Russian President Vladimir Putin met with a few major U.S. and German investors in his hometown of St. Petersburg last weekend to dispel widespread and justified fears about the investment climate in Russia.
Capital flight from Russia quadrupled last year from $8 billion to $32 billion because of Kremlin persecution of YUKOS, Russia's then-largest oil company. The nine-year jail sentence for alleged fraud and tax evasion handed down earlier this year to Mikhail Khodorkovsky, the company's largest shareholder and a liberal who didn't hide his political aspirations, did not help the climate either.
Mr. Putin told the audience that Russia's "strong economy" merits increased investment.
Timely as it may seem, this message is irrelevant.
In fact, Russia's economy is growing exclusively because of galloping oil prices (that have jumped to $60 a barrel) and is otherwise in a very precarious situation because businessmen do not want to invest in Russia.
Ironically, neither does the Russian government.
Unlike China, which invests its budget surplus in industrial development, Russia, which relies heavily on oil and natural gas exports, supposedly accumulates the surplus oil dollars in a so-called "stabilization fund."
So Mr. Putin is certainly not leading by example.
Designed to placate an average Russian who has seen all his savings wiped out at least twice over the past 15 years (in 1991 when the Soviet Union went belly-up and in 1998 when Russia defaulted on its loans largely because of the crisis of the corrupt banking system) the name of the fund may not reflect its proclaimed purpose.
So far there has been no indication that this fund won't share the fate of the $4.8 billion from the International Monetary Fund. That money disappeared in Russia in 1998 and has been generally considered stolen by top Russian bureaucrats.
If anything, whatever system of checks and balances existed in Russia to limit the free-for-all of the state bureaucrats has been all but destroyed by Mr. Putin and his administration.
They are no longer hindered by the parliament, independent television, or regional authorities in controlling (read "pocketing") whatever cash flows or "stabilization funds" come their way.
Even some of the most Russia-friendly investors and philanthropists have pulled their funds from Russia. Examples include U.S. billionaire George Soros, who reportedly called his former stake in Russia's Svyazinvest, a state telecommunications holding company, the "worst investment of my life" before getting rid of it last year.
The Kremlin has since been expanding its grip over Russia's largest companies, most recently gaining control of the natural-gas monopoly Gazprom, which had announced plans to expand into the oil industry, which the state controls.
The bottom line is that there is no threat of Russia emulating China's financial boom, despite the skyrocketing oil prices. So unless Mr. Putin's well-being is more important to you than your own, steer clear of Russian investment funds.
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