Amid disastrous drops in industrial production, Russian business leaders and officials are split over whether there are green shoots of recovery around the corner.
President Dmitry Medvedev on Monday warned that GDP would contract more than predicted this year and the Economic Development Ministry is expected to revise its original forecast of minus 2.2 per cent downwards.
In 2009, unfortunately, we expect a sharper fall in the GDP than we had thought," Medvedev said at a meeting with top ministers, The Associated Press reported. "The global economic crisis is far from nearing the end."
While Medvedev did not give an exact figure, Economy Minister Elvira Nabiullina stated that it could be as much as 8 per cent. This has been the most pessimistic prediction to date, surpassing the IMF, which forecast a 6 per cent decline this year, followed by 0.5 per cent growth in 2010.
In the first quarter GDP fell 9.5 per cent year on year, while industrial output shrank 16.9 per cent year on year in April and 8.1 per cent compared to March, the State Statistics Agency said.
"We are right at the bottom now," said Roland Nash, chief strategist at Renaissance Capital. "What I mean by that is that the shock of decreased wages and increased unemployment and the lack of financing are all hitting right now."
Unemployment reached an eight year high last month of 7.7 million people, or 10.2 per cent, and the rise shows no signs of stopping.
"It is going to be very patchy, depending on regions and companies but I expect that unemployment as a lagging indicator will continue to go up," said Martin Gilman, a professor at Moscow's Higher School of Economics and a former IMF representative in Russia.
Retail sales fell 5.3 per cent in April on the year, while inflation, which was high even during the boom years, remains one of the biggest challenges, hitting 13.3 per cent in 2008 and 5.3 per cent in the first quarter of 2009.
The crisis has also exposed Russia's dependence on raw materials, particularly oil, which has fallen from record highs of $147 a barrel last July to around $30 in January. Urals blend, Russia's main export, has now risen above $58 and is helping prop up the economy.
"Russia will today earn about $550 million from oil and gas exports compared to about $400 million when oil traded at $40 per barrel, certainly helps improve the outlook and reduces the budgetary headache," Chris Weafer, chief strategist at UralSib, wrote in a note to investors.
However, the IEA predicts world oil demand will fall by 2.56 million barrels a day in 2009 and with OPEC quota compliance slipping, a fall in the crude prices could put the Russian economy under more pressure.
One sign that the economy is recovering are the stock markets, which have been two of the strongest in the world as investors have been attracted to emerging markets. The RTS has increased more than 60 per cent and the MICEX is up some two-thirds since January 11.
"Just as financial markets led the economy into the crisis so I think the financial markets will be leading the economy out of the crisis and the financial markets are obviously doing a lot better right now," said Nash.
Medvedev's admission that Russia will have to cut spending for the 2010 budget has been seen as a victory for the Cabinet's fiscal conservatives but the debate still rages over how to reform the economy.
Finance Minister Alexei Kudrin has repeatedly advocated slashing the budget, which is expected to have a 7 per cent deficit this year, though has warned that Russia will still need to borrow more than $7 billion abroad next year.
"We will have to cut spending - including the key areas," Kudrin said, AP reported Monday.
Kudrin also announced Monday that the budget will be based on the "conservative" estimate of $50 a barrel oil in 2010 and $52 in 2011.
Medvedev called for greater macroeconomic stability but also continued spending of reserves "to meet our social obligations and still spend large amounts on anti-crisis measures," which some analysts see as a problematic.
"We note something of a contradiction in [Medvedev's] address insofar as it dealt with the fulfillment of previous state obligations versus limiting Russia's budget deficit to maintain macroeconomic stabilisation," Elena Sharipova, a senior economist at Renaissance Capital, wrote in a research note on Tuesday.
Negative numbers
Economy in free fall:
Unemployment: 10.2 per cent (7.7 million people)
GDP growth 2009: - 6 per cent (IMF prediction)
Inflation 2009: 13 per cent (Reuters quoting Kudrin)
Industrial production (April 2009 y-o-y): - 16.9 per cent
Urals blend oil price (average Jan-April): $44.79
Monday, 1 June 2009
Keeping the silver lining
In 2002, during a visit to a Gulf country, a business magazine caught my attention. It had a cover story titled: "Getting it right this time". There was an almost identical cover from another magazine beside it, but that one was dated more than 10 years earlier. Both articles were urging governments in the region to stick with the reform and spending agenda formulated during the previous period of oil price weakness. A similar article had been published in the 1980s.
Business leaders were fearful that the curse of high oil would strike for a third time; that governments would become complacent as oil revenues rose and that plans to use the oil wealth "wisely" would again be shelved until the price curve dipped and economic panic returned. Since then, there certainly has been more visible spending in the Gulf countries with greater progress in pushing economic and social reforms in many countries.
For some, most notably Saudi Arabia, the oil revenue recovery came just in time to allow the government to increase domestic social and infrastructure spending. Internal tensions were rising as people became frustrated with the very large wealth gap between rich and poor and the lack of progress with promised reforms.
Already we can see a parallel in Russia. During the second term of Vladimir Putin's presidency, there was a great deal of discussion and planning over how the country was going to use its oil wealth to achieve long-term objectives of creating a more diversified economy, less volatile economic growth and greater wealth distribution.
Not a lot actually happened in that period, other than the mushrooming of annual oil and gas revenues from $106 billion in 2004 to $313 billion in 2008 and the spin-off growth it generated in the economy.
But reform progress and investment spending remained very light. For investors, that was still OK. They understood that Putin's presidency was one of preparation and that the priority would shift to the implementation phase from May 2008.
The plan was still in place and a large part of the $1.2 trillion earned from oil and gas during the previous eight years was still available to fund the next phase.
President Dmitry Medvedev's programme set out the priorities for more actively pursuing the long talked-about reform agenda and long overdue spending plans to improve key areas of the country's infrastructure. So far, so good - but the start of his presidency was unfortunately blighted by the fact that soon after his inauguration, the price of oil peaked and reversed very sharply.
His government's priority necessarily shifted to one of fire-fighting and the reform and spending agenda was temporarily shelved. It cannot be denied that the actions taken so far have led to a relatively stable situation today and, while the problems facing the economy this year are immense, the catastrophe scenario widely feared late last year has been avoided. The oil rally back to $60 per barrel has been a critical factor. Rising unemployment, the sharply falling rate of economic activity, corporate debt problems and more non-performing bank loans still pose a considerable threat. Dealing with these issues will continue to be the government's main priority through 2009 and into 2010.
But there was a silver lining emerging from the economic cloud - a consensus within government that because the period of easily-earned oil and gas wealth was over, or no longer assured, there would have to be a much greater focus on reforms and smart spending. The oil price collapse was viewed as almost a welcome reality check that shook the country out of its complacency. In some quarters there was a palpable sense of relief that the collapse came in 2008 rather than, say, in four years time. Gone unchecked, the rate of debt build-up would surely by then have wrought economic and social havoc even greater than that of 1998.
The oil price was below the revised budget assumption and was in real danger of falling even more sharply. Since then oil has rallied strongly and is approaching an average this year of $50. Many in government feel that they can again sleep easily, panic over. Medvedev continues to push the case for urgency to pursue the reform agenda and to improve the country's investment credentials. Finance Minister Alexei Kudrin and others are also urging the avoidance of complacency and greater focus on change. Others take the view that, like Houdini, Russia has pulled off a great escape and all is well again.
That is what the Saudis and other Gulf oil producers thought - three times - until finally a frustrated public and rising social problems forced the message home. Russia has earned over $1.2 trillion from exporting oil and gas since 2000 and that has provided the basis of the economic boom. Let's hope that the lesson of the curse of high oil in the Gulf countries in the 1980s and 1990s is heeded today in Russia.
Business leaders were fearful that the curse of high oil would strike for a third time; that governments would become complacent as oil revenues rose and that plans to use the oil wealth "wisely" would again be shelved until the price curve dipped and economic panic returned. Since then, there certainly has been more visible spending in the Gulf countries with greater progress in pushing economic and social reforms in many countries.
For some, most notably Saudi Arabia, the oil revenue recovery came just in time to allow the government to increase domestic social and infrastructure spending. Internal tensions were rising as people became frustrated with the very large wealth gap between rich and poor and the lack of progress with promised reforms.
Already we can see a parallel in Russia. During the second term of Vladimir Putin's presidency, there was a great deal of discussion and planning over how the country was going to use its oil wealth to achieve long-term objectives of creating a more diversified economy, less volatile economic growth and greater wealth distribution.
Not a lot actually happened in that period, other than the mushrooming of annual oil and gas revenues from $106 billion in 2004 to $313 billion in 2008 and the spin-off growth it generated in the economy.
But reform progress and investment spending remained very light. For investors, that was still OK. They understood that Putin's presidency was one of preparation and that the priority would shift to the implementation phase from May 2008.
The plan was still in place and a large part of the $1.2 trillion earned from oil and gas during the previous eight years was still available to fund the next phase.
President Dmitry Medvedev's programme set out the priorities for more actively pursuing the long talked-about reform agenda and long overdue spending plans to improve key areas of the country's infrastructure. So far, so good - but the start of his presidency was unfortunately blighted by the fact that soon after his inauguration, the price of oil peaked and reversed very sharply.
His government's priority necessarily shifted to one of fire-fighting and the reform and spending agenda was temporarily shelved. It cannot be denied that the actions taken so far have led to a relatively stable situation today and, while the problems facing the economy this year are immense, the catastrophe scenario widely feared late last year has been avoided. The oil rally back to $60 per barrel has been a critical factor. Rising unemployment, the sharply falling rate of economic activity, corporate debt problems and more non-performing bank loans still pose a considerable threat. Dealing with these issues will continue to be the government's main priority through 2009 and into 2010.
But there was a silver lining emerging from the economic cloud - a consensus within government that because the period of easily-earned oil and gas wealth was over, or no longer assured, there would have to be a much greater focus on reforms and smart spending. The oil price collapse was viewed as almost a welcome reality check that shook the country out of its complacency. In some quarters there was a palpable sense of relief that the collapse came in 2008 rather than, say, in four years time. Gone unchecked, the rate of debt build-up would surely by then have wrought economic and social havoc even greater than that of 1998.
The oil price was below the revised budget assumption and was in real danger of falling even more sharply. Since then oil has rallied strongly and is approaching an average this year of $50. Many in government feel that they can again sleep easily, panic over. Medvedev continues to push the case for urgency to pursue the reform agenda and to improve the country's investment credentials. Finance Minister Alexei Kudrin and others are also urging the avoidance of complacency and greater focus on change. Others take the view that, like Houdini, Russia has pulled off a great escape and all is well again.
That is what the Saudis and other Gulf oil producers thought - three times - until finally a frustrated public and rising social problems forced the message home. Russia has earned over $1.2 trillion from exporting oil and gas since 2000 and that has provided the basis of the economic boom. Let's hope that the lesson of the curse of high oil in the Gulf countries in the 1980s and 1990s is heeded today in Russia.
Yukos
Businessman Mikhail Sannikov loves the smell of Yukos in the morning. So much, in fact, that's he's launching a perfume named after Mikhail Khodorkovsky's former bankrupt oil firm, Vedomosti reports.
Although the green-and-yellow triangle is a trademark now owned by Rosneft, it is only registered for oil products - in theory making it possible to transfer the brand's essence.
Sannikov admits any Yukos perfume would be unlikely to come up smelling of roses in the competitive cosmetics markets, but would highlight his belief that former Khodorkovsky's oil firm sent a nasty niff through the Russian business world.
Chopped off
International politics is behind the delay in giving a Canadian firm a license to build the PW-127 helicopter engine in Russia, according to American military news site strategypage.com.
They claim the delay is part of US pressure on Russia not to sell anti-aircraft weapons to Iran. The proposed deal, the first of its kind since Britain licensed a Rolls Royce jet engine soon after World War II, would speed the delivery of Russia's new Mi-38 helicopter.
Now the new high-speed aircraft will be delayed until at least 2012, and will use a less efficient Russian engine.
Gas simmering
Ukraine has offered to accept a $5 billion advance payment from Russia for five years of gas transit - to enable the country to pay its own gas bill.
But the plan has not been well received. Pravda.ru calls it a "ridiculous offer", noting that Russia receives no guarantees of payment beyond 2010 and adding that Ukraine has no chance of Western financial support.
Meanwhile Komsomolskaya Pravda detects the "smell" of Europe in the plan, fearing the EU may be about to provoke another politically-motivated fuel dispute.
Budget cuts call
Kremlin aide Arkady Dvorkovich believes the government has a couple of months to cut budget spending in response to the crisis.
But he said "substantial state funds" would be invested in projects to help the economy recover in the future, even as the overall expenditure falls, RIA Novosti reports.
He added that Russia's reserves must be used carefully to ensure social payments were made.
People trade
Tajik workers suffer difficult working conditions and discrimination in Moscow, but Tajik Interior Minister chief Safiullo Devonayev has no plans to slow the exodus from Dushanbe.
At a meeting between migration service staff from Russia and Tajikstan and regional officials from Samara, Devonayev explained labour export was an important part of Tajik policy.
Raging bulls
Sky high value for Facebook
Internet group Digital Sky Technology has spent $200 million on a 1.96 per cent stake in social networking website Facebook. The Russian group, which already operates the similar Vkontakte site over here, concluded a deal which values Facebook at $10 billion, more than Starbucks coffee or Safeway supermarkets. Not bad for a popular office timewaster.
Shopping nation
British supermarket giant Sainsbury's is planning to make Russia its first overseas market, according to Kommersant. The business daily's sources claim the firm has held discussions with the X5 Retail group and other Russian supermarket operators with a view to entering the market in the autumn.
Toxic assets
GDP slump
President Dmitry Medvedev has warned that the economy will shrink faster than expected, after figures showed GDP dropped 23 per cent in the first quarter of 2009. AP reports that Medvedev didn't give a revised estimate but admitted a forecast budget deficit of 7 per cent was "optimistic". Meanwhile Finance Minister Alexei Kudrin has ruled out going to the IMF, but is considering borrowing up to $7 billion next year and $10 million the year after from overseas sources.
In bad nick
Norilsk Nickel, the world's biggest producer, posted a $449 million loss after a $4.7 billion writedown on its OGK-3 power generator and some non-Russian units, Bloomberg reports. The company also took a hit on the currency markets in 2008, losing $397 in foreign exchanges, and its year-end assets of $2 billion were 50 per cent down.
Although the green-and-yellow triangle is a trademark now owned by Rosneft, it is only registered for oil products - in theory making it possible to transfer the brand's essence.
Sannikov admits any Yukos perfume would be unlikely to come up smelling of roses in the competitive cosmetics markets, but would highlight his belief that former Khodorkovsky's oil firm sent a nasty niff through the Russian business world.
Chopped off
International politics is behind the delay in giving a Canadian firm a license to build the PW-127 helicopter engine in Russia, according to American military news site strategypage.com.
They claim the delay is part of US pressure on Russia not to sell anti-aircraft weapons to Iran. The proposed deal, the first of its kind since Britain licensed a Rolls Royce jet engine soon after World War II, would speed the delivery of Russia's new Mi-38 helicopter.
Now the new high-speed aircraft will be delayed until at least 2012, and will use a less efficient Russian engine.
Gas simmering
Ukraine has offered to accept a $5 billion advance payment from Russia for five years of gas transit - to enable the country to pay its own gas bill.
But the plan has not been well received. Pravda.ru calls it a "ridiculous offer", noting that Russia receives no guarantees of payment beyond 2010 and adding that Ukraine has no chance of Western financial support.
Meanwhile Komsomolskaya Pravda detects the "smell" of Europe in the plan, fearing the EU may be about to provoke another politically-motivated fuel dispute.
Budget cuts call
Kremlin aide Arkady Dvorkovich believes the government has a couple of months to cut budget spending in response to the crisis.
But he said "substantial state funds" would be invested in projects to help the economy recover in the future, even as the overall expenditure falls, RIA Novosti reports.
He added that Russia's reserves must be used carefully to ensure social payments were made.
People trade
Tajik workers suffer difficult working conditions and discrimination in Moscow, but Tajik Interior Minister chief Safiullo Devonayev has no plans to slow the exodus from Dushanbe.
At a meeting between migration service staff from Russia and Tajikstan and regional officials from Samara, Devonayev explained labour export was an important part of Tajik policy.
Raging bulls
Sky high value for Facebook
Internet group Digital Sky Technology has spent $200 million on a 1.96 per cent stake in social networking website Facebook. The Russian group, which already operates the similar Vkontakte site over here, concluded a deal which values Facebook at $10 billion, more than Starbucks coffee or Safeway supermarkets. Not bad for a popular office timewaster.
Shopping nation
British supermarket giant Sainsbury's is planning to make Russia its first overseas market, according to Kommersant. The business daily's sources claim the firm has held discussions with the X5 Retail group and other Russian supermarket operators with a view to entering the market in the autumn.
Toxic assets
GDP slump
President Dmitry Medvedev has warned that the economy will shrink faster than expected, after figures showed GDP dropped 23 per cent in the first quarter of 2009. AP reports that Medvedev didn't give a revised estimate but admitted a forecast budget deficit of 7 per cent was "optimistic". Meanwhile Finance Minister Alexei Kudrin has ruled out going to the IMF, but is considering borrowing up to $7 billion next year and $10 million the year after from overseas sources.
In bad nick
Norilsk Nickel, the world's biggest producer, posted a $449 million loss after a $4.7 billion writedown on its OGK-3 power generator and some non-Russian units, Bloomberg reports. The company also took a hit on the currency markets in 2008, losing $397 in foreign exchanges, and its year-end assets of $2 billion were 50 per cent down.
Goodbye Cote d’Azur, hello Yeruda
It must seem a world away from a luxurious villa in the south of France. Russia's richest man, Mikhail Prokhorov, is moving to a remote Krasnoyarsk village - well, for philanthropic tax purposes, anyway.
From being linked to the world's most expensive villa, to a tiny village in the depths of Siberia - Russia's richest man has become the 89th resident of the little-known settlement of Yeruda.
But far from being a wily tax dodge or a first step to political stardom, Mikhail Prokhorov's relocation to Central Siberia is being painted as a philanthropic gesture.
The mining tycoon accrued much of his according-to-Forbes $9.5 billion fortune from the region's nickel and gold reserves.
And the tiny hamlet of Yeruda, which produces 80 per cent of the region's gold, will now reap a tax windfall as Prokhorov's 1.6 billion rouble tax returns are paid into the coffers of the Krasnoyarsk region.
The decision has some echoes of fellow billionaire Roman Abramovich, who registered his business interests in remote Chukotka when he was governor of the Far Eastern province.
But unlike Abramovich, who played an active political role on the region's behalf, Prokhorov's people say there is no plan to get involved with the regional authorities.
"Mikhail has always said that he is interested in business, not in politics," said a spokesman for his Onexim holding company, who declined to be identified.
The spokesman insisted that there was no change in Prokhorov's or Onexim's tax liabilities if he registered as a resident of Yeruda, Moscow or anywhere else in Russia.
But the decision to move his registration is seen as a further gesture of support for workers at the main mine owned by Polyus Gold, one of Prokhorov's biggest earners.
"Moreover, for a period of five years Mikhail Prokhorov has been financing a charity fund which operates there," the spokesman said.
It's unlikely that the 43-year-old, often dubbed Russia's most eligible bachelor, will be taking up permanent residence in the village, which is a tortuous 13-hour, 700 kilometer road journey from the regional capital Krasnoyarsk.
In practical terms his spokesman says the move is a simple question of paperwork, and there is no requirement to give up his current home in Moscow, a further 4,400 kilometres from Krasnoyarsk.
But Donat Podnyek, a senior manager in the tax division of KPMG in Moscow, warned that "technically" any individual should be living in their place of registered residence "permanently or primarily".
However the billionaire has bought a flat in Yeruda and has already stayed there while visiting the Polyus site, according to Onexim.
Prokhorov's reputation as a bon viveur has travelled from Moscow to exclusive alpine ski resorts - but the Krasnoyarsk region may struggle to compete with these attractions.
The major attractions of the region are outdoors - hunting and fishing are popular in the vast Siberian wilderness. But skiing is less of a glitzy leisure pursuit and more an essential mode of transport during the long, cold winters.
Heading for the Siberian wilderness is a far cry from the tycoon's last headline-grabbing property deal.
Prokhorov was reportedly behind a 500 million-euro bid for Villa Leopolda, the famous mansion built for Belgium's King Leopold II on the Cote d'Azur, between Nice and Monaco, last summer.
Prokhorov denied bidding for the villa. Had the deal gone through it would have been the most expensive house purchase ever.
However, the economic slump made a record-breakingly expensive villa look like a duff deal and reports in February said the plan had been sunk after he failed to negotiate a better price.
Flats in the town of Lesosibirsk, 200 kilometres from Yeruda, start at around 2.5 million roubles ($64,000) - similar to the costs of a cheap apartment on the edge of the Moscow region - meaning his new home will be a much cheaper investment.
From being linked to the world's most expensive villa, to a tiny village in the depths of Siberia - Russia's richest man has become the 89th resident of the little-known settlement of Yeruda.
But far from being a wily tax dodge or a first step to political stardom, Mikhail Prokhorov's relocation to Central Siberia is being painted as a philanthropic gesture.
The mining tycoon accrued much of his according-to-Forbes $9.5 billion fortune from the region's nickel and gold reserves.
And the tiny hamlet of Yeruda, which produces 80 per cent of the region's gold, will now reap a tax windfall as Prokhorov's 1.6 billion rouble tax returns are paid into the coffers of the Krasnoyarsk region.
The decision has some echoes of fellow billionaire Roman Abramovich, who registered his business interests in remote Chukotka when he was governor of the Far Eastern province.
But unlike Abramovich, who played an active political role on the region's behalf, Prokhorov's people say there is no plan to get involved with the regional authorities.
"Mikhail has always said that he is interested in business, not in politics," said a spokesman for his Onexim holding company, who declined to be identified.
The spokesman insisted that there was no change in Prokhorov's or Onexim's tax liabilities if he registered as a resident of Yeruda, Moscow or anywhere else in Russia.
But the decision to move his registration is seen as a further gesture of support for workers at the main mine owned by Polyus Gold, one of Prokhorov's biggest earners.
"Moreover, for a period of five years Mikhail Prokhorov has been financing a charity fund which operates there," the spokesman said.
It's unlikely that the 43-year-old, often dubbed Russia's most eligible bachelor, will be taking up permanent residence in the village, which is a tortuous 13-hour, 700 kilometer road journey from the regional capital Krasnoyarsk.
In practical terms his spokesman says the move is a simple question of paperwork, and there is no requirement to give up his current home in Moscow, a further 4,400 kilometres from Krasnoyarsk.
But Donat Podnyek, a senior manager in the tax division of KPMG in Moscow, warned that "technically" any individual should be living in their place of registered residence "permanently or primarily".
However the billionaire has bought a flat in Yeruda and has already stayed there while visiting the Polyus site, according to Onexim.
Prokhorov's reputation as a bon viveur has travelled from Moscow to exclusive alpine ski resorts - but the Krasnoyarsk region may struggle to compete with these attractions.
The major attractions of the region are outdoors - hunting and fishing are popular in the vast Siberian wilderness. But skiing is less of a glitzy leisure pursuit and more an essential mode of transport during the long, cold winters.
Heading for the Siberian wilderness is a far cry from the tycoon's last headline-grabbing property deal.
Prokhorov was reportedly behind a 500 million-euro bid for Villa Leopolda, the famous mansion built for Belgium's King Leopold II on the Cote d'Azur, between Nice and Monaco, last summer.
Prokhorov denied bidding for the villa. Had the deal gone through it would have been the most expensive house purchase ever.
However, the economic slump made a record-breakingly expensive villa look like a duff deal and reports in February said the plan had been sunk after he failed to negotiate a better price.
Flats in the town of Lesosibirsk, 200 kilometres from Yeruda, start at around 2.5 million roubles ($64,000) - similar to the costs of a cheap apartment on the edge of the Moscow region - meaning his new home will be a much cheaper investment.
No-frills forum in St. Petersburg to fight crisis
One thing is clear: this year's international economic forum in St. Petersburg won't be about big yachts, celebrity concerts, or tens of billions of dollars in clinched investment deals.
It's all about anti-crisis measures - and international investors among the expected 2,000 participants will be anxiously awaiting signs from the government that the only way from the bottom is up. Finance Minister Alexei Kudrin has called the forum a chance to assess what the government has done so far to get the country out of the crisis - and where it is headed.
"Of course, the positions of our countries, including the BRIC [Brazil, Russia, India, China] nations, on participation in overcoming the crisis will be developed here," Finance Minister Alexei Kudrin was quoted by RIA Novosti as saying. "I believe this is a very timely forum in the crisis period," he said. "Today Russia has become the site for discussion of developing markets' situations."
Plans for this year's forum were scaled back after its budget was slashed by 25 per cent, but there is a surprisingly hopeful climate. Investors this year are hungry for information and signals, experts say.
President Dmitry Medvedev is set to deliver a keynote address at the plenary session titled "Global economic crisis: First lessons and leading the way forward."
Business dialogues with the EU, the US and the Arab world will focus on protecting investment and avoiding protectionism, while there'll also be intense interest in whether Russian-US relations are thawing ahead of President Barack Obama's visit to Russia in July.
"If last year we were encouraged by various protocols and intentions, this year people's hands are tied," said Igor Yurgens, head of the Institute of Contemporary Development, a think tank close to Medvedev, who will be a moderator at a forum panel on social development.
"Apart from the strategic partners who are already in Russia and prepared to work, foreigners are hampered by the crisis," said Yurgens. "They need credit, and credit is hard to come by. We certainly can't expect the kind of burst in investment activity that we saw last year."
Some $14.6 billion in deals were signed at the forum in 2008, including St. Petersburg's $10 billion Western High Speed Diameter, Russia's first toll highway. Deals worth $13.5 billion were signed in 2007. The Ministry for Economic Development could not provide forecasts about whether any deals were planned at this year's event.
But while this year is obviously not the time to clinch major development contracts, it is precisely because investors have so many questions that the forum will stand out as the major economic event of the year.
"There's going to be a huge number of people there, serious investors in Russia," said Roland Nash, chief strategist at Renaissance Capital who will moderate a panel on the future of reserve currencies. "And they will be asking questions: Is Russia still committed to being plugged in to global finance? What is it going to do to back up the rhetoric with reforms? Is Russia still open for business?"
Nash said there was a lot of hope because the Russian markets had bounced back much more quickly than expected.
"This is the biggest surprise, bigger than the crisis itself," he said.
It's all about anti-crisis measures - and international investors among the expected 2,000 participants will be anxiously awaiting signs from the government that the only way from the bottom is up. Finance Minister Alexei Kudrin has called the forum a chance to assess what the government has done so far to get the country out of the crisis - and where it is headed.
"Of course, the positions of our countries, including the BRIC [Brazil, Russia, India, China] nations, on participation in overcoming the crisis will be developed here," Finance Minister Alexei Kudrin was quoted by RIA Novosti as saying. "I believe this is a very timely forum in the crisis period," he said. "Today Russia has become the site for discussion of developing markets' situations."
Plans for this year's forum were scaled back after its budget was slashed by 25 per cent, but there is a surprisingly hopeful climate. Investors this year are hungry for information and signals, experts say.
President Dmitry Medvedev is set to deliver a keynote address at the plenary session titled "Global economic crisis: First lessons and leading the way forward."
Business dialogues with the EU, the US and the Arab world will focus on protecting investment and avoiding protectionism, while there'll also be intense interest in whether Russian-US relations are thawing ahead of President Barack Obama's visit to Russia in July.
"If last year we were encouraged by various protocols and intentions, this year people's hands are tied," said Igor Yurgens, head of the Institute of Contemporary Development, a think tank close to Medvedev, who will be a moderator at a forum panel on social development.
"Apart from the strategic partners who are already in Russia and prepared to work, foreigners are hampered by the crisis," said Yurgens. "They need credit, and credit is hard to come by. We certainly can't expect the kind of burst in investment activity that we saw last year."
Some $14.6 billion in deals were signed at the forum in 2008, including St. Petersburg's $10 billion Western High Speed Diameter, Russia's first toll highway. Deals worth $13.5 billion were signed in 2007. The Ministry for Economic Development could not provide forecasts about whether any deals were planned at this year's event.
But while this year is obviously not the time to clinch major development contracts, it is precisely because investors have so many questions that the forum will stand out as the major economic event of the year.
"There's going to be a huge number of people there, serious investors in Russia," said Roland Nash, chief strategist at Renaissance Capital who will moderate a panel on the future of reserve currencies. "And they will be asking questions: Is Russia still committed to being plugged in to global finance? What is it going to do to back up the rhetoric with reforms? Is Russia still open for business?"
Nash said there was a lot of hope because the Russian markets had bounced back much more quickly than expected.
"This is the biggest surprise, bigger than the crisis itself," he said.
Medvedev adviser pushes strong liberal agenda
Far from Dmitry Medvedev and Vladimir Putin falling out over key policy issues, Russia's top leaders are united in their determination to modernise the country and prevent it slipping into extremism during the economic crisis, a top adviser to Medvedev said in an interview.
Igor Yurgens, the head of the liberal-leaning Institute of Contemporary Development, said any potential differences in approach between the two men were the least of their problems.
"There isn't a single political risk manager who would advise playing games with a duumvirate," he said at an interview this week in his office, which is in a beautifully refurbished neo-classical Moscow mansion. "They understand that that there is no duumvirate, there is a collective of people who have decided to deal with this situation as a team. For any businessman to start staking on [either the Kremlin or the White House] - that's just bad risk management."
People are looking for signs of a schism, but that is simply because the current political situation is so unique for Russia, said Yurgens.
"It is very unusual that there are two very respected and influential people who are friendly and share a single ideology, but occupy two different, powerful positions. For the first time, our country literally reflects our coat of arms, with the two-headed eagle. Some people get confused, especially political experts. In business, there is more common sense, though."
But that doesn't mean business leaders see a monolithic government, especially as they anticipate new anti-crisis measures ahead of the St. Petersburg International Economic Forum, where Yurgens, who is also vice-president of Russia's Union of Industrialists and Entrepreneurs (RSPP), will lead a panel on social policy.
Though there is debate between the economic liberals in government and the statists, the real fault lines, according to Yurgens, run along industries and who is allocated resources.
"We certainly can't talk of a simple division," he says. "It's clear that the statists and the liberals have their own views, their own ideology, and their two schools become more visible when there is a debate about where the resources are going to go. [Finance Minister Alexei] Kudrin, for example, is a supporter of a more liberal stance, more modest government spending. But there are people who support more robust spending, especially on the energy industry and the military industrial complex. So de facto there is a liberal wing headed by [First Deputy Prime Minister Igor] Shuvalov and the state capitalism wing headed by [Deputy Prime Minister Igor] Sechin. These are very primitive terms, of course, but they help to understand things."
These differences do not, however, reflect on the relationship between Medvedev and Putin, Yurgens said.
"There is a gentleman's agreement that Putin is helping Medvedev grow stronger. But it's a process in the making. The agreement was made during a booming economy - but it's another picture after the Georgian conflict and the crisis. No one knows how it will turn out. Personally, I am absolutely certain that the two primary figures coordinate everything on a daily basis. But their respective apparatuses, their clans, they may be playing various games. That is not necessarily a terrible thing, though."
Earlier this year, Yurgens criticised the government for too much direct manual interference in the economy in a report by his institute, but now he concedes that the crisis is making liberal reforms, such as anti-corruption measures, increasingly difficult.
"The rule of thumb in fighting corruption is to reduce the presence of the government in the economy," he says. "But that has become practically impossible because of the crisis. Manual control of the economy plays a strong role during the crisis even in the ‘cleanest' countries."
While a number of decrees have made it easier to prosecute officials for bribery, the business community in general is not benefiting from a more transparent relationship with state officials, said Yurgens. "In some cases, there is even more pressure [on business]. Opportunities for making money have contracted on the one hand, but the appetites of local officials in law enforcement have not decreased."
The liberal-leaning part of the population needs to be enfranchised, Yurgens indicated.
"We need new dialogue," he said. "People are dissatisfied with the role of parliament and the political structure, and we need to start talking about how to involve the 15 percent of the population that consider themselves more tolerant and more pro-Western in the political process."
Yurgens said this was no easy process - for Putin or Medvedev.
"If there are democratic elections tomorrow, we cannot rule out that instead of two or three civilised parties we will have skinheads and xenophobes, much like the Hamas victory." The power vertical that has been created to deal with disarray of corruption and violence left over from the late 1990s is largely "mythical" because it is so corrupt itself. The case of Denis Yevsyukov, the head of a Moscow police precinct who killed three people and wounded six more in a shooting spree, highlights just how shaky the so-called "siloviki" structures really are, Yurgens said.
As difficult as they are to implement, transparency, dialogue and political competition are still the only remedies for these perennial problems, he said, adding: "Reforms were halted, but we need to continue them, otherwise we will find ourselves in an even more difficult situation."
Igor Yurgens, the head of the liberal-leaning Institute of Contemporary Development, said any potential differences in approach between the two men were the least of their problems.
"There isn't a single political risk manager who would advise playing games with a duumvirate," he said at an interview this week in his office, which is in a beautifully refurbished neo-classical Moscow mansion. "They understand that that there is no duumvirate, there is a collective of people who have decided to deal with this situation as a team. For any businessman to start staking on [either the Kremlin or the White House] - that's just bad risk management."
People are looking for signs of a schism, but that is simply because the current political situation is so unique for Russia, said Yurgens.
"It is very unusual that there are two very respected and influential people who are friendly and share a single ideology, but occupy two different, powerful positions. For the first time, our country literally reflects our coat of arms, with the two-headed eagle. Some people get confused, especially political experts. In business, there is more common sense, though."
But that doesn't mean business leaders see a monolithic government, especially as they anticipate new anti-crisis measures ahead of the St. Petersburg International Economic Forum, where Yurgens, who is also vice-president of Russia's Union of Industrialists and Entrepreneurs (RSPP), will lead a panel on social policy.
Though there is debate between the economic liberals in government and the statists, the real fault lines, according to Yurgens, run along industries and who is allocated resources.
"We certainly can't talk of a simple division," he says. "It's clear that the statists and the liberals have their own views, their own ideology, and their two schools become more visible when there is a debate about where the resources are going to go. [Finance Minister Alexei] Kudrin, for example, is a supporter of a more liberal stance, more modest government spending. But there are people who support more robust spending, especially on the energy industry and the military industrial complex. So de facto there is a liberal wing headed by [First Deputy Prime Minister Igor] Shuvalov and the state capitalism wing headed by [Deputy Prime Minister Igor] Sechin. These are very primitive terms, of course, but they help to understand things."
These differences do not, however, reflect on the relationship between Medvedev and Putin, Yurgens said.
"There is a gentleman's agreement that Putin is helping Medvedev grow stronger. But it's a process in the making. The agreement was made during a booming economy - but it's another picture after the Georgian conflict and the crisis. No one knows how it will turn out. Personally, I am absolutely certain that the two primary figures coordinate everything on a daily basis. But their respective apparatuses, their clans, they may be playing various games. That is not necessarily a terrible thing, though."
Earlier this year, Yurgens criticised the government for too much direct manual interference in the economy in a report by his institute, but now he concedes that the crisis is making liberal reforms, such as anti-corruption measures, increasingly difficult.
"The rule of thumb in fighting corruption is to reduce the presence of the government in the economy," he says. "But that has become practically impossible because of the crisis. Manual control of the economy plays a strong role during the crisis even in the ‘cleanest' countries."
While a number of decrees have made it easier to prosecute officials for bribery, the business community in general is not benefiting from a more transparent relationship with state officials, said Yurgens. "In some cases, there is even more pressure [on business]. Opportunities for making money have contracted on the one hand, but the appetites of local officials in law enforcement have not decreased."
The liberal-leaning part of the population needs to be enfranchised, Yurgens indicated.
"We need new dialogue," he said. "People are dissatisfied with the role of parliament and the political structure, and we need to start talking about how to involve the 15 percent of the population that consider themselves more tolerant and more pro-Western in the political process."
Yurgens said this was no easy process - for Putin or Medvedev.
"If there are democratic elections tomorrow, we cannot rule out that instead of two or three civilised parties we will have skinheads and xenophobes, much like the Hamas victory." The power vertical that has been created to deal with disarray of corruption and violence left over from the late 1990s is largely "mythical" because it is so corrupt itself. The case of Denis Yevsyukov, the head of a Moscow police precinct who killed three people and wounded six more in a shooting spree, highlights just how shaky the so-called "siloviki" structures really are, Yurgens said.
As difficult as they are to implement, transparency, dialogue and political competition are still the only remedies for these perennial problems, he said, adding: "Reforms were halted, but we need to continue them, otherwise we will find ourselves in an even more difficult situation."
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