Re-privatizing Russia's economy

Introduction to The 3rd Webster Vienna Alumni Symposium – Vienna Austria 

Ladies and gentlemen, Russia is ready to put the "r" back in the brics. Its membership in the elite quartet was questioned last year when its economy shrank 8 per cent, while Brazil's contraction was barely noticeable and Indian and Chinese output powered ahead. Alexei Kudrin, the finance minister, proposed that Russia should sell minority stakes in 10 state-controlled corporate jewels, which included oil company Rosneft, VTB Bank, and the Russian Railways monopoly, totaling perhaps $29 billion.

The proposal's merits include raising additional budget revenues for Russia to stimulate underdeveloped small and medium-sized businesses. But most importantly, the plan at least demonstrates a willingness by the government to loosen its grip. While Moscow will surely not cede state control of these companies it would start to reverse the increase in the state's share of the economy that occurred under Vladimir Putin's presidency. It would increase the pressure on companies to become transparent and answerable to private investors. President Dmitry Medvedev would also like to see Russia wean itself from its dependence on energy exports and become a truly post-industrial economic power by focusing on innovation and becoming a "knowledge economy".

The key, as ever in Russia, has always been execution. There should be no new generation of oligarchs, or inefficient state managers, turned into owners. Auctions must be carried out in the open by internally recognized banks. Russia is a place where foreign investors have been scared away by bureaucracy and corruption, it must continue its recent open courtship with new investors and those businesses should be free to participate in a non-discriminatory way. It is not enough simply to ensure foreign investors can buy assets. They must be sure they can hold on to them, or indeed dispose of them, in an unimpeded way.

Even if the leadership is committed, Russia's bureaucracy and vested interess are so entrenched that achieving these goals, within the planned 2011-13 time frame, remain a big "if". Yet there is hope that Russia will re-emerge as a true economic power.