Top of Putin's agenda: wooing foreign capital

While foreign investors in Russia see new opportunities, experts see more of the same.

What's the definition of an optimist in Russia? Someone who believes that tomorrow will be better than the day after.

It's an old joke, often recycled over the past decade as Russia stumbled from economic atrophy to hyperinflation to industrial depression, and then to complete financial collapse and government default in August 1998.

After years of turmoil and decline, many Russians had started to see mere stagnation as something to aim for. Foreign investors - those who did not flee after the 1998 crisis - just tried to hang on in the Russian market.

But the sudden arrival in the Kremlin of Vladimir Putin, who on Sunday won a decisive first-round electoral victory to become Russia's second post-Soviet president, has greatly inflated expectations. "We are very hopeful that at last the basic obstacles to working effectively in Russia will be addressed," says Alexander Tatarinov, who heads the Russian office of German electronics giant Grundig. "The main thing is: Putin is seriously talking about fighting poverty. That's the key to expanding the consumer base. Too few people in this country are buying things."

His upbeat mood seems widely shared. "This is a moment of flux, which opens up a lot of opportunities we haven't seen in this frozen economic landscape for a long time," says Scott Blacklin, president of the American Chamber of Commerce in Moscow. "Putin seems to have grasped the nettle that you have to get this economy growing again if you want to do anything else."

Mr. Putin has said a great many things to tickle the ears of businesspeople. In a manifesto published in December, he acknowledged Russia has fallen far behind the curve of global economic development and would require radical steps to put it back on track. He promised to crank up growth on the order of 8 to 10 percent annually within a few years. Key to it all would be outside companies. "Our growth would be long and slow without foreign capital," he wrote. "But we are short of time, so we must do our best to attract foreign investors."

Direct foreign investment in Russia was low throughout the 1990s, reaching a peak of about $6 billion in 1997. Last year, $4.26 billion was received and the Russian Economics Ministry forecasts that will rise to about $5 billion this year. Overall, investment in the Russian economy amounted to 14.7 percent of gross domestic product in 1999 - compared to 40 percent of GDP in China, Malaysia, and Thailand, all fast recovering from their recent economic slump.

Can Putin break Russia's downward cycle? "Absolutely," says Yuri Kotler, a chief adviser with the Kremlin-sponsored Center for Strategic Research, which is preparing Putin's long-term economic program. "The first thing is to form a government with the professional competence and the authority to tackle the problems. This is being done right now."

So far, Putin's message has been long on talk of consolidating society, restoring the national will, and establishing strong authority, and depressingly short on specifics. Mr. Kotler rattles off a list of tasks the new Kremlin leader has committed himself to, which includes establishing a "dictatorship of law" to ensure that all economic players are given equal treatment. Also on Putin's agenda, he says, is a serious war on corruption, radical slashing of the government bureaucracy, and comprehensive tax reform.

But Russian liberals have been promising the same things since the 1991 demise of the Soviet Union. Former President Boris Yeltsin launched successive anti-corruption campaigns and talked up a storm about the need to impose strict rule of law. But Transparency International, a German think tank, consistently places Russia near the top of its annual list of the world's most-corrupt states.

"Unless there are very radical departures from past practices, nothing is likely to happen here," says Grigory Sapov, an expert with the Institute of National Economic Models, a liberal think tank in Moscow. "I don't think Putin's pre-election silence on his strategic plans was a clever campaign ploy. I think they really have no idea what to do. In that case, foreign investors would better put their money into China."

If Putin is serious about getting reform on track, experts say, the single most credible signal he could give would be to declare war on the country's "oligarchs" - the handful of well-connected tycoons who won Russia's economic crown jewels in often- rigged Yeltsin-era privatizations. In the run-up to the elections, some of these oligarchs, including the outspoken Boris Berezovsky, were allowed by acting President Putin to vastly increase their holdings by snapping up crucial media and industrial assets.

"We've been very impressed by some of the things Putin's liberal entourage has been telling us," says Blacklin. "But there is also a darker, more conservative group among the people who surround Putin, who contributed to bringing him to power. That includes the oligarchs ... who have been above the law and have caused great difficulties to foreign investors.

"Does Putin have the will to get rid of them? That is an open question, and the answer will be the Russian president's litmus test."

(c) Copyright 2000. The Christian Science Publishing Society

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