Economic Aide Sees Russia At the Top

Dvorkovich's comments came during a speech about the government's plans for more aggressive global expansion and an increased presence in the private sector to an audience of students and journalists at Moscow International University.

"The conventional ways of thinking have changed," he said. "The simple patterns we used to follow just won't work anymore."

Dvorkovich offered the U.S. government's proposed bailout of its financial sector and the nationalization and bankruptcies of several of its largest financial institutions as evidence of the end of free-market economics as we know it.

"The American economy is extremely threatened, and this means that there is nothing holy left anymore."

On Tuesday, the Kremlin engaged in its first major bailout of a major commercial institution, when the state-controlled Development Bank bought Svyaz Bank. Troika Dialog, one of the country's largest investment banks, was moved to issue a statement Thursday denying suggestions that it would soon be acquired by Sberbank, the country's largest state-controlled bank.

At the speech on Thursday, Dvorkovich commented on Troika's status as an independent bank.

"Any bank is free to choose. Troika Dialog is one of Russia's leading investment banks and one of its strongest banks," he said. "It is receiving bank loans right now to enable it to continue to operate on the market."

But he stressed that "need be, the state will provide support, be it to Troika or anyone else."

Yulia Tseplyayeva, a chief economist for Russia and CIS countries with Merrill Lynch, was positive about the government's move to increase its private-sector activity in the short term and provide loans to struggling banks.

"First of all, [Dvorkovich] is right that this is the clear trend all around the world," Tseplyayeva said.

She said the question was one of duration.

"The government has never done anything like this before," Tseplyayeva said. "In the short term, it will be beneficial for the market, but in the mid and long term there will be macroeconomic risks."

Yelena Sharipova, a senior economist at Renaissance Capital, said the government might be looking to create more state banks on its assumption that publicly owned banks are more stable under current conditions.

But she was also hesitant to back long-term government intervention.

"The private sector is more efficient than the government, and global growth will slow down if the share of government in the economy increases," Sharipova said.

The effect of the difficulties on equity markets and the banking sector in recent months appear to have led to a shift in Dvorkovich's stance on the question of state ownership.

"I view the fashion of creating state corporations as being extremely dangerous, particularly for the industries being proposed," he said at a business forum in October, Interfax reported.

On Thursday, Dvorkovich echoed statements by President Dmitry Medvedev earlier this month saying it was Russia's goal to become one of the world's top-10 financial centers in 10 to 15 years.

"We won't move into first place in the next few years, even in the next 10 years ... but we have a lot of good opportunities and a lot of potential to get out of this crisis and build a powerful financial center in Russia."

Merrill Lynch's Tseplyayeva was not so optimistic.

"For Russia to become a financial center, it will have to demonstrate significant structural improvement, not only in its financial sector, but also in infrastructure like the traffic in Moscow," she said. "It's as simple as that."

Tseplyayeva also said it was "not clear" why foreign investors would give preference to Russia over other international financial centers.

"I'm not sure that the time frame is completely realistic. I suppose if we speak about the long term, my answer is: Why not?" she said. "But we should appreciate that the government has the vision to change the situation and that it is finally paying close attention to the financial markets."

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