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Wednesday, April 25, 2007

Annals of Neo-Soviet Cold WarTactics: The London Conference Pullout

The Financial Times reports in an editorial:

There is something very disturbing about the last-minute mass pullout of Russian business leaders from London's Russian Economic Forum, which started Monday. Some called the organizers, complaining of late diary changes. Others did not bother with excuses -- it was obvious that behind the boycott lay the dread hand of the Kremlin. Officials have long been unhappy with London hosting the premier annual Russian economic conference and have steadily cut ministerial representation. But businesspeople were free to come until last week, when the top names suddenly cancelled.

The authorities gave no reasons. But they left no doubt they wanted to punish London, probably over the Boris Berezovsky affair. Officials are furious at Britain's failure to respond to the exiled oligarch's recent anti-Kremlin outburst. Moscow is also angry at the harm done to Russia's global image by the row over the poisoning in London of former KGB agent Alexander Litvinenko. The conference pullout highlights the challenges of doing business with Russia. While the economy is booming, creating opportunities for many companies, the Kremlin is increasingly ready to intervene in the economy -- even, it seems, in the conference sector. Officials argue that after the turmoil of the 1990s they had to restore order and give the state a leading role in key sectors, including energy. They say recent rapid growth proves they were right.

They have a point. But they are not telling the whole story. First, the recent boom owes almost everything to high oil prices, not government policies. Next, those policies have been implemented in nontransparent ways that have done nothing to restore respect for the law -- and have instead created a chilling fear of officialdom. Also, the resurgence of the bureaucracy has been matched by growing corruption. There is little prospect of change. President Vladimir Putin will soon pick a successor, who will almost certainly win next year's election. The front-runners, Dmitry Medvedev and Sergei Ivanov, both promise continuity. For foreign investors these are rich but dangerous waters. Even large groups are not immune from arbitrary actions, as Royal Dutch Shell found when it was pressed to sell control of the Sakhalin-2 scheme to Gazprom. Even companies not involved in strategic sectors may be hurt in the crossfire, as the forum organizers have learned. Investors who think they can avoid political risk are fooling themselves. In Russia almost everything is political and almost everything potentially carries political risk.

An article by reporter James Wilson adds more information:

he Kremlin yesterday continued to deny that it ordered a boycott by senior Russian officials and oligarchs of London's Russian Economic Forum, for years the premier Russian business conference. But Itar-Tass, the state-owned news agency, gave an account that betrayed official Moscow's attitude and could have come straight from the days when the agency was plain Tass, a Russian acronym for the Telegraph Agency of the Soviet Union.

"In recent years the Russian Economic Forum has lost its significance and is no longer a key event in defining economic co-operation between Russia and western capital," the news agency explained in a dispatch. Russia's internal markets, not the London markets, now played the decisive role in investment decisions in Russia. "And precisely because of this, it has become a logical step for the centre of gravity to shift from London to St Petersburg, where the St Petersburg Economic Forum will take place this summer."

The Kremlin has teamed up with the World Economic Forum to try to turn the St Petersburg event into a "Russian Davos". Expect to see Russsian president Vladimir Putin lead a phalanx of Russian ministers and businessmen at the event in June.

Welcome to the neo-Soviet Union! When Russia can't win an argument, it takes its marbles and runs home crying to mommy (or sometimes it just kills you).

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