Moscow Times
August 17, 2007
Putin's 8 Years a Hit with Business
By Alexander Osipovich
Staff Writer
Eight years ago, Paul Heth was scrambling to attract foreign investors to help fulfill his goal of building modern, Western-style movie theaters throughout Russia.
The U.S. expat businessman had successfully opened one such theater, Kodak Kinomir, but his expansion plans were derailed by the 1998 financial crisis. Investors were scared off by Russia's shaky economy and unstable political system, headed by an ailing, often absent President Boris Yeltsin.
And then came another shock, as Yeltsin fired Prime Minister Sergei Stepashin and replaced him with a political unknown named Vladimir Putin. Like many foreigners doing business in Russia, Heth had little idea who Putin was.
"I felt it was a very, very important time for Russia and I was hopeful for anyone who could improve upon the situation," said Heth, who now heads Rising Star Media, a company that has opened multiplexes across the country.
Today, members of the foreign business community offer praise for Putin's economic stewardship since his appointment as prime minister was approved by the State Duma eight years ago this week.
American Patricia Cloherty, chairwoman and CEO of Delta Private Equity Partners, an investment fund, recalled that her first reaction was, "Who's that guy?"
In a televised speech announcing the appointment, Yeltsin said he wanted Putin to succeed him as president, confirming his status as the heir apparent.
Few business leaders knew what sort of economic policies to expect from Putin, who had previously headed the Federal Security Service and had been first deputy mayor under St. Petersburg Mayor Anatoly Sobchak in the early 1990s.
"Nobody realized it was a turning point," said one European banker, who requested anonymity, citing bank policy.
People working in the financial sector had low expectations of Putin, said the banker, a longtime resident of Moscow.
"They certainly didn't realize that this was a man who would be capable of delivering lower taxes and reforms to the tax system, which had constantly been promised but never carried out under Mr. Yeltsin," he said.
James Balaschak, a managing partner at Deloitte who has lived in Russia since 1995, recalled that Putin had a reputation as "a good bureaucrat" among people who had dealt with him in St. Petersburg, but in general he was a mystery.
"He wasn't much of a known factor," said Balaschak, who also headed the American Chamber of Commerce in Russia from 2000 to 2001.
Today, he believes that Putin's presidency has been a boon to business.
"He's created a lot of wealth," Balaschak said. "Russia is the world's ninth largest economy now, and Russian equities have gained about a trillion dollars in value since he came to office.
"You may argue with his position on strong authoritarian [control] in his democracy, but from a business standpoint he's been outstanding," he added.
Russians seem to agree with the foreign business leaders. A new poll by the Levada Center found that 82 percent of Russians approve of the job that Putin is doing, Interfax reported Wednesday.
But eight years ago, only 6 percent of Russians knew who he was, according to a poll released Aug. 18, 1999, by the Public Opinion Foundation.
At the time, some thought Putin had been anointed by Yeltsin to protect his inner circle from eventual prosecution. The daily newspaper Noviye Izvestia ran a cartoon showing Yeltsin placing a crown on a puppet Putin and declaring him president.
Many believed that the country was suffering from a lack of leadership, with the ailing Yeltsin often disappearing from view for long stretches of time.
"The country was really out of control and being run by large influential groups of people, rather than from the center," Balaschak said.
The strengthening of the state has been a central theme of Putin's presidency. While some initiatives have been unpopular with foreign investors -- namely, the expansion of the state sector, with the nationalization of the oil company Yukos as the highest-profile example -- business leaders contacted for this article said they had benefited from the more straightforward and ordered situation in the Putin years.
"I have been a supporter of Mr. Putin and his colleagues in their effort to provide more clarity in the rules of the road for doing business," Cloherty said.
She cited the initiative to define strategic sectors of the economy in which foreign investment will be limited as the most recent example.
Cloherty attributed much of Putin's economic success, however, to factors outside his control.
"I do think that Mr. Putin has responded well to the smile that God gave him with the price of oil," she said.
Max Gutbrod, a partner at Baker & Mackenzie international law firm, greeted Putin's appointment in 1999 with cautious optimism.
He saw Putin as preferable to the alternative: the alliance of Moscow Mayor Yury Luzhkov and former Prime Minister Yevgeny Primakov, a political bloc that seemed to favor bureaucrats over business.
"There was a lot of concern about a retrograde and corrupt government," recalled Gutbrod, who is German.
Gutbrod said it was surprising at the start, when Putin turned out to be an economic liberal, but said he was less happy with a subsequent rise of government ownership in some economic sectors.
"In Putin's first term, the liberalization campaign was a surprise," Gutbrod said. "What happened in the second term also came as much of a surprise, which was a naive attempt to strengthen Russia."
Cinema operator Heth, meanwhile, had only kind words to describe Putin's legacy.
"I'm not a politician," he said. "I sell popcorn and Coke and movie tickets for a living, and I can tell you that since he's been president, we've sold a lot more of all of them."