Russia Comes of Age — A personal note
Date: Fri, 8 Oct 2010
Subject: T&B:
What we Know — Part II
From: research@truthandbeauty.ru
Russia Comes of Age—
A personal note
By Eric Kraus
(krausmoscow@yahoo.com)
Over the past 15 years, T&B has enjoyed a long, tumultuous love affair with the Russian Federation. It has been a fascinating time, and even now, there is no lack of excitement, confusion, and that occasional touch of the surreal plus the best ballet and nightlife on the planet. And yet, we are getting the feeling that the end of adolescence is nigh.
Russia still totally misunderstood abroad is no longer the madhouse of the 1990s. Our friends in private equity tell us that their greatest problem is no longer bureaucracy, corruption, or instability but rather, the more mundane issues of finding competent management as well as the ever-increasing competition. The budget is conservative, macros wonderfully healthy by comparison with the G7, and the politics is frankly becoming a bit dull. It is neither the world's best, nor the worst market. Corporate governance is patchy, ranging from best-of-breed to frankly dodgy but while abuses still occur, the egregious theft and asset stripping so widespread in the 1990s is very much a thing of the past. The RTS is currently cheap, should recover on the back of Asian growth driving global commodity prices, but given the lack of deep pools of domestic investment capital, misguided foreign investor perceptions as well as the increasing commodity taxation, the market is unlikely to shoot the lights out anytime soon the pre-crisis high of RTS 2500 seems out of reach for the next couple of years.
In short, Russia is becoming increasingly like everywhere else a middle-income, middle-European country with growth far superior to that of Europe, but lagging Asia. Beware of whom you believe those who continue to proclaim that Russia has "totally failed to reform" are smoking dope! Russian reform can be maddeningly slow but cumulative change over the past 10 years has been nothing short of revolutionary, especially on the macroeconomic front; despite all the failings, we still see more reform in a bad year in Moscow than in a good decade in Western Europe.
It is NOT China, and compared with the extraordinarily competent economic policy and dynamism of Beijing it can be almost embarrassing but, at least from the investor standpoint, there is some compensation in the fact that Chinese growth is hugely beneficial for the Chinese...foreigners who have tried to play the theme directly, by investing in Chinese venture, almost universally have sad tales to tell. Russia on the other hand, and as outlandish as it may sound, provides very much a level playing field: if it is difficult for foreign investors it is every bit as difficult for the Russians, and the rewards are very compelling. The great majority of foreign investors T&B speaks with have made a great deal of money at it...though they all have some stories to tell...
All happy countries are alike each unhappy country is unhappy in its own way. Russia is not yet a "happy country", but it is clearly moving in that direction people start families, buy insurance, think about retirement... ahh, how we sometimes miss the '90s, and the Great Party at the Edge of the Apocalypse!
BLINDFOLDED IN A FOG, AT NIGHT...
T&B is once again stumbling around in the Russian darkness, looking for the light switch. Disconcertingly, those whose business it is to set policy may be nearly disoriented as we are but less cognizant of that fact. The main question is not what happens to Luzkhov (he is toast) or forest fires, or the irrelevant Russian opposition the real question is who is directing Russian foreign policy, assuming that it still has a direction.
When Mr. Putin recently remarked that he was "bored with foreign policy" his remarks were dismissed by the Kommentariat; alas, Putin is usually to be taken at his word, and we are beginning to fear that, rather than being constrained to simple implementation of Vladimir Putin's pragmatic, frankly Russo-centric foreign policy, President Medvedev is now being allowed to improvise, with a pro-Western inflection to the general direction of Russian policy. Medvedev may well be a victim of the tenacious misconception that "Russian modernization" necessarily involves emulation of and to some degree of subservience to the United States, Putin's assertive and independent foreign policy is at risk of being jettisoned in the hopes of building closer ties with the West.
Or, perhaps not, depending upon how one reads the Iranian situation...
Like many Russians of his generation, Mr. Medvedev grew up with an idealized view of the West; despite Russia's very traumatic experience following on the wholesale adoption of a political and economic model pressed upon her by liberal western experts in the 1990s, he may not have freed himself of a first love which, in our view, has become a dangerous illusion.
Although Western institutions and governance unarguably constituted a very appealing alternative to the failing Soviet system of the 1980s, it does not follow that Russia must now blindly emulate the models of what are now sunset powers; Russian interests would be best served by a balanced policy, equidistant between the West with which it has a deep cultural and historical affinity and Asia, destined to become the centre of the global economy.
As regards bridges to the West, Russia would do well to look towards the European triumvirate, Germany, France and Italy, with whom she shares a long history, and vitally, who are more likely to view Russia as an equal an old, if somewhat nettlesome neighbour, rather than toward the US, more inclined to view Russia as an exotic and profoundly alien power, either a subservient client state to be patronized given absolute political compliance otherwise an enemy, to be contained and isolated. We do not here wish to attribute any uniquely evil intent to Washington quite simply, great empires do not have permanent friends they have only permanent interests; and unlike the Americans, the Europeans surrendered their last imperial pretentions a good half-century ago.
Indeed, given the extreme polarization of the American political climate, any deals reached now are built upon sand our American friends tell us that, as matters now stand, Mr. Obama is unlikely to win re-election, and the next administration is likely to resemble the late and unlamented Bush Presidency, once again imperilling relations with Russia.
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Russia, Economy, Business - Russia, Government - Johnson's Russia List - Russia News - Russia
