optimism about Russia - the Chinese model

Doug Henwood dhenwood at panix.com
Mon Mar 27 06:14:59 PST 2000

Russia's Putin seen creating pro-investor economy By Karl Emerick Hanuska

MOSCOW, March 27 (Reuters) - Acting President Vladimir Putin's probable victory in Russia's presidential election should usher in long-awaited reforms to attract investors and get the economy back on track, analysts said on Monday.

After apparently running up enough of the vote to avoid a runoff, Putin inherits an economy which, thanks to high oil and metals prices, is at its strongest in nearly a decade of political turbulence and stop-go measures.

Russia is running a strong trade surplus, has healthy budget revenues, and central bank foreign exchange and gold reserves are at levels not seen since before the 1998 economic crash.

That, coupled with a pro-Kremlin parliament, means that for now Putin should have the muscle to secure passage of any reforms he supports.

Analysts said that while Putin, 47, has been short on the specifics of his economic plan, he has clearly indicated his intent to create an investor-friendly business climate.

"The greatest mystery about Putin is why everybody finds him so mysterious," said Eric Kraus, chief strategist at NIKoil.

"His actions and words... are in keeping with the Chinese model: a more restrictive foreign policy, a restrictive domestic policy and a very open and investor-friendly economic policy."


Kraus saw eager investors boosting Russian markets on the election results. Investors, optimistic about the prospects for a Putin presidency and strong economic fundamentals, in the last month have already driven shares back to pre-crisis levels.

But Kraus said the long-term investment picture would depend on Putin tackling individual issues like corruption, streamlining bureaucracy and addressing investors rights.

"There's a whole mess there that he has to wade through, but for the first time in a while I am reservedly bullish," he said.

First Deputy Prime Minister Mikhail Kasyanov, a skilled debt negotiator widely tipped to head the new government, told CNN creating an investor-friendly economy was a priority for Putin.

"That means first of all to eliminate the contradictions in legislation which exist now that prevent (domestic) and foreign investors from investing more and operating in Russia more effectively," he said.

Kasyanov said it was also important to adopt a new tax code, easing the tax burden. "Everything goes in the direction of creating a more attractive investment climate."


Roland Nash, chief economist at Renaissance Capital, also saw Putin intent on attracting investors, but said the first months of Putin's presidency would focus on political issues.

"I think there are three key areas he is going to concentrate on. He has said time and time again that he is going to create a strong state, to centralise control and create stability in the country," Nash said.

"On the back of that political and economic stability he hopes to get the investment which is (necessary) to build a strong economy."

Analysts said that while serious reform may still be a little while in coming, major investors were finally warming again to Russia after having been burned in the 1998 crash.

"Six months ago if you called investors and wanted to talk to them about Russia they hung up on you," NIKoil's Kraus said.

"Now people -- and that includes the big investors -- are seriously thinking about Russia again while it's still cheap... They know that its time to come back."

More information about the lbo-talk mailing list