RUSSIAN ECONOMIC BOOM GOES UNNOTICED IN DAVOS

This year’s World Economic Forum in Davos, Switzerland, featured many themes that could have benefited from a Russian perspective. From the “New Mindset for the UN” to “Europe’s Identity Crisis” and “A Take on Tehran” to “The Need for Effective Leadership in Addressing Global Risks,” these topics all seem to be relevant for Moscow. While China and India were predicted to be the main targets for discussions, many problems related to the energy sector — from the sudden spike in oil prices to the new dynamism in nuclear energy production — were listed on the program, and that agenda was a perfect fit with the broad issue of energy security that Russian President Vladimir Putin has chosen as the main focus for his chairmanship of the G-8 (Lenta.ru, January 25). Russia could have confirmed that “the days of easy oil are over,” but most of these sessions had no Russian participants.

Gathering all kinds of celebrities, Davos typically rewards success — and Russia has a success story to present. Its economy, after five years of strong growth, expanded again in 2005 by an impressive 6.4%, against most forecasts in the range of 5%. Inflation was about 11%, higher than official target figures but lower than many expert predictions (Ezhednevny zhurnal, January 5). Nine Russian companies scored successful initial public offerings (IPO) at the London stock exchange, raising up to $4.6 billion, and this year the figure is expected to grow to at least $18 billion (Economist, January 26). The Russian stock exchange has been growing with such breathtaking speed that the authoritative rating agency Standard & Poor’s recently signed an agreement with the Russian Trade System to add the RTS index to its global index portfolio (Ekho Moskvy, January 27). None of these triumphs were trumpeted in Davos, and the CEOs of several Russian companies that did attend, including Vagit Alekperov (Lukoil) and Vladimir Evtushenkov (Sistema), were uncharacteristically timid (Gazeta.ru, January 25).

The official delegation led by Minister for Economic Development and Trade German Gref, was concerned primarily with behind-the-scenes negotiations about Russia’s accession to the WTO and managed to secure formal consent from Brazil and Switzerland. The talks with U.S. counterparts were quite unsuccessful, since the question of opening the Russian financial market to foreign banks remained deadlocked (Kommersant, January 27). It appears probable that the Russian activities in Davos were slightly upset by Prime Minister Mikhail Fradkov, who refused to allow Minister of Finance Alexei Kudrin to make the trip, during which he was supposed to hold final consultations on the forthcoming meeting of G-8 finance ministers in Moscow (Vremya novostei, January 20). Kudrin managed to meet French Finance Minister Thierry Breton in Paris, but Fradkov has stubbornly asserted his status as the head of the government (Kommersant, January 27).

It is possible that Moscow did not want to waste any ammunition in the debates on energy security in Davos before the more important high-level exchanges in the G-8. It is no less possible, however, that the Kremlin simply preferred to dodge the critical salvos from East Europeans who launched — in the wake of the recent heavily politicized gas conflict between Moscow and Kyiv — a joint initiative aimed at reducing the EU dependency upon energy imports from Russia (Lenta.ru, January 27). Georgian President Mikheil Saakashvili had to cut short his visit to Davos due to the energy crisis at home, but he wasted no time in accusing Moscow of the explosions that interrupted gas supplies to Georgia and Armenia (Nezavisimaya gazeta, January 27). It made more sense for Russia to repair the damaged pipeline (which took only a few days) than to argue, but it would certainly take much longer to repair the damage to Moscow’s reputation as a reliable energy supplier. The Kremlin might only hope that as the cold winter goes away the attitude toward Russian gas would improve, but it cannot hide the plain fact that it has no capacity for increasing the production of hydrocarbons in the next few years. The real discussion about energy security will continue, therefore, between the International Energy Agency and OPEC, so the recent visit of Saudi Arabia’s King Abdullah to China and India was an event that captured plenty of attention in Davos (Vedomosti, January 27).

Moscow essentially had nothing to say in Davos, so it was probably better that the thin Russian delegation remained silent. The World Economic Forum is basically about the exchange of ideas between business and governments, and the ideas that currently dominate in Russia would hardly win many supporters among this fast-moving crowd. Re-nationalization of key industries and protection of “domestic producers” and banks, expansion of state-owned energy giants, and bureaucratic distribution of the oil rent in order to contain social discontent — all these “drivers” of the Russian economy are in fact exacerbating its backwardness (Gazeta.ru, January 23). The captains of business who flock annually to Davos, irritating as many of them are to anti-globalists, are working on future-oriented projects, while Russian entrepreneurs, tamed by Putin’s lieutenants, are busy selling their business, either to the state (like Vladimir Potanin with Norilsk Nickel) or to Western partners (like most of the companies that created the spectacular growth in beer production). Their ideas about innovation are now limited to throwing parties at the Courchevel ski resort (Kommersant, January 10).

One of the sessions in Davos was centered on three scenarios for Russia towards the year 2025, a date that is far beyond the present-day political horizon, which reaches no further than the scheduled end of Putin’s second term in 2008. Lilia Shevtsova, who presented the “Oil Curse” scenario, proposed, “Perhaps Russia will have success only after it fails” (www.weforum.org). Potential investors will find the “Renaissance” scenario the most attractive, with its fast, substantive, growth. The majority of moderate “realists,” who typically expect more of the same, foresee “The Long March” towards reforms and modernization. Putin probably fancies himself at the head of this march, but in fact he firmly proceeds down the slippery slope of failure.