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#18 - JRL 8372 - JRL Home
GIVING MORE MUSCLE TO AUTHORITIES - OPINIONS DIVIDE

Moscow, September 16 (RIA Novosti economic analyst Nina Kulikova). Foreign politicians are saying Russia is liquidating democracy, while foreign investors are speaking of its increased investment attractiveness.

A statement by President Putin about the need to reform regional authority and election policy, made public on September 13, has had a mixed reception among the world political and economic community. The president has suggested that the way a number of power structures are elected should be changed: that Duma representatives should be elected on party lists, and regional heads by local legislative assemblies on the recommendations of the president himself. The foreign political establishment reacted in a highly negative way to the proposed changes, saying it meant growing authoritarianism and an end to democracy in Russia. On the other hand, Russian and western investors responded far more calmly to the news, and the stock market did not fall as a result of "the weakening of democracy".

In the opinion of most experts, the current changes in the country's political system are rather sweeping, but well expected, and will have practically no effect on the investment climate in Russia. Nikolai Podlevskikh, a representative of investment company Zerich Capital Management, said that Putin's statements about changes in the system of state power bodies in Russia caused no visible repercussions on the stock market. "On the one hand, it is the expected reinforcement of the power vertical. But, on the other, an analysis of the version of its realisation and formulation of the market's attitude to the new initiative will take some time," he said.

By now authorities are sufficiently strongly centralised, and further centralisation will not bring negative changes. What is more, this step may help increase stability in the country and, accordingly, raise its investment attractiveness. Emmanuel Ferry from BNP Paribas says that if Putin does not additionally take a decision on changing the priorities of economic policy, then the political measures he proposed may help strengthen the Russian economy.

Against this background, senior officials responsible for economic development hastened to say that the changes concern only political aspects. Economic Development and Trade Minister German Gref has said that "no changes are expected in Russia's economic policy in the near future". And Audit Chamber Chairman Sergei Stepashin pointed out that "the latest measures of the Russian leadership to reinforce the system of state power are aimed at a further strengthening of stability - a factor so much needed by foreign investors". Deputy Prime Minister Alexander Zhukov gave an assurance that the Russian economy is stable and even braced for a deterioration of the external economic conditions.

Rating agencies do not consider that centralisation of power erodes the country's economic development and are not going to change the credit ratings of the country and regions. When analysing Russia's rating, we took into account the possibility of a further restriction of the role of participants of the political process - governors, the media and deputies, says Helena Hessel, of Standard and Poor's.

For the business community it is important that political decisions should not lead to destabilising consequences. In the view of some experts, the president's decision should have a stabilising effect on the economy of Russia's regions. "Centralisation of power should lead to a lowering of economic risks and of corruption - above all, in the regions, which is particularly important for foreign investors," said Stanislav Fedulov, from management company Baring Vostok Capital Partners.

Some experts go even further and say that foreign investors should have been more concerned if the president had adopted no measures tocombat terrorism. Andrei Zorin, an analyst with investment company Barrel, said: "President Putin's statement at an enlarged cabinet meeting concerns the economy and the stock market directly. The executive branch does not cease its fight against terrorism and is fully determined to create an effective system of homeland security. This is arch-important and this is precisely what the Russians are expecting from it, because in the opposite case the investors will have further to ask experts of rating agencies whether terrorist attacks can influence Russia's sovereign rating."

Foreign companies that keep coming to Russia despite the permanent and obvious threat of terrorist attacks are unlikely to get frightened by political measures of struggle against terrorism. They will keep coming to Russia further, too, given a favourable market climate. The latter is determined not by the type of political system - democracy exists in far from all countries where intensive and profitable capital investments are made - but by the state's effective measures to develop the economy.

Stable power is highly desirable in principle for the economy. How effective the reinforced bureaucracy will be in the fight against terrorism will be shown by time, but the effective fight against terrorism should create a favourable atmosphere to economic development and business in Russia.