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Kremlin Pro-Business Blueprint: Shunning Rhetoric, President Dmitry Medvedev Outlined Ten Priorities to Improve the Investment Climate

In a highly symbolic gesture, President Dmitry Medvedev travelled East on Wednesday, to the steel city of Magnitogorsk, in the Ural Mountains. There he delivered what some experts have dubbed the "Ten Commandments of Investing", designed to help keep investors and their money safe in Russia.

In unveiling his ten-point action plan to improve the country's investment climate, Medvedev told a meeting of his modernization commission that "the list is not exhaustive." "Further steps will be taken in this direction, including personnel [changes], especially with regard to those who do not realize that creating [friendly] working conditions for honest entrepreneurs and investors is the top priority of any leader," the president said.

While Russia's needs have always been mammoth and manifold, President Medvedev singled out lingering investor wariness about Russia as the greatest obstacle and challenge to his modernization project. "We need technology, we need money ... We need the confidence and interest of domestic and foreign investors," Medvedev said, according to a transcript published on the Kremlin Web site. "Unfortunately, Russia is experiencing a lack of trust, and money is continuing to flow out of the economy."

Medvedev said that in order to achieve his modernization goals, it is essential to increase the flow of investment "multiple times." But due to rampant corruption, he said, not everyone believes that a hitch-free business undertaking is possible in Russia. The president, who has made the fight against corruption one of his top priorities since assuming office three years ago, said corruption remains a factor that influences the entire economic situation. "Corruption's grip is not weakening, it has the whole economy by the throat," Medvedev said. "Until we make our country attractive to business and private investment, we will not solve the main problem: we will not be able to change the quality of people's lives."

One of the points on his ten-point priority action plans unveiled on Wednesday is the creation of a new mechanism to deal with corruption-related complaints made by business people. The President instructed the Attorney General to promptly prepare a bill creating a special mechanism for handling such complaints, especially those containing accusations of corruption against state bodies. He said such a mechanism should include compulsory publication of the results of verification of any corruption-related information that falls into the public interest.

The president also said he wants government ministers out of the corporate boards of state-owned companies by June, a move some experts say is tantamount to unraveling part of the power vertical put in place by his predecessor, Russian Prime Minister Vladimir Putin. "Government leaders who answer for the rules and regulations in a certain industry also sit on the board of directors of competitive companies," Medvedev said. After successfully wresting control of the government from the oligarchs in early 2000s, then-President Vladimir Putin established tighter state control over the economy through the appointment of state ministers that serve as the "eyes and ears" of the government on the boards of large state corporations. Before his election as president in 2008, Medvedev served as the chairman of state-owned gas monopoly Gazprom, simultaneously serving as deputy prime minister.

Presidential Aide Arkady Dvorkovich told reporters on Wednesday that the move will affect only state officials who are on the boards of companies that operate in the competitive sector. "VTB and Rosneft may be an example of such companies," Dvorkovich said. Deputy Prime Minister Igor Sechin currently heads the board of directors of state-owned oil company Rosneft while Finance Minister Alexei Kudrin sits on the supervisory board of VTB bank. Dvorkovich said that a list of independent candidates that will replace government ministers on the board of directors of large state-owned companies will only be available in June.

Another practical announced by President Medvedev on Wednesday was his decision to give the Ministry of Economic Development the authority to quash any regulations that could hamper conducting business. "The ministry will be given the authority to present proposals to the Justice Ministry for removing administrative regulations that, without justification, make it difficult for business and investment operations. The Justice Ministry will also be obliged to require institutions that have adopted anti-business regulations to remove them immediately," Medvedev said.

In addition, government agencies will be obliged to consult with business associations and professional organizations when preparing new regulations and guidelines for businesses. "Not a single federal agency will be exempted," Medvedev said. The president also plans to put a presidential representative in each federal administrative district to assist companies in implementing investment projects by liaising with local authorities.

The president also called for equitable treatment of minority shareholders in public companies by giving them more access to vital company information. "If the minority shareholders are not provided with information, this means one thing: It means that there is something to hide," Medvedev said. ?The president said "any case of violations of minority shareholder rights could be seen, therefore, as an example of ineffective managerial work."?He added that the newly reorganized Federal Service for Financial Markets, or FSFM should oversee that the interests of minority stakeholders were protected.

Medvedev reaffirmed Russia's commitment to privatizing state stakes in key companies, but said the government must publish a timetable for the privatization of large stakes in state-owned companies over the next three years. He reiterated that a direct investment fund ­ that would allow the government to co-invest with foreign funds into the Russian economy ­ will be launched in the fall by VEB with initial capital of $2 billion, which will eventually be increased to $10 billion. The state will not participate in the management of the fund, Medvedev said, and will pull out of its assets ownership within seven or eight years. The level of the fund's participation in all projects should range from 10 to 25 percent, he said.

Medvedev called for a reversal of a hike in social taxes, which were raised to 34 percent from 26 percent from January. "The rate of 34 percent can be unbearable for many sectors," Medvedev said. "I am going to order the government to establish mechanisms that would reduce the rate starting January 1, 2012." "Because some businesses could not bear the burden of the new taxes, many either closed down or went into the shadows," Dvorkovich told reporters on Wednesday. He said that reversing the hike in social taxes could cost the budget 400 billion to 500 billion rubles ($14 billion to $17.5 billion) but that the Kremlin hopes to bring the rate down to close to what it was before the hike.


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