Russia's Reverberating Verdict

Undoubtedly, the Kremlin trusts it's taught Russian oligarchs a lesson by singling out Mikhail Khodorkovsky - once the richest man in the country - for prosecution on tax and fraud charges, then this wekk sentencing him and his business partner to nine years in prison.

The lesson is: Don't use your wealth to challenge the political power of President Vladimir Putin. That's what Mr. Khodorkovsky did as head of the Yukos oil company - now dismantled and partially renationalized after facing $28 billion in alleged back taxes.

But has the Kremlin also learned its lesson from this dubious victory? The economic fallout from the government's arbitrary attack on Yukos stretched across Russia's 11 time zones, and the whole affair tarnished its image in the West. The Yukos prosecution rattled Russia's stock market, spurred on capital flight, and slowed economic growth.

Russian investors, unsure where the hammer might next come down or how the law might next be applied, have held back. Economists say this helps account for growth forecasts of 5.2 to 6.2 percent this year, compared to about 7 percent actual growth in 2004, much of it dependent on high - but vulnerable - oil prices.

Earlier this spring, Mr. Putin sat down with Russia's business elites to steady their nerves. Signaling that Yukos was a one-time affair, he said the government planned to reduce the statute of limitations on the "wild west" privatization deals of the post-Soviet 1990s that spawned Yukos and other oligarch-owned enterprises. The new limit, stretching back three years instead of 10, would basically exempt Mr. Khodorkovsky's fellow tycoons from charges he's faced.

At the same time, Putin promised to reign in tax inspectors who've been handing out hefty back-tax bills as if they were parking tickets. He's also moving to define where, and by how much, foreigners can invest in Russia.

These measures all point to needed clarity and reassurance for the domestic and international business community, but their weakness is that they're purely economic measures.

Yukos may prove an anomaly, but favoritism in the courts is not. Neither is the undue influence of local government officials on business. Putin's democratic reversals - the supression of the media, the marginalization of the political opposition, the appointment instead of election of regional governors - simply endanger Russia's future by making its rule capricious.

For investment to flourish, and for Russia's economy to diversify from its heavy reliance on oil and gas, businesses need the whole solution - economic and democratic progress.