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The New York Times: Russia Putting on a Davos-Style Economic Forum to Showcase Its Growth

EXTRACT: Gazprom, the natural gas monopoly, acquired 50 percent of a Royal Dutch Shell development on Sakhalin Island in a forced sale last fall. That followed the effective nationalization of Yukos, once Russia’s largest private company. And recently, officials have threatened to revoke a major gas field license held by a joint venture of BP in Russia, TNK-BP.

THE ARTICLE

By ANDREW E. KRAMER
Published: May 26, 2007

MOSCOW, May 25 — The Kremlin is hoping it can put the focus on gains in the Russian economy at a forum for business leaders next month in St. Petersburg, highlighting growth that has been overshadowed by negative political news from Russia.

The Russian government has billed the gathering in St. Petersburg as a kind of Davos for emerging markets, with an emphasis on Russia’s oil-driven economy.

Economic growth has been defying critics who said the worsening political climate between Russia and the United States and the European Union might stunt investment. In the first quarter, for example, growth in Russia’s gross domestic product was 7.7 percent and foreign investment was up 150 percent over the comparable period the year before.

Russian officials in the meantime have been fending off accusations that a former agent in the Federal Security Service, the successor agency to the K.G.B., killed a defector in London with radioactive poison, in one of several disputes indicative of the souring mood between Russia and the West.

German O. Gref, the Russian minister of trade and economic development, said in an interview this week that he would assure investors that property rights remained intact in Russia and that his agency would adhere to the liberal economic course of recent years.

“The key thesis we would like to convey is that Russia underwent a very serious transformation,” Mr. Gref said. “Now it has arrived at the stage of its modernization.”

Russia’s economic goals, he said, depend on an openness to global investment. That policy, he said, is no longer a matter of debate in the administration of Vladimir V. Putin.

“This can only be done if the economy is open to foreign investment, with an auspicious investment climate, security for property rights and stable macroeconomics,” Mr. Gref said. “Our action is geared toward those goals.”

Analysts, however, have cautioned that a certain hubris is creeping into Russian economic policy, prompting excessive spending of the oil windfall that threatens to stir inflation, undermining policies put in place by Mr. Gref and other liberals in the cabinet. A hard-line faction of national security officials is seen as advocating increased military spending and state ownership.

This week, Mr. Putin suggested government oil revenue might be invested in the Russian stock market to prop up the lagging performance of state-owned companies, something that would signify an even greater interventionist policy by the Kremlin.

That prompted a blistering note to investors by Goldman Sachs suggesting that the liberal wing might be losing influence over economic policy.

“Perhaps most worrying about this proposal is that it is a sign of the deterioration in the quality of economic policy advice received by the president as he approaches the end of his presidential term,” Goldman Sachs wrote in the research note.

In the interview, Mr. Gref said that he and a fellow liberal, the finance minister, Aleksei L. Kudrin, remained firmly in charge of economic policy. “The direction is established. There’s no alternative to an open, market-based economy,” he said.

A trend of creeping state control over the economy is another development that worries investors. Gazprom, the natural gas monopoly, acquired 50 percent of a Royal Dutch Shell development on Sakhalin Island in a forced sale last fall. That followed the effective nationalization of Yukos, once Russia’s largest private company. And recently, officials have threatened to revoke a major gas field license held by a joint venture of BP in Russia, TNK-BP.

Outside of oil and gas, the Kremlin has consolidated control over aircraft manufacturing, domestic automobile makers, diamond mines and other industries. Mr. Gref, however, said state intervention in areas other than oil and gas should be seen as temporary efforts by the government to revamp industries that were ailing during the Soviet era. They will eventually be reprivatized “up to 100 percent,” he said.

Moscow is in the middle of the first oil boom since the collapse of its empire, meaning the windfall is no longer diminished by subsidizing client states with cheap energy.

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