President Putin’s pardon of Mikhail Khodorkovsky, announced at his annual press conference, could improve Russia’s investment climate and lead to goodwill ahead of the Sochi Olympics.

Russian former oil tycoon Mikhail Khodorkovsky stands in the defendants' cage before the start of a court session in Moscow. Photo: Reuters

On Dec. 19, Russian President Vladimir Putin announced his intention to pardon Mikhail Khodorkovsky, former head of the YUKOS energy company, who was imprisoned in 2003 on charge of embezzlement, money laundering and tax evasion. Putin’s statement came as a big surprise for Russian and foreign journalists who attended the Russian President’s annual press conference. Attended by hundreds of correspondents from all around the world, this press conference is seen as a face-to-face talk between the president and reporters.

"As concerns Khodorkovsky, I have said already that Mikhail Borisovich [Khodorkovsky] was supposed to write the relevant paper in line with the law, which he did not do, but just recently he wrote such a paper and addressed me with a pardon petition,” Putin told the press conference. “He has spent more than 10 years in a penitentiary, this is a serious punishment, he refers to humanitarian circumstances, his mother is ill, and I think such a decision can be made, and a decree on pardoning him will be signed in the near future."

In the framework of two different cases, Khodorkovksy was sentenced to 14 years in prison for fraud, tax evasion, money laundering and embezzlement. After Khodorkovsky’s sentences had been commuted by the court from 13 years to 11 years, he was expected to be released in August 2014.

Remarkably, a reporter for Novaya Gazeta, one of Russia’s opposition newspapers critical of the government, asked Putin about the so-called third “Yukos case” during the conference. President Putin’s response bore no indication of any political amnesty for Khodorkovsky coming. ”As to 'the third case,' I do not want to go into details but honestly speaking I, as a person watching this from the outside, do not see considerable prospects in this regard,” Putin said.

“Putin always answers questions on Khodorkovsky reluctantly and I think he hasn’t always been able to respond to these questions,” said Nadanna Fridrikhson, political analyst from the Institute of Eurasian Economic Partnership (EurAsEC Institute). “Yet afterwards he was told that [such reluctance] may bring about a negative reaction and he decided to comment on the case with the pardon after the conference.”

Khodorkovsky pardon: Game-changer for Russia’s investment climate?

Minutes after the news made headlines of leading Russian news agencies, the Russian stock market surged with MICEX (The Moscow Interbank Currency Exchange) going above the psychologically important threshold of 1,500 points.

This reminded participants of August 2008, when the Interfax news agency mistakenly reported that Khodorkovsky had been granted parole following a court hearing in Moscow. Back then, all the major Russian blue chips increased by an average of 2 percent, including national energy giants, such as Gazprom, Lukoil and Rosneft.

“It is strange that his pardon was not part of the current amnesty,” said Chris Weafer, senior partner with Macro Advisory, a Moscow-based consultancy providing research services to macro hedge funds, venture capital investors and foreign companies looking at investment opportunities in Russia and Central Asia. “This probably indicates that there are some people at the top of government who are against releasing him. A presidential pardon does not have to be approved by the Duma.”

“Along with the amnesty for the Greenpeace protesters, the move is aimed at generating more positive news flow from Russia for a change,” he said. “The move is also a very positive indicator of a more serious effort by government to improve the country's poor investment image and to try and attract more investment flows.” 

However, Weafer assumes that the pardon will not suddenly result in “a tide of foreign investment capital coming to Russia” because investors are still looking for progress in reducing corruption, improving the rule of law and reducing bureaucracy, he explains.

“But it is a very positive indicator of the government's intention to become more serious about the reform agenda and to improve Russia's investment image,” he said.

Likewise, Bernard Shucher, a member of the board of directors at Aton Group, sees Putin’s move as a good sign.

“Showing mercy to the prisoner wins the Kremlin goodwill ahead of Sochi and will encourage investors to look again at Russia,” he said. “If the political will can be found to ensure that posthumous justice is done for Sergey Magnitsky, you could well see a significant re-rating of Russia's investment climate and its traded equity market.”  

A participant holds a placard showing an image of a imprisoned tycoon Mikhail Khodorkovsky during a commemoration of victims of political repression in Moscow October 30, 2012. Photo: Reuters

Is it related to Sochi?

Weafer argues that the timing for the Khodorkovsky pardon is associated with the final preparations for the Sochi Olympics.

Yuri Korgunyuk from the Moscow based Indem think tank agrees. He believes that Putin’s pardon of Khodorkovsky indicates that the country is struggling to improve its image abroad before the Sochi Olympics, and not to become like China and Saudi Arabia where human rights leave much to be desired.

On Dec. 18, the White House announced its delegation to Sochi: as it turns out, President Obama chose to skip the 2014 Sochi Olympics, which marks the first time since the 2000 Sydney Olympics when the president, vice president or the first lady were not in the official delegation.

“When leaders of developed countries refuse to come to Sochi due to the gay propaganda law, Russia wants to recover its image,” he said.

In contrast, Stanislav Tkachenko, associate professor in the International Relations Department of St. Petersburg State University, doesn’t think that Putin’s stance on the Khodorkovsky amnesty is related to the Sochi Olympics because Russia has already made its best efforts to promote the Sochi brand abroad.

“Khodorkovsky is no Mandela”

Tkachenko has another explanation for Putin’s move. “Khodorkovsky gave up,” he said. “His strategy on his prison term failed. In addition, the Russian president seems to be satisfied with the current relations between government and business,” Tkachenko added, pointing to the fact that previously Putin did his utmost to keep entrepreneurs at bay from politics. When business stopped meddling in government politics, Putin saw no more threat in it and decided to sign an amnesty for Khodorkovsky.

Director of Moscow Carnegie Center Dmitry Trenin echoes Tkachenko and relates the Khodorkovsky pardon to his relations with Russia’s opposition. He wrote on Twitter that Putin no longer sees Khodorkovsky as a threat. He sees Putin’s stance as a “verdict on the Russian opposition.”

“If that is the best, then there is not much to fear,” he told Russia Direct. “As for Khodorkovsky, he is no Mandela to Putin.”

“Most people following this case – and I include myself – have been sure that as long as Putin was president he would keep Khodorkovsky in prison,” said Stephen Sestanovich, George F. Kennan Senior Fellow for Russian and Eurasian Studies. “I'm glad to be proved wrong.  Putin has a great deal of work to do if he is serious about establishing the rule of law in Russia, but this is a good place to start.”

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