal alliances are critically necessary for survival. And they are very tight in Tajikistan.
In my travels, I have never before found myself receiving virtually no information from local officials. Usually there are some who are well-informed but not part of the inner group and willing to share their insights. In Tajikistan, it was primarily the well-funded international community who talked about who owned what. Only one local Tajik explained a few parts of the puzzle.
Much of my information came from the internet, which surprisingly the internet is not censored. Perhaps it doesn’t need to be. My impression, confirmed by resident expatriates, was that all our meetings were taped and the information relayed to our government counterparts.
This is Tajikistan. Virtually all economic activity eventually goes through the senior officials or their family members. In Dushanbe, all economic activity requires the informal support of the powers that be.
I found a blogger who said that his DVD store has been visited by a representative of the top brass. The rep explained that his DVD store was in competition with the daughter’s store and she would like him to close his shop. In his blog, the DVD store owner expressed appreciation that he had received a verbal warning. He was happy to close rather than have the store broken into and his inventory destroyed or still worse. When I relayed this story to residents of Dushanbe, to a person they agreed with the blogger—that he was lucky to have received verbal instructions to close his business.
Of course, the big business in Tajikistan is narcotics trafficking. Virtually all of the heroin consumed in Europe is thought to originate in Afghanistan and be transported across Tajikistan. In my travels, black market activities remain in the shadow, but they cast a long shadow—of businesses that are not present but should be.
Nevertheless on this trip, I found a Tajikistan quite different from the country I visited in June 2000. While stopping at red lights remains optional, most cars appear to obey traffic signals, particularly when the traffic police are present. My hotel did not have a tank in the driveway as it did in 2000. People walk on the street in the evening as they did not in 2000. Tap water is light brown rather than dark brown and I fell sick with dysentery and nausea only about five times in two weeks, rather than constantly.
However it is still a country in need of improvements. On the flight out of Dushanbe, I sat beside the representative for Colgate Palmolive, who said that business in Tajikistan was good but that it would remain a problem until people became accustomed to clean water. Only then would they recognize the need for good oral hygiene.
As for me, I am waiting for an international hotel chain to open in Dushanbe. Several five star hotels are rumored to be under construction, but they all require the approval of the mayor. With all land technically belonging to the state, local government officials wield great power. As one of my contacts explained, the top officials keep the mayor in power to show that if they were not there, the mayor would likely be in charge—and his tactics did not involve giving just verbal warnings to competitors. In the press, he is known as a narco-baron.
It was two weeks of asking lots of questions, protected by the international institution for which I work. I felt as if, just asking the questions of who owns and controls this company and that bank was shedding some light on a very opaque community.
Will fly back to DC in the morning but am planning to be back in central Asia before the summer begins in earnest.
Now the cleaning staff of my hotel is trying to dust the banisters and palisades and I must close.
Sue
Dear Friends and Family:
Greetings from Istanbul. I started this morning at 3:30, waking up ahead of my alarm, fearing that I might miss my flight from Dushanbe to Istanbul--and be obliged to wait another three days for the next flight out of Tajikistan.
Tajikistan seems to be a country that belongs neither to Europe nor to Asia and until September 11, 2001 was forgotten by both. Even today, the local radar on www.weather.com shows weather patterns for Saudi Arabia rather than central Asia. Tajikistan borders Afghanistan to the south, China to the east, Uzbekistan to the north and Iran to the west. The capital, Dushanbe, is at the bottom of a valley with mountain ranges on all sides. Indeed the US military employs Tajik pilots for their flights in Somalia because the pilots are so accustomed to flying in difficult conditions with changing winds.
Starting in 2001, the developed world could no longer forget countries like Tajikistan. Hundreds of millions of dollars of aid are given by governments in the hope that economic development will prevent isolated countries from becoming failed states. The US provides almost $25 million a year just in advisors on legal enforcement. The Chinese Government has promised to provide $650 million, including the building a mountain road from Dushanbe into Uzbekistan. The Aga Khan Foundation has just built a major bridge into Afghanistan.
Tajikistan has three main industries: aluminum, cotton, and narcotics transit. The aluminum plant is a legacy from the Soviet period. It generates air pollution into Uzbekistan and consumes so much power that most of the country has no electricity all winter. Even Dushanbe suffers from regular power cuts. Furthermore the aluminum plant was the first facility seized by the current President when he crossed the Uzbek-Tajik border in 1992 with 300 men. As recently as three years ago, the plant is thought to have financed one of the government institutions, whose leader came to contest power with the President—and is now in jail on charges of corruption. The senior officials seem to prefer to choose in their inner circles those with criminal or corrupt backgrounds. It is very convenient. When they become popular and powerful, senior officials can dismiss them and press charges—and then take credit for cleaning out the government.
Cotton is a still more complex story. Two international cotton traders provided financing for the local cotton industry through a series of intermediaries. During the Soviet period, the cotton gins were used to siphon off profits. In other central Asia countries, theft from the cotton sector was accomplished by under-reporting the total cotton production. In Tajikistan, it was more subtle. The cotton gins underreported the throughput rate for cotton processing.
Today the gins are owned by 25 to 30 well-connected intermediaries that finance the local cotton farmers, with refinancing from the same two international traders. The local intermediaries provide seed, fertilizer and tractors (not necessarily at market prices) and are repaid through the production of raw cotton sold to the gunnery (also not necessarily at market prices.) A few bad crop years has put some 30,000 farmers in hock to what are essentially loan-sharks. The government and the local representatives of the international community have spent several years trying to figure out what to do. The plans seem to benefit the intermediaries. So my question, is who owns the intermediaries? That, it seems, is a tricky question but knowing who owns and controls the key economic facilities is essential in understanding a country’s economy.
Last Sunday, the group with whom I am traveling decided to go watch Buzkashi, which literally means goat-grabbing. In a crude form of polo, men riding on horses compete to pick up the carcass of a headless goat. Buzkashi is most commonly associated with Afghanistan but is a common form of competition throughout central Asia. Last Sunday, we arranged with a tour guide to watch the spectacle. It gave interesting insights into Tajik economic life--and how relationships determine one's success in business.
We watched as several hundred horsemen descended into a valley and prepared for the competition. It seems that Buzkashi has no rules, except that the riders are supposed to act on their own. Of course, they work in teams, with some riders protecting the route for the rider with headless-goat in his hands. These informal alliances are necessary to win the valuable prizes for picking up the headless goat and taking the carcass across the finish line. However there is no umpire, just a rider with a loudspeaker telling the crowd who has done what to whom and why all of this is for the greater glory of the Republic of Tajikistan.
The business world seems to be similar. The rules seem to be non-existent and their are no umpires. Informal alliances are critically necessary for survival. And they are very tight in Tajikistan.
In my travels, I have never before found myself receiving virtually no information from local officials. Usually there are some who are well-informed but not part of the inner group and willing to share their insights. In Tajikistan, it was primarily the well-funded international community who talked about who owned what. Only one local Tajik explained a few parts of the puzzle.
Much of my information came from the internet, which surprisingly the internet is not censored. Perhaps it doesn’t need to be. My impression, confirmed by resident expatriates, was that all our meetings were taped and the information relayed to our government counterparts.
This is Tajikistan. Virtually all economic activity eventually goes through the senior officials or their family members. In Dushanbe, all economic activity requires the informal support of the powers that be.
I found a blogger who said that his DVD store has been visited by a representative of the top brass. The rep explained that his DVD store was in competition with the daughter’s store and she would like him to close his shop. In his blog, the DVD store owner expressed appreciation that he had received a verbal warning. He was happy to close rather than have the store broken into and his inventory destroyed or still worse. When I relayed this story to residents of Dushanbe, to a person they agreed with the blogger—that he was lucky to have received verbal instructions to close his business.
Of course, the big business in Tajikistan is narcotics trafficking. Virtually all of the heroin consumed in Europe is thought to originate in Afghanistan and be transported across Tajikistan. In my travels, black market activities remain in the shadow, but they cast a long shadow—of businesses that are not present but should be.
Nevertheless on this trip, I found a Tajikistan quite different from the country I visited in June 2000. While stopping at red lights remains optional, most cars appear to obey traffic signals, particularly when the traffic police are present. My hotel did not have a tank in the driveway as it did in 2000. People walk on the street in the evening as they did not in 2000. Tap water is light brown rather than dark brown and I fell sick with dysentery and nausea only about five times in two weeks, rather than constantly.
However it is still a country in need of improvements. On the flight out of Dushanbe, I sat beside the representative for Colgate Palmolive, who said that business in Tajikistan was good but that it would remain a problem until people became accustomed to clean water. Only then would they recognize the need for good oral hygiene.
As for me, I am waiting for an international hotel chain to open in Dushanbe. Several five star hotels are rumored to be under construction, but they all require the approval of the mayor. With all land technically belonging to the state, local government officials wield great power. As one of my contacts explained, the top officials keep the mayor in power to show that if they were not there, the mayor would likely be in charge—and his tactics did not involve giving just verbal warnings to competitors. In the press, he is known as a narco-baron.
It was two weeks of asking lots of questions, protected by the international institution for which I work. I felt as if, just asking the questions of who owns and controls this company and that bank was shedding some light on a very opaque community.
Will fly back to DC in the morning but am planning to be back in central Asia before the summer begins in earnest.
Now the cleaning staff of my hotel is trying to dust the banisters and palisades and I must close.
Sue
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