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US: Yukos Oil Controversy Undermines Investor Confidence in Russia - 2004-07-06


The Bush administration said Tuesday the Russian government's legal campaign against the Yukos oil company and its founder Mikhail Khodorkovsky is undermining international investor confidence in the Russian economy. The State Department says U.S. officials have raised the issue repeatedly with Russian officials.

The Bush administration has raised public misgivings about the Yukos case before. However, the State Department's comments Tuesday were the strongest to date and reflect concern that the seemingly-political prosecution of the company and Mr. Khodorkovsky means a roll-back of Russia's commitment to free-market economics.

The stock of Yukos, once the most widely-held Russian security in the world, has plummeted since April amid investor concern that the company, being pursued by the Moscow government for failure to pay billions of dollars in back taxes, may be nearing insolvency.

Mr. Khodorkovsky, who owns a 44 percent share of the company, has been jailed since last October on fraud and embezzlement charges in a case that Russian critics allege is motivated by his political feud with Russian President Vladimir Putin.

At a news briefing here, State Department spokesman Richard Boucher said the U.S. government has taken no position on the merits of the case against Yukos and its principal investor.

But he said the United States wants to see a resolution in accordance with the rule of law and due process, without undue political influence, and one that that prevents the destruction of a company he said "has embraced Western practices of transparency and corporate governance."

He said the Yukos affair may already be taking a toll on Russia's image and reputation as a place to invest.

"We have also expressed, along the way, our concerns for the market situation, the effect that this might be having on investors and indeed there are some numbers that indicate that might be true," he said. "But the appearance of a lack of due process and a possible threat to private property rights have put the domestic and international business community somewhat on their guard, and have raised serious questions about the Russia's government's respect for investment rights and willingness to arrive at equitable solutions to promote business development."

Mr. Boucher said Secretary of State Colin Powell took the Yukos case up with President Putin on a visit to Moscow early this year and that the issue has been raised reportedly with Russian officials since then.

The Secretary of State referred implicitly to Yukos in a front-page commentary in the Russian newspaper Izvestia that capped the late-January visit.

He said the Russian democratic system "had not yet found the essential balance" among the executive, legislative and judicial branches of government, and that political power was "not yet fully tethered to law."

A senior diplomat who spoke to reporters here on terms of anonymity said it appears the Putin government is continuing to "go after" Yukos and Mr. Khodorkovsky "in a way that's inordinate."

He said the United States has observed a turnaround from investment in Russia to outward flows of capital and that Moscow officials "can no longer claim" that the Yukos affair is not having an effect on the business climate.

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