Putin, Medvedev discuss investment climate

Vladimir Putin at the investment conference “Russia Calling” in Moscow. Source: AP

Vladimir Putin at the investment conference “Russia Calling” in Moscow. Source: AP

Stability is not the same as stagnation, and improving the military does not mean that Russia is militarizing - at least that's the message the Russian leadership promoted during events of the last week.

The Russian bank VTB Capital held the latest iteration of its regular investment conference “Russia Calling” in Moscow on Oct. 5-7. In attendance were Russian Prime Minister Vladimir Putin and Minister of Economic Development and Trade Elvira Nabiullina, as well as representatives of some of Russia’s largest companies, including Lukoil and Russian Railways. As usual at such events, however, the words Russian politicians chose for a forum ostensibly aimed at attracting investors seemed slightly misguided.

Putin conceded that to attract investors, Russia had to reduce both economic and administrative risks: “Policy predictability is no less important than macro-economic stability… we’ve no intention of standing on the spot, but we believe that our citizens and our economic and political partners have to sense the continuity of our course. Russia should be a stable, sound and attractive country for investors.”

And he tried to assure investors that the government would continue to follow a responsible macro-economic policy: “Strict budgetary discipline, more efficient spending and limiting state debt remain our priorities,” Putin said. He did not rule out a balanced budget next year if the global economy was favorable, although up to now the government has assumed a budget deficit of 1.5 percent of GDP in 2012. The prime minister said the Russian view was that the global economy was recovering and that a second round of the crisis was hardly likely in the foreseeable future, even if the recovery took longer than expected.


But Putin also took the opportunity to criticize the west, telling a German attendee at the forum: “You offer us EU membership? You should sort out your debts first. We don’t intend to become members of NATO or the EU. We can handle our own security independently,” before nevertheless adding that Russia wanted to cooperate more closely with the EU and expand a free trade zone. On his country’s efforts to join the World Trade Organization, Putin said that the benefits and costs to Russia were about “50-50,” or probably just slightly more on the plus side.

The prime minister also veered off into territory unusual for an investment forum, attempting to justify the planned rise in Russia’s military spending. Putin said increased spending on the armed forces would lead to an increase in the country’s technical level in general and contribute to the overall development of the economy: “I’m sure that, based on our technological reserves, on the potential of our human resources and our balanced macroeconomic policy, we can ensure the rate of economic growth that the country needs… That will certainly not be confined to reequipping the army, the main task, but will also contribute to raising the level of the Russian industrial production in the real sector. And a significant part of this upgrading will be applied in making products for civilian use.”

 

Putin gave more details during a cabinet meeting on Oct. 7, saying that Russia would invest 3 trillion rubles ($95 billion) in the military and that the 1,700 enterprises in the military sector would have to be thoroughly modernized.

“The development of innovative technologies in the defense industry is a top priority for us, said Putin, “which is why some 20 percent of the total funding will go on research and design work… and immediately stimulate high-tech sectors.”

What is striking about this approach is that while it looks very optimistic, it flies in the face not only of the country’s Soviet past, but its present. Most Russians believe that the Soviet Union was a major scientific and technical power, and it did chalk up some achievements.

In the end, though, the country was left standing by the West and Japan not only in military, but also in civilian technology, with dire consequences. Even Putin has admitted that the technological secrets he acquired during his time as a spy in East Germany were never utilized in the Soviet Union. And the reason was of course that, in modern parlance, the “eco-system” for high-tech simply didn’t exist there.

Now, with 40,000 Russians working in Silicon Valley and well-educated Russians still leaving the country, it is hard how to see how Putin’s hopes for a high-tech future can be realized - at least to the extent he expects. Moreover, his cautious, softly-softly approach to change just means that other countries such as China and India will be able to catch up with Russia all the faster – a danger which Russia has hardly acknowledged.

Putin’s optimism also stands in contrast to the damper that President Dmitry Medvedev gave during a meeting with regional members of the United Russia party on Oct. 8. Medvedev, who has spent most of his presidency promoting innovation and technological development, seemed in a much more somber mood as he told his audience that Russia’s investment climate was bad, and that every year for 10 years, decisions had been made to reduce administrative barriers: “I had an optimistic feeling about 10 years ago. I used to think as a practicing lawyer and thought: wonderful, here this will be scrapped, there, everything will become easier. But nothing worked out, everything seemed to get sucked in, like into cotton wool. The law is not everything, we still need to lose the legal illusion that good laws can make a radical change in the situation,” said the president. Laws, he said, should be imposed on the correct way of thinking, “on good normal officials.”

This is the story of the Soviet Union and, to an increasing number of observers, of modern Russia, whose bureaucracy now seems to put the brakes on change, progress and modernity as much as the 19 million members of the old Communist Party ever did.


But Medvedev still found a way to end on an optimistic note. “We have to say ‘yes’ to stability, and ‘no’ to stagnation,” he said. “There is a huge difference between stability and stagnation. The task of our [United Russia] party is to provide stability, and not let things slide into stagnation, not least because we’ve already gone through that in a well-known historical period,” said Medvedev. According to the president, all that goes to form the investment climate.

Ian Pryde is Founder and C.E.O. of Eurasia Strategy & Communications in Moscow.

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