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President Vladimir Putin is quickly becoming a classic example of a politician who was very successful during his first term, when he tried to do all the good things people wanted in order to consolidate his power, but a disaster in his second term, when he had consolidated power and could do all the bad things he wanted to do.

One date marks the divide between the first benign Putin and the second harmful Putin. It is Oct. 25, 2003, the day of Mikhail Khodorkovsky's arrest. This event was never a matter of one person or his actual acts. The causes given for this arrest are many, but in the end they boil down to Putin's wanting to increase his political control and to his close associates' desiring to grab Yukos' assets.

Khodorkovsky's arrest signified the end of the oligarchs as a political force. After carrying out an intricate and elegant balancing act between oligarchs and KGB officers and being everything to everybody, Putin transformed himself from the president of the whole of Russia to the president of a small group of KGB men from St. Petersburg. He seems to have become their hostage because he has not demoted anybody from his closest circle. The remaining oligarchs were allowed to make money -- even more than before -- but they were ousted from politics.

This tiny group of siloviki from St. Petersburg sits on top of the state administration and the big state enterprises. Therefore, they have no interest in reforms, which in turn are thus precluded. They distrust everybody, so they have centralized decision-making to so few that both the quantity and quality of decision-making has lapsed to Soviet levels. As good KGB men, they do not believe in anything but their own disinformation, keeping themselves distant from reality. Such an unrepresentative and dysfunctional regime can hardly last for long.

Three of Russia's greatest recent reforms have been tax reform, judicial reform and the reinforcement of property rights. Through the Yukos case, Putin has effectively jeopardized all these achievements.

Whatever the final sentence will be in the Khodorkovsky affair -- if it is ever concluded -- Putin has rendered his judicial reform a joke, because it has been obvious that every turn of the Yukos story has been ordered by the Kremlin. Nobody can believe in the integrity of the Russian judicial system after this.

A patent post-Soviet problem has been Russia's arbitrary tax system. Putin did a great deal to improve it, but with the Yukos case, he has reversed the very essence of these reforms, namely the freedom from lawless persecution. The company appears to have utilized legal loopholes, and to an outsider no crime is apparent, but the government has the audacity to claim $28 billion -- and the immediate payment of that sum -- in order to effectively confiscate Yukos.

The worst long-term effect is that property rights in Russia have been severely undermined. If even the richest capitalist cannot assert his property rights, then who can? With the arrest of Khodorkovsky, Putin unleashed a property-rights populism that may be difficult to stop. As a result, the political risk premium for investment in Russia remains high.

It is difficult to imagine anything that Putin could have done that would have damaged himself more than the arrest of Khodorkovsky. But with characteristic stubbornness, Putin is just continuing to dig a deeper hole for himself. The question is how deep this hole needs to be before he disappears from Russia's political stage altogether.

Anders Aslund is director of the Russian and Eurasian Program at the Carnegie Endowment for International Peace. He contributed this comment to The Moscow Times.

By Mikhail Delyagin

For the public and the politicians, the most important indicators of economic development are probably GDP growth, inflation and the standard of living. But for market players, another indicator is far more influential: total capitalization of the national stock market. As doubts increase regarding the reliability of official economic statistics, the very objectivity of market capitalization makes it even more important as an economic indicator. The dynamics of stock market capitalization are a significantly better indicator of economic development than the dynamics of stock prices because they figure in the appearance of new market players.

The appearance of a large number of new investors, which indicates the growth of the business culture and a push for greater economic openness, drives up market capitalization even when stock prices are flat. In 2001, for example, the RTS exchange index scarcely budged while capitalization more than doubled from 1.2 trillion rubles to 2.5 trillion rubles ($43 billion to $83 billion), or 17.2 percent to 27.6 percent of GDP, according to the Federal Service for Financial Markets. In 2002, the RTS index also recorded modest gains, but capitalization increased by nearly half to 3.6 trillion rubles ($115 billion) or 33.7 percent of GDP.

In 2003, despite all the concerns associated with the Yukos affair, extremely favorable conditions in foreign trade accelerated growth to 60 percent, as total market capitalization reached 5.8 trillion rubles ($197.2 billion), or 44 percent of GDP. Capitalization peaked on Jan. 20, 2004, when it reached $212 billion, or 45 percent of GDP, according to Oleg Vyugin, head of the Federal Service for Financial Markets. But the good times didn't last long.

Total capitalization continued to grow, but the rate of growth decreased dramatically. According to official data, by late 2004 market capitalization amounted to 6.9 trillion rubles ($247.5 billion), or just 41.5 percent of GDP. By early 2005 that figure had dropped to 40 percent of GDP, as can be discerned from the government's "Strategy for Developing Financial Markets," which calls for increasing capitalization from 40 percent of GDP to 50 percent of GDP.

Russia's foreign trade situation remains rosy, and the economy continues to grow. Thus there can be only one reason for such a dramatic reversal in the prevailing tendency of market capitalization: a gradual recognition among market players of the real significance of the Yukos affair. The shattered reputation of President Vladimir Putin's regime and the excesses of the siloviki oligarchy, which has replaced an admittedly wild-and-woolly form of capitalism with a system resembling a feudal police state, have radically altered how investors view the Russian market and its prospects.

The consequences of this change for market capitalization are easy to quantify. The foreign trade situation in 2004 was far more favorable than it was in 2003, as the average annual world price for oil jumped by 25 percent while the price of ferrous metals, non-ferrous metals and mineral fertilizer rose by 85 percent, 65 percent and 30 percent, respectively. Negative domestic factors were linked primarily to the Yukos affair. It therefore seems reasonable to assume that if Yukos hadn't been carved up, stock market capitalization would have continued to expand at least as rapidly as it did in 2003.

In that case, capitalization would have jumped by 60 percent last year to 9.3 trillion rubles, fully 35 percent higher than the 6.9 trillion rubles actually achieved. The difference between these results -- 2.4 trillion rubles ($87.4 billion) for 2004 -- provides a minimum estimate of the cost of the state's destruction of Yukos in terms of capitalization.

The Yukos affair has already robbed Russia of a third of its market capitalization, and the damage to the entire Russian economy increases daily.

Mikhail Delyagin, head of the Institute for Globalization Studies, contributed this comment to The Moscow Times.