Russia’s Czar Putin?

Russia is a misunderstood country. The majority of Russian people are free thinking and determined to make Russia an open and fair society. Russia will never become a little America; however, Russia can be a key trading partner and ally. Many political observers have been predicting the absolute KGB style seizure of power by Vladimir Putin, particularly when it comes to the presidential elections in 2008 and an anticipated attempt to modify or ignore the Russian constitution and seek a third term.

Many have falsely predicted Putin would serve a third term as president in an attempt to consolidate power into the old Soviet authoritative style. This has been completely contrary to what has actually been taking place in Russia for some time. In fact, Putin has also been quite strident about the need for reform throughout his tenure. Putin has spoken out at what he considers “Sovietesque” and prefers a system that constitutionally interprets and implements change to the current situations through laws and the judiciary, other than following their old Soviet past.

Putin, in July 2006 has said, “The only dictatorship I find correct is the dictatorship of law. It’s totally counterproductive to adjust the laws, and especially the Constitution, to one’s own interests. We all of us must learn how to observe law.” So if this is true, why would he stay on as Prime Minister?

Putin’s strategy has been to change Old Russian power structures and to move power out of Moscow, where power has been consolidated for centuries. Putin’s bold move to relocate the Supreme Court and other government offices to St. Petersburg in 2006, has established St. Petersburg as a new power sphere. St. Petersburg has record development and newer more western standards than observed in Moscow. The goal of Boris Yeltsin, when he backed a Kremlin outsider Putin for president, was to reform Moscow and break the grip of the old Soviet power structures and mentality.

Many forget that Putin is a student of the democratic reforms that have taken place is St. Petersburg, Russia and a force behind the eventual collapse of the former Soviet Union. Putin is continuing his initial goals both through the St. Petersburg mayoral office and through his Presidency by promoting Russia to the western world and increasing foreign investment into Russia.

Most professional money managers active in Russia would agree Putin has succeeded in creating the stability and environment that has lead to record levels of foreign investment. Putin’s recent appointment of outsider and pro-western reformer Dmitry Medvedev as Prime Minister and heir apparent to the Presidency stunned several groups in the Kremlin and Moscow vying for power. Putin’s potential role as Prime Minister seems actually to further divide power out of the Kremlin, instead of consolidating it there.

Several observers dismiss all of the democratic and economic progress Russia has made and simply believe the past equals the future, nothing more. However, these observers overstate the potential impact of political power struggles on the Russian capital markets and citizen freedoms, which all democracies continually experience. In fact, since Putin hinted he might legally stay on as the Prime Minister, the RTS (Russian stock market index) hit a new record high as analysts welcomed an end to the uncertainty regarding Putin’s political intentions and the stability his involvement would continue to bring to Russia. The RTS saw a 3 percent gain on the news.

What about Putin and corruption? Unfortunately, the only question for democracies and free countries is at what level corruption exists. The studies show there is a correlation between corruption and economic prosperity. This is why the poorest countries with the worst corruption are in South America and Africa where poverty persists. It is also relevant to note that the ratings of corruption for the “BRIC” countries (the emerging markets of Brazil, Russia, India and China) are similar; however the unfounded perception is different for Russia.

Transparence International, the world’s leading researchers on corruption over the past 14 years, issue several research studies that both measure actual corruption with the “Bribe Payers Index” and perception of corruption with the “Corruption Perception Index”. On the 2006 “Bribe Payers Index” (Rank 1 is the best) which measures the actual solicitation of business executives for bribes, ranked by country, ranks the “BRIC” countries which includes Russia as #28, China as #29 and India as #30. However, the 2006 “Corruption Perception Index” (Rank 1 is the best) ranks China and India with tie scores at #70 and Russia at #121. Clearly corruption in Russia is perceived by the general public as much worse than what business executives are actually experiencing in the market place.

Russia has made huge strides in governance. Ask any of the several institutional players who have done or are doing business in Russia now. They would hardily concur that the business climate has dramatically improved since the 90’s. Homicides of business executives have been almost non-existent in recent years. As a primary example of this, the government has been closing down corrupt businesses with great success and the effort only continues. The greatest example of this is that the entire banking system is completely above board, non-corrupt and has been for sometime.

In 2006, Russia constitutionally ratified the Council of Europe’s Convention on Corruption in conjunction with the firings of corrupt senior law enforcement officials as part of a pledge to correct past wrongs and continue to fight corruption. As with any country, it must always be vigilant for wrong doing and constantly improve on existing laws to be current and in step with today’s society needs. Russia is well on its way to reaching governance levels experienced in the developed world.

Putin’s recent appoint of Dmitry Medvedev as the prime minister and Medvedev’s recent statements to expand the fight on corruption and bring it to the national forefront only reaffirms this point. Dmitry was student of Anatoly Alexandrovich Sobchak, father of Russian democracy, a co-author of the Constitution of the Russian Federation, the first democratically-elected mayor of Saint Petersburg, and a mentor of Vladimir Putin.

This has lead to greater transparency in Russia overall. It’s to the point where such stellar companies like Ernst & Young are being used by Russian corporations to meet the demands of shareholders now that they are all getting on the London exchanges. Even the Federal government has become more transparent. Russia has opened up and become more straightforward and many are not used to such openly expressed public opinions from a country that has been secretive in the past. Of course, special interests outside of Russia have been eager to exploit this.