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[Second Issue of the Day]
#6
Wall Street Journal
October 31, 2001
At Economic Forum, Foreign Investors Show Some
Confidence in Russia's Initial Reforms
By JEANNE WHALEN and GUY CHAZAN
Staff Reporters of THE WALL STREET JOURNAL
MOSCOW -- Buoyed by Russia's warming relations with the West and the pace of reform under President Vladimir Putin, foreign investors gathered here for an economic forum said they are ready to take a fresh look at investing, but added they remain bothered by corruption and a stifling bureaucracy.
Mr. Putin's support for the U.S.-led antiterror coalition has generated an upsurge of goodwill among investors already encouraged by liberal reforms that have reduced taxes, cut red tape and enabled the sale of land. The upbeat mood at the World Economic Forum was in sharp contrast to the gloomy aftermath of Russia's 1998 financial crash, when many foreigners vowed they'd never spend another dime in the country.
Joking and confident as he addressed hundreds of businessmen, Mr. Putin called Russia a "huge market with great promise" and a "predictable and reliable partner." In the aftermath of the attacks in the U.S., Russia and the West must cooperate on all levels, he said, adding, "Economic reform is not in last place, and maybe it's even in first place."
Many participants expressed confidence in Mr. Putin and his initial reforms, but said a weak banking system and corrupt courts and customs officials continued to block big investment flows.
"This forum has reinforced for all businessmen a real belief in the government's genuine efforts to create a liberal economic order in this country," said E. Neville Isdell, vice chairman of Coca-Cola HBC. But he and many others said the Russians had to work harder to ensure liberal laws were consistently implemented. One Siemens executive asked Mr. Putin when the state would pay judges enough that they wouldn't have to seek "extra income," alluding to widespread bribe-taking.
"Russia has more than a few unsolved problems," Mr. Putin said in acknowledging problems with the courts and other ills. "Our goal is to lower these risks to a minimum."
The Russian president went on to praise the country's success in establishing the lowest income tax rates in Europe. He said the Kremlin had stopped relying on foreign loans and intended to "live within its means and pay off all its debts."
The country also plans to modernize its pension system, lower its value-added-tax rates and break up its gas and electricity monopolies. Finance Minister Alexei Kudrin added that Russia's support for the U.S. bombing campaign in Afghanistan had created a "favorable political situation" that had improved its bargaining position in talks to join the World Trade Organization.
Helped by high oil prices and a weak ruble, the economy has grown by an average of 6.4% over the last three years. Economists at the forum praised Russia's sound fiscal discipline but warned that too much reliance on energy would jeopardize future prosperity. "No matter what oil prices are in two years time, there will be no economic growth if there is no banking reform," said Yevgeny Yasin, a former Russian economics minister.
Praising the decision of a consortium led by Exxon Mobil Corp. to begin investing up to $12 billion (13.3 billion euros) in a big oil and gas deposit in Russia's Pacific waters, Mr. Putin invited other investors into the energy sector. "This decision was timely -- the world economy must diversify its risks" in the aftermath of the Sept. 11 terrorist attacks, Mr. Putin said.
Yet the Exxon Mobil project, which survived more than six years of red tape, was the only big new investment announced at the forum. Many foreign-energy executives said they were still waiting for final improvements in Russian production-sharing legislation, designed to guarantee stable tax and customs regimes for projects requiring big upfront investment.
Still, many investors expressed a growing sense of trust in Russia. "I am pretty bullish on Russia, and I haven't ever been in the past," said L. Craig Johnstone, a vice president of Chicago-based Boeing Co., which has invested $1.4 billion in Russia over the past decade and could double that in the next few years. "This conference is timely in the political context but also in recognition of the reforms that have taken place."
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