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Dumping ministers could woo investors

Investors must come and they must like what they see if Russia's economy is to drive forwards. But for this sweeping political freedoms are necessary, say analysts, as the Kremlin sets its sights on grandiose economic reform.

President Medvedev outlined seemingly big changes in state giants like Gazprom and Transneft at a Modernisation Commission meeting in Magnitogorsk on Wednesday, in what looks like a significant step but could be no more than cosmetic foot-shuffling.

"The merger of high-ranking officials and business is Russia's biggest national problem today," Nadia Arbatova at the Institute for World Economy and World relations told The Moscow News.

"Power is converted into money at every level, and money plus corporate loyalty means even greater power. 'Keep business and state power separate' is the necessary precondition for Russia's democratisation, which is a synonym for modernisation," she said.

Form over function

Yet she and others are dubious about how far forward Medvedev's comments on Wednesday can take the country.

"We agree though that allowing government officials to serve on the boards of companies in industries they regulate formally limits competition, but we doubt potential changes would alter the nature and not just of the form of state involvement," Ildar Davletshin of Renaissance Capital wrote in a note to investors.

Government signals

This would take many Putin appointees out of the boardroom, including Igor Sechin, Deputy Prime Minister responsible for regulating the oil and gas industry and chairman of state oil giant Rosneft.

Finance minister Alexei Kudrin likewise sits on the board of VTB, one of Russia's leading largest banks. Gazprom, of which Medvedev used to be chairman, still has two ministers on the baord, including energy minister Sergei Schmatko, and another deputy prime minister.

These men would all be shown the door under Medvedev's proposals.

"The board includes individual profiled members, first and foremost the energy minister. If we follow the letter of the law the president has laid out, then a replacement is needed," Arkady Dvorkovich, presidential aide told RIA Novosti on Thursday.

But Dvorkovich had barely finished speaking when economic development minister Elvira Nabiullina, speaking at a presidium meeting chaired by Putin, said that Medvedev's "ambitious" plans needed to be considered carefully, rather than enacted at once.

The day before Medvedev had said he wanted to end "the excessive influence of state companies on the investment climate," also saying that corruption remained a factor, the BBC reported.

Bad politics

"Economic reform can only go hand in hand with political reform," Arbatova wrote in an email.

And separating money from politics is just part of what experts say the economy needs. A report tabled by Strategy 2020 maintains that for economic growth Russia needs true democratisation.

And the main barrier to economic development is bad politics, Carnegie Centre analyst Nikolai Petrov told Vedomosti.

Other points to improve on

The wish list for reform is fairly succinct but nonetheless challenging. "Protection of private property and intellectual property rights, independent judiciary; laws that will facilitate life for small and medium business," are what Russia needs to encourage investors and make the public feel the benefits, says Arbatova.

Although she thinks it is no more than a symbolic gesture, Jenia Ustinova of the Eurasia Group in Washington DC thinks that ushering the ministers out of the boardrooms is a good prelude to tackling other, more fundamental issues.

"I think that part of the sum of checks and balances isn't a very strong one in Russia. You don't have strong, independent watchdogs of the government...That makes development harder. The other obstacle is corruption, which everyone knows about," she told The Moscow News.

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