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Boston Globe
November 3, 2001
Investors finding Russia's worth a new look
By Ross Kerber, Globe Staff
As a Moscow-based investment banker, Ruben K. Vardanian can't resist a smile as he shows off a chart comparing the performance since 1995 of a $1,000 investment in the Nasdaq Composite index and in the chief Russian stock market.
It's been a wild ride for both indexes, but today the Russian shares would be worth $2,510, while the Nasdaq stake would be worth $1,650. Along with other economic indicators, the comparison shows how, after years of turmoil, the Russian economy is again drawing foreign cash. In Russia, ''The goal of many companies is to show they can manage assets,'' Vardanian said, not just to accumulate them, as in years past.
The investor made his case yesterday during a break at a Harvard-sponsored conference on Russian investment at the Sheraton Hotel in Boston, an annual gathering of economic big-thinkers who had much cause for optimism.
Several bond-rating agencies have recently upgraded the country's borrowing, and Russia also boasts a $40 billion trade surplus and a gross domestic product expected to grow 5.5 percent this year. All this comes as the United States is keen to round up allies for the war on terrorism, creating a consensus view that Peter S. Watson, president of Overseas Private Investment Corp., described as a ''suspension of disbelief'' that economic reform efforts would fail, as they have in the past.
Yet many risks remain, Watson and others said, including a lack of trained managers and the inconsistent ways in which many local governments in Russia apply commercial codes. Tatiana Paramonova, first deputy chairman of the Bank of Russia, said many manufacturing companies must still be restructured, and the country's banking system is so balky it hinders monetary policy.
Without more reforms in the financial system, added former US Federal Reserve chairman Paul Volcker, ''the prospect for banking isn't so good.''
Moscow's mixed economic outlook has drawn much more attention in America following the Sept. 11 attacks, and development issues will figure in a summit between presidents Bush and Putin this month in Washington. The meeting will focus on security issues, including nuclear arms, and the military situation in Central Asia. But Putin has also made it clear Russia will seek entry to the World Trade Organization once its economic reforms have gone far enough, perhaps as soon as next year.
What the Bush administration thinks about the timing of the WTO bid isn't clear, however; in an address Thursday, US Commerce Secretary Donald Evans didn't discuss the issue but made it clear that since Sept. 11, the administration has put a high priority on cooperation.
''Our countries are allied today in a way we have not been since Hitler gave the order to invade the Soviet Union in the summer of 1941,'' Evans said.
Peter J. Lavelle, an American who heads research at the investment company Metropol in Moscow, said he worries that in its rush to embrace Putin, the Bush administration will relax the pressure that has led to changes such as the growing number of financial disclosures by companies. ''We could be putting aside some very important issues,'' he said.
Konstantin Remchukov, a Siberian aluminum executive who is also a member of the Russian Parliament, said he hoped Putin would delay any WTO application until shaky sectors like agriculture are better prepared to compete abroad.
Whatever the decision, few think there will be a transformation overnight. Leonid Pankov, a Florida-based consultant who helps other Russians put their money in foreign real estate, said he still gets plenty of business because in Russia, ''People still think about risk.''
Still, Pankov said, his income has fallen from its peak in the mid-1990s, when many citizens of the former Soviet Union grabbed at any chance to move assets abroad, rather than rely on institutions at home.
For his own business, Pankov said, ''that was a beautiful time.''
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