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HARRIMAN, N.Y. (Reuters) - Economists bemoan its troubling economic trends, while
bankers lament a
lack of restructuring, but executives working in Russia say Vladimir Putin's
first year as president was a
breath of fresh air.
"At least from a business standpoint, we are seeing tremendous improvement," in
operating conditions,
"and a normal restoration of solid law and order," said Shiv Khemka, chief
executive officer of private
equity fund SUN Capital Partners.
Khemka was among the academics, executives and politicians attending the 24th
annual Arden House
Conference on American-Russian Relations in Harriman, N.Y., sponsored by Columbia
and Harvard
Universities.
"What is happening is a natural swing back of the pendulum from the capitalism
run amok under (former
Russian President Boris) Yeltsin to a situation which may swing it toward a bit
too much control, but that
is slightly inevitable because it will swing back and forth a few times before
Russia stabilizes," Khemka,
whose family has done business in Russia since 1958, said in an interview.
In the 12 months since his election, Putin has achieved limited tax reform,
methodically consolidated
political power and left participants in the weekend conference split on whether
his policies tread too
heavily on individual freedoms.
Grigory Yavlinsky, leader of Russia's liberal Yabloko party and member of the
lower house of parliament, or
Duma, told the conference that the stable business environment doesn't outweigh
concerns about Putin's
"very strong tendencies in creating some kind of corporate system" that could
impinge on individual
freedoms.
"There is a very clear feeling that the authorities are absolutely not prepared
for any kind of internal
criticism in the country," he said.
Yavlinsky cited attacks on the press and called the prosecution of Vladimir
Gusinsky, head of the leading
independent media group MediaMost, politically motivated.
However, Dmitri Yakushkin, adviser to the chief of Putin's administration,
Alexander Voloshin, dismissed
Yavlinsky's take on both Gusinsky, calling it a "business matter," and the
"corporate state" theory.
Unfortunately Russia "is either absolutely chaotic, or you have the other
tendency" to introduce
discipline, only it "starts spreading and controlling everything," Yakushkin
said in an interview.
Philip Wegh, an operations director for Philip Morris Cos.' (NYSE:MO - news)
Kraft Foods unit near St.
Petersburg, said in an interview Putin's crackdown on customs agent bribes
vindicated a company
decision to invest in a coffee-packaging plant.
"So long as gray imports were condoned it was hard to justify manufacturing
investments in Russia.
Because customs duties are being enforced it is now hurting competitors that
didn't make any investment
at all in Russia," said Wegh.
Wegh said revenues for Kraft's Russian operations in 2001 should hit pre-crisis
levels of between $30
million and $40 million.
ECONOMISTS DOUR, BANKERS FRUSTRATED
Economists at the conference threw cold water on the optimistic view for Russia's
economy, saying strong oil prices and the lingering effect of
a 1998 rouble devaluation that slashed domestic production costs, caused the
gross domestic product to surge 7.7 percent in 2000.
Growth of GDP for 2001 is forecast between 4 percent and 5 percent.
Columbia University economist Richard Ericson, speaking at the conference, said a
new tax code passed last year could not make up for an
estimated $25 billion in capital flight in 2000 and that "a good bit of the
Russian economy remains substantially unreformed."
On Monday, Putin's government said it would submit further measures for
streamlining the tax system to the Duma.
Judging by their nods, bankers at the conference agreed with the economists,
later citing a lack of reforms to their industry, which they called
largely non-transparent, poorly regulated and too small to sustain capital
investment in Russian industry.
Reform measures such as ridding the system of insolvent banks, forcing
consolidation and tightening of capital adequacy laws are under
discussion, "but there is no broad consensus yet on implementation," said
Joshua Larson, chief operating officer for Morgan Stanley Dean
Witter's Moscow office.
High commodity prices improved bank balance sheets in 2000, but the same bankers
who presided during the 1998 crisis are still in place,
Larson said, adding the "lack of any real threat of bankruptcy...does not
instill a healthy dose of fear that will force bankers to moderate their
risky behavior."
See also:
Conference Debates Putin's Vision
Associated Press, Steve Gutterman, March 19, 2001
Grigory Yavlinsky will participate in the annual joint conference of Harvard
University and Columbia University, USA, press-release, March 16, 2001
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