Investors cheer on Russian political protests

February 3, 2012
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Russian Prime Minister Vladimir Putin speaks at an investment forum in Moscow, Thursday, Feb. 2, 2012. (AP Photo/RIA-Novosti, Alexei Nikolsky, Government Press Service)

MOSCOW (AP) — Markets often get skittish about political uncertainty, but investors are looking at Russia's new wave of anti-government protests with optimism.

Money men at Russia's top annual investment conference this week said that the reforms being pushed by the protest movement are long overdue and implementing them could make the country a better place to do business and create more wealth.

The apparent stability of Prime Minister Vladimir Putin's 12-year rule has been shaken by a wave of street demonstrations set off by evidence of widespread fraud in a Dec. 4 parliamentary election. Protesters have demanded fair elections and also an end to the corruption that has flourished under Putin.

Putin still appears certain to win a March 4 presidential election that would keep him in power for six more years, but the expectation is that he will no longer be able to ignore the demands for change.

In response to the protests, Putin has announced several initiatives to increase government transparency and reduce the red tape that impedes business. In addressing investors Thursday at the conference, he spoke about the "100 steps forward" that Russia needs to take to get into the top 20 of the World Bank's Doing Business rankings. It currently is 120th.

Putin pledged, among other things, to make customs checks more efficient in order to speed up transportation of goods, and to simplify tax law.

Russian stock markets reacted nervously when protesters first took to the streets on Dec. 5, with the main MICEX index losing 4 percent on the day and 7 percent that first week. Since then, however, it has fully recovered the losses.

Investors' worries about Russia have little to do with the actual indicators. The economy grew 4.3 percent last year, the government is running a budget surplus, has hardly any public debt and still has more than $500 billion in foreign currency reserves.

What investors are concerned about is that the country is not an easy place to do business.

"There is one big problem that goes into many areas: corruption," Anders Aslund, fellow at Peterson Institute for International Economics, told the investment conference.

Transparency International puts Russia at No. 143 on its Corruption Perception Index, sandwiched between Nigeria and Timor-Leste.

Investors are also concerned about heavy-handed government regulation or interference in business deals as well as a weak justice system.

As an indication of the lack of trust in the country, a net $84 billion was pulled out of Russia last year.

"Investors stopped believing in the will of the Russian government to fight corruption," explained Sergei Guriev, a prominent economist and rector of the Moscow-based Higher School of Economics.

In the first half of 2011, many market watchers attributed the capital flight to the uncertainty over whether Putin would decide to run for president again. The money kept fleeing the country after President Dmitry Medvedev announced in September that he would step aside to allow Putin to return to the post he held from 2000 to 2008.

The next big protest rally is set for Saturday and tens of thousands of people are expected to attend, despite temperatures expected to dip as low as minus 18 degrees Celsius (0 Fahrenheit).

Investors should "welcome political instability because political stability is what has bred corruption in Russia," said Aslund, who advised the Russian government in the early 1990s. "This is a time when I'm more optimistic than I can remember since the fall of 1991."

For years, economists and investors have been calling for reforms and a genuine effort to clamp down on corruption in Russia. But incentives were clearly lacking without a strong push from the public.

Investors at the conference said the protesters were particularly encouraging because they were non-violent and sought dialogue, even though some were cautious about Putin's pledges to take on corruption.

"The investment climate is so bad that there are many things that can be done that can improve the situation dramatically," said Guriev. "There is a growing understanding that the change will have to happen with this government or without it. We are in for a lot of good news."