| The head of the Ministry of Finance believes in investors, despite the prosecutor's office
Deputy Prime Minister Alexei Kudrin took on the mission of convincing the world community that nothing terrible is happening in Russian politics and economics. It doesn’t matter whether it was his personal choice or a responsible assignment, but the head of the Ministry of Finance was the first of the liberals in power to attempt to pretend that investors have nothing to fear in Russia. However, he remained the only candidate for this role, because other authoritative government officials had already expressed the opinion that the struggle of law enforcement agencies with YUKOS was harmful to the investment climate in Russia. For example, German Gref said last week that “the situation must be resolved as soon as possible” and expressed hope that “prosecutor’s office employees understand the economic component of their law enforcement activities.” And head of government Mikhail Kasyanov said last Thursday that the situation with Mikhail Khodorkovsky’s company “does not benefit the country’s image and negatively affects investor sentiment.” But his deputy, apparently, does not find such a connection. On Saturday, during a trip to Slovenia, Mr. Kudrin said that in 2003, the influx of net capital into Russia for the first time in modern Russian history will exceed, according to the Ministry of Finance, its outflow and amount to $2 billion. Moreover, already in the first half of the year, the net inflow of capital amounted, according to preliminary estimates, to $2.6 billion, while during the same period last year $2 billion left the country. And this is not the limit. In 2004, the net inflow of capital, according to the minister, will reach 4 billion dollars, in 2005 - 6 billion. The figures are certainly impressive, considering that three years ago about 25 billion dollars flowed out of the country, two years ago -- more than 16 billion, and last year 11.1 billion dollars were classified as capital flight. The Ministry of Finance associates the desire of businesses to leave money in Russia with an improvement in the investment climate, including tax breaks. As Mr. Kudrin says, additional growth in investment in Russia due to the reduction in the tax burden is projected at 1.3% in 2004 and 2.4% in 2005. The Deputy Prime Minister is confident that already next year Russia may well receive an investment-grade credit rating, which will allow the country to attract capital from the most conservative investors, for example, pension funds (currently, according to the Fitch agency scale, Russia’s credit rating is only one step away from the investment category, according to the scale of Moody's and S&P agencies - by two). At the same time, Mr. Kudrin is again based only on an analysis of the dynamics of recent years, noting that since 1999, Russia’s credit rating has been steadily increasing. Similarly, the Ministry of Finance's forecast for capital flows is based on an analysis of data over recent years and does not take into account changes in investor sentiment in connection with Yukos. So the statements of the Russian Minister of Finance in today's situation are more direct propaganda than economic analysis. Characteristically, Mr. Kudrin did not say a word about the scandal around YUKOS, which today for the whole world has become an indicator of the reform process in Russia. Alexey Kudrin, declaring confidence in the steady improvement of the investment climate, seems to have forgotten: the state of this very climate is determined by the behavior of investors, and not by the opinion of officials. And the best illustration of what investors are thinking is the collapse of the stock market and Eurobonds of Russian companies. The New York Times describes the events as follows: “At the center of this fight are property rights. Investors say a series of court cases, including those against Mikhail Khodorkovsky's companies, demonstrate that Russia's court system is too weak to protect the rights of owners. This could scare away foreign investors who, following Putin's election in the spring of 2000, began to see Russia as an increasingly attractive place to invest their money." The newspaper quotes the opinion of the famous political scientist and Russia specialist Anders Åslund: “The international consequences could very easily be devastating. What foreign investor can afford to invest in Russia if even its richest man is not safe?” Mikhail VOROBYEV, Andrey DENISOV
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