Glasnost, the policy of public honesty that helped sink the
Soviet Union when Mikhail Gorbachev embraced it a quarter century
ago, is blooming again among Russian officials as Vladimir Putin
prepares to reassume the country's presidency for a third term next
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Putin himself may tend toward the steely and unapologetic. But
the more liberal, Western-leaning wing of his government has become
self-critical almost to a fault. Whether that reformist spirit can
pry loose the dead hand that Putin's own hypercorrupt bureaucracy
has clapped on the nation's throat (
) remains to be seen. It does make for some lively panel
One of these took place yesterday in New York when a posse of
prominent Russians turned up at the swank Palace Hotel to mark the
Manhattan office opening of Moscow's most vigorous investment bank,
The visitors could have been forgiven some crowing on such an
occasion. It wasn't so long ago (like four years) that
Anglo-American and German banks did all the opening in emerging
markets like Russia, and the host countries were supposed to feel
grateful for the privilege. Now VTB Group (VTBR), a state-owned
institution that has molded a world class IB team out of the best
young Russian financiers the Kremlin's money can buy, had come to
flex its balance-sheet muscle in the shadow of Wall Street.
The senior bureaucrats at the launch ceremony sounded anything
but triumphant, however. "Investors are not ready for our stock
market because we cannot send a clear message that the risks are
acceptable," declared Alexei Ulyukayev, the deputy central bank
chairman who has steered Russia's monetary policy with a deft hand
since the 2008 crisis.
"We feel strong pressure from the resource curse," added deputy
finance minister Sergei Storchak. "When you are used to getting
something for nothing, you have weak motivation to improve."
Storchak's former boss at Finance, Alexei Kudrin, the man most
responsible for transforming Russia from a bankrupt into a foreign
reserves champion during the 2000s, summed up: "It's no big secret
for any of us in government how to improve the business climate,
yet it has not been done."
Kudrin left unstated the not-big secret of why not: a critical
mass of insiders are getting filthy rich off the way things are in
Russia, manipulating access to everything from road construction to
oil export. And some of the biggest winners are among Putin's
closest friends, like oil-trading king Gennady Timchenko or Arkady
Rotenberg, an old judo partner of the boss' who now controls a
pipeline building empire.
Yet the Westernizers near the top of the government labor on
with some hope. Stung by mass protests during the winter's election
campaign, Putin endeavored to have his cake and eat it too. To his
party faithful, he posed as the iron-willed guarantor of stability
in turbulent times. For the restive middle class, he declared
himself committed to "an entirely new economy" driven by unfettered
enterprise, global investment and advanced technology.
Storchak, the deputy finance minister, put some cautious faith
in Putin's latest five-year plan style promise: to lift Russia from
a dismal 120th place to the top 20 in the global "ease of doing
business" index published annually by the World Bank.
Meanwhile Putin, who was duly re-elected on March 4 but does not
assume office until May 7, is relishing his beloved pastime of
keeping his courtiers in suspense over who gets which advancement.
The make-up of the new cabinet, the first concrete indicator of the
leader's commitment to change, is a closely held secret, and Putin
may not even have made up his own mind yet.
The chances of Russia leaping forward to match Japan or Germany
in business-friendliness, or rivaling India or Taiwan as a global
tech power any time soon are remote. But that does not mean
investors should assume six years of stagnation during Putin's next
term and close the book.
Open discontent from the streets to the economic ministries may
nudge Putin toward significant if not sweeping reforms as he looks
to etch his place in history. That could spell opportunity in
perennially downtrodden Russian stocks.