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Russia overview at 2004 Annual Meeting

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Deputy finance minister Sergei Kolotukhin was on the panel of speakers.

Investors packed the room to listen to the Russian Country Presentation.

Views differ on Russia's economic outlook.

A country of many faces and contradictions

As at every EBRD Annual Meeting, investors packed the room to listen to the Russian Country Presentation. What they discovered was a country of many faces and open contradictions where the only thing every speaker could agree on were the huge business opportunities it offers.

Deputy finance minister Sergei Kolotukhin, winding up his opening presentation on Russia's trend-bucking economic achievements, summed up the country's new found self-confidence very simply: "After four years of speeches (addressing the EBRD Annual Meeting), this is the first time I'm proud to be Russian."

He has plenty to be proud of. A long run of growth in stark contrast to the stagnation in many advanced economies; the world's ninth highest international reserves less than six years after the 1998 financial crisis; a budget surplus equivalent to 1.7 percent of Gross Domestic Product. Not many countries can boast that much nowadays.

Predictably and quite justifiably, the message Mr. Kolotukhin drummed out was how attractive Russia had become for investors thanks to the reforms pushed through in the last few years.

Nothing predictable

But there was nothing predictable about the rest of the country presentation, which highlighted how many conflicting opinions on questions of national importance co-exist in today's Russia.

Kaha Bendukidze, head of Russia's United Heavy Machineries group, startled his audience by plunging headlong into fierce criticism of the Kyoto Protocol that aims to limit greenhouse gas emissions. Echoing the views of one part of the Russian estalbishment, Mr. Bendukidze called it a system of "global cheating that has nothing to do with global warming." Having denounced Kyoto as  part of an attempt by European energy companies to manipulate prices, Mr. Bendukidze expressed the hope that Russia, like the United States, would not ratify the treaty.

The Russian enterpreneur did not stop at Kyoto. His next target was Russian accounting standards, which he described as "pure (expletive deleted), which only produce useless paper reports if you will pardon my French." He said he hoped Russia would have got rid of these standards in five years time and shifted to internationally accepted ones.

By this time, most people in the audience had their seat belts on. There was more to come.

With a gleam of mischief in his eye, Mr. Bendukidze nostalgically recalled how very often in his career he had to sit through lectures on business ethics from the disgraced former CEO of Enron, Kenneth Lay. "I too can now lecture in the United States on good corporate governance," he said.

Move towards greater transparency

Jokes apart, he argued that the move towards greater corporate transparency was  a natural development for Russian business because its running would inevitably have to shift from the hands of those who founded their companies to those of qualified professional managers.

"Increasingly, people prefer to earn less but work in a transparent company rather than get higher pay working for murky ones," he said to illustrate the new business mood in Russia.

His parting shot was for those in Russia who wanted to protect financial services such as banking and insurance from foreign competition on the grounds that they needed to be nurtured to grow strong. In Mr. Bendukidze's view, this contradicts one of the fundamental laws of nature. "If we have a free market in goods, why can't we have a free market in services?" he asked.

He was followed by Igor Yurgens, number two in the Russian Union of Industrialists and Entrepreneurs.

Mr. Yurgens started by pointing out that not every member of the Union was so passionately opposed to the Kyoto Protocol as Mr. Bendukidze. Some, particularly those who felt they could benefit from trading in carbon quotas under the treaty, were strongly in favour, he said.

He was the first to raise the issue of the Yukos affair and the arrest of the Russian oil group's founder, Mikhail Khodorkovsky, himself a promiment member of Mr. Yurgens's Union. Mr. Yurgens said the Yukos affair had originally created a climate of uncertainty, but added: "We are now past that crisis." He said the Russian business community expected the trial of Mr. Khodorkovsky would be "fair and adversarial."

Mr. Yurgens said the proposals of Mikhail Fradkov, Russia's new prime minster, encouraging. But he said that ideas being voiced by some experts in Mr. Fradkov's government were worrying because they raised fears that "good policies might include not so quite so good and fair regulation on the part of the state."

Heart of policy

What he said next went to the heart of business concerns about the future direction of economic policy in President Vladimir Putin's Russia.

Mr Yurgens applauded the presentation made by Mr. Kolotukhin and his government colleague, the deputy minister of trade and economic development, Yuri Isayev. Mr Yurgens said these programmes were destined to push Russia into the international mainstream. However he said the problem was that this was not the mandate on which the current administration had been elected. Mr. Yurgens said the mandate the voters had given Russia's rulers was the establishment of "social equity, severe criticism of all big owners and some reconsideration of property rights."

Mr. Yurgens said the business community would support the programmes spelt out by Mr. Kolotukhin and Mr. Isayev, but wanted to know what would happen to the quite different views of those officials who wanted the rich to pay more back to society and for the privatisation deals of the 1990s to be reconsidered.

18 April 2004