Summary:Moderator Richard Jacobs set the stage for discussion about Russia by asking two questions: why does Russia matter and where is it in its evolution?
Jacobs opined that it was a U.S. mistake to believe that once the USSR fell, Russia would be like the United States. This mistaken belief fueled a lot of initial investment and led to a hype-based bubble. Still, the 1997 crisis, in his opinion, was a healthy event.
He briefly contrasted the situation in Russia ante-crisis and post-crisis highlighting the positive aspects of the post-crisis period:
- Increased self-confidence as a nation;
- Russia was the second best performing market last year (after Pakistan);
- Shift from import to domestic production;
- Large foreign currency reserves; and
- The start of recycling activities.
Michael Intriligator continued by evaluating Russia′s development in time. The recent past seemed to be encouraging from the economic point of view:
- 4-5 percent real GDP growth;
- Stabilized inflation;
- Decreasing unemployment;
- Moody′s Sovereign ratings;
- Growing oil reserves and production; and a
- Rising stock market.
However, the present is still far from perfect, mostly because Russia has not yet succeeded in implementing three necessary factors that according to Intriligator, are required to become a market economy:
- Institutional reforms;
- Elimination of government corruption; and
- An environment that fosters free competition.
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In addition to these requirements, Intriligator suggested that Russia′s success in the future will also depend on a shift from a commodity/minerals exporter to a high-tech exporter, or, quoting Putin, "e-Russia." He mentioned that several international companies - such as Sun, Boeing, Motorola, GE and Intel - are already taking advantage of Russia′s skilled workforce to set up R&D operations there.
Sarah Carey picked up on the positive side of the topic by citing the reasons why Russia matters. In her view, Russia is important:
- Politically, as a stable power in the region, especially in light of the rising war with terrorism;
- Economically, as a source of vast natural resources (as diversification of oil resources in light of current Middle Eastern crisis), metals, technological know-how (stem cells research, alloys etc), human capital (highest literacy rates);
- As a partner in space development, especially in light of the recent Shuttle tragedy; and
- Culturally.
Carey concurred with Jacobs' positive outlook highlighting significant legal developments e.g. its constitution and the biggest privatization in the world′s history in such a short time, that made the Russian infrastructure acceptable to Western business practices, return of "flight" capital and Putin′s welcoming attitude to returning expatriates. She concluded her remarks by stating that "today Russia is normal."
This opinion in dramatical contrasted to Stewart Paperin's position who said that "Russia is seductive and romantic, yet disappointing." He emphasized that although things appear to be "normal" on the paper, the requirements put forward by Intriligator were still far from being satisfied in reality:
- Corruption, although not as high as in China, is still a given;
- Legal reforms are incomplete and judicial corruption is rampant;
- Media is still influenced by the government and far from being "open, fair and free;"
- Infrastructure — education, healthcare, social structures — in good condition under the Soviets, is in ruin now, especially in rural areas;
- Chemical/nuclear safety;
- Drugs, coming from Afghanistan and Central Asia.
Paperin concluded that Russia is still a country in transition, "not a finished work."
Jacobs summed up the session by concluding that Russia does matter and is suitable for investment in public stocks and strategic alliances, while private equity remains highly risky and thus unadvisable.
