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Money Talks at Russian Forum as Business Leaders See Past Hurdles to Investing



Russia’s economic minister, Elvira S. Nabiullina, on stage Sunday at the St. Petersburg International Economic Forum.

Published: June 9, 2008

ST. PETERSBURG, Russia — The lineup told it all about Russia’s importance today. There, on one stage, sat the leaders of BP, Royal Dutch Shell, Chevron, Exxon Mobil, ConocoPhillips, Total, Schlumberger and Dow Chemical, as well as the chairman of the Russian energy giant Gazprom and the president of the Russian oil company Lukoil.

The busy executives of the global energy industry, by their very willingness to sit together at an economic conference here over the weekend, were sending a powerful message that big Western businesses were in Russia to stay.

They may be worried about the weak rule of law, corruption and lack of an independent judiciary, as seen in recent troubles confronting BP and Shell with their Russian partners. But that is not likely to stop them from swarming around the honey pot for large contracts and access to the resources of Russia, one of the world’s largest energy exporters and fastest growing economies in an era of $130-a-barrel oil.

And while politicians in Western Europe fret over their own inability to develop a cohesive energy policy — and some fan fears of a newly resurgent, aggressive Russia — many of the sharpest minds who gathered here at the St. Petersburg International Economic Forum seemed focused on something quite different: ensuring that Russians benefit from economic plenty this time, as opposed to the heady era of privatization in the 1990s, which benefited only a few.

In a speech on Sunday that was keenly awaited by liberals in Russia’s business elite, a first deputy prime minister, Igor Shuvalov, listed the “many hurdles” on this path: an over-reliance on energy exports, a falling population, a lack of modern skills, an unhealthy way of life and a state apparatus with a tendency to meddle.

“Russia should be a country that people want to live in,” Mr. Shuvalov said in remarks that seemed uncharacteristically self-deprecating for a top Russian official these days.

Mr. Shuvalov’s audience filled less than half of the hall. It had been packed on Saturday when the new president, Dmitri A. Medvedev, took subtle aim at the United States, suggesting that the world might be in the worst economic crisis since the Great Depression and that a revived Russia could offer solutions to problems that have underscored America’s shortcomings.

But the crowd on Sunday was rapt as Russian and Western business executives peered out to make projections on Russia’s state and standing in 2020.

So much has changed, so fast, in the past decade here that there is little clarity on how to proceed. As one Russian participant, Alexander V. Izosimov of the cellphone operatorVimpelCom, said, “The road to hell is paved with good intentions.”

Jim O’Neill, who is the chief economist of Goldman Sachs — and credited with coining the phrase “BRIC countries” to describe Brazil, Russia, India and China becoming leaders among world economies — surprised the crowd by predicting a conservative overall average of 3.3 percent annual economic growth in Russia by 2020, down from growth around 8 percent now.

Russia, Mr. O’Neill said, will have a 4 percent share of world’s gross domestic product then, compared with 2 percent now. But he said it would be weaker relative to Brazil, India and China because of far fewer people at work. India alone is expected to grow by 300 million people — twice Russia’s current population.

Michael Klein, chairman and chief executive of the institutional clients group of Citigroup, was more ebullient: “The future will exceed by a big stretch the plans for 2020” — the Russian government’s target date for certain improvements.

“Russia is clearly one of the most successful economic stories of the decade,” he said, and possibly “the first scale economy to sustainably avoid the resource curse,” the evils often brought by easy money from commodities like oil and natural gas.

Anatoly B. Chubais, a former deputy prime minister despised by many Russians over the inequities of the 1990s privatization program he led, even broached a subject normally taboo: the moribund, regimented state of politics, which has crystallized around the Kremlin and Vladimir V. Putin, the prime minister and previous president (who this weekend left his protégé, Mr. Medvedev, to shine alone in their hometown).

“We can’t avoid discussing the political component of the state’s impact on the economy,” Mr. Chubais said in careful language. “The state must be judged from the point of view of quality of services that it provides for the country as a whole. In my understanding, it is impossible to evaluate the quality of this service without real give and take and a truly competitive political mechanism.”

Few in today’s Russia — from those surviving on the equivalent of $158 a month to a tiny elite used to the really good life — worry publicly about political freedoms.

Many are still simply poor. Some are consumed with consuming; others worry about how to lock in economic gains.

There is much talk of the rule of law, but mostly in connection with property rights. Indeed, this is a lesson that Russia’s current elite — headlong in its embrace of new fads and the world’s new economic order — has absorbed from the West.

If the big-energy men gathered over the weekend had a clear worry, it was this: that the huge investments they must make to get to Russia’s oil and natural gas would fail to yield returns because the government changed the rules. That is what happened, most recently, to Shell over its investments on Sakhalin Island and may now be happening to BP. In both cases, the Kremlin asserts that it has not interfered directly.

But, like some Europeans in the military and energy spheres, the companies are wary.

Rex Tillerson, chairman and chief executive of Exxon Mobil, stressed that Russia “must improve the functioning of its judicial system and its judiciary. There is no respect for the rule of law in Russia today.”

In both cases, differences stretch back beyond the past decade of prosperity to the 1990s. In the West today, some paint Russia as newly defiant of NATO expansion, ignoring that Russia in the 1990s was equally defiant but too weak to be convincing.

As Mr. Klein of Citigroup put it, for the West the 1990s was the “period of transformation in Russia,” when Communism crumbled and free markets and democracy got their start.

He suggested that Russians preferred to emphasize the radical changes of the 2000s. But these successes are based on the export of such basic resources that Western consumers, attuned to China’s conspicuous brands and advances, are almost suspicious, he said.

“The High Street and Main Street do not understand the Russian achievement,” he said.

In the same vein, Alexei Miller, chairman of Gazprom, said he found it “simply astounding” that anyone should fear its advance from energy supplier into direct deliverer to European customers.

Misunderstanding has plagued Russia’s complex relations with the outside world for centuries. In St. Petersburg, Peter the Great’s window to the West, the weekend produced a royal show of at least momentary unity. Foreign and Russian business elites plunged together into a world where their money might talk even more loudly than the military prowess from which Russia historically has drawn strength.


Russia Takes Critical Tone on Economy (June 8, 2008) and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.


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