Dissent is far from the microphones as Vladimir Putin tries to show the world Russia is still open for business even as $10 billion flees his nation each month.
As the Russian leader welcomed executives such as Goldman Sachs Group Inc. (GS:US)’s Lloyd Blankfein to the St. Petersburg International Economic Forum in his hometown, none of the keynote speakers at the annual jamboree of businesspeople and politicians directly addressed the wave of political protest that’s gripped the country since December.
That’s hobbling his efforts to turn the event into a showcase to match the World Economic Forum’s annual meeting in Davos, Switzerland. While Putin pledged to tackle corruption and ease an energy reliance that’s left the budget needing an average oil price of $117 a barrel to balance, he’s raised fines for anti-government demonstrators and searched the homes of protest leaders, shaking confidence in Russia’s stability.
“Putin’s trying to make it into a Davos for Russia,” said forum attendee Roland Nash, chief investment strategist at Moscow-based Verno Capital, which manages $200 million in Russian equities. “A big part of it is PR. One of the problems is the negative image of Russia, and there’s a lot of truth to this negative image.”
In what Nash called “a stamp of approval for Russia,” Goldman, BlackRock Inc. (BLK:US) and Templeton Asset Management Ltd. signed an agreement with a Kremlin-backed private-equity fund to invest in Russian companies preparing to sell shares through initial public offerings.
Elsewhere, delegates joined Putin in focusing on the positives.
Russia is “moving in the right direction,” according to BP Plc (BP/) Chief Executive Officer Bob Dudley, who was hounded out of the country over visa issues in 2008 as his company scrapped with its local billionaire partners in the TNK-BP venture.
The St. Petersburg forum “brings together leaders in the energy industry from all over the world. Even Davos doesn’t always do that,” he said yesterday in an interview. “It’s quite extraordinary for me. It’s a great opportunity to talk with colleagues around global industry.”
Dudley, Total SA Chief Executive Officer Christophe de Margerie and executives from other energy companies including E.ON AG and GDF Suez SA had to wait as much as four hours yesterday to start a scheduled meeting with Putin.
The lack of dissent in St. Petersburg contrasts with the often heated exchanges at Davos. In the run-up to the global financial crisis, Nouriel Roubini used Davos as a platform to challenge the mainstream view as risks built up inside the financial system. In 2009, Turkish Prime Minister Recep Tayyip Erdogan stormed out of a debate with Israel’s then-President Shimon Peres. And last year JPMorgan Chase & Co. (JPM:US) CEO Jamie Dimon and France’s then-President Nicolas Sarkozy clashed over financial regulation.
Financial markets signal sentiment toward Russia has soured. The ruble-denominated Micex index is down 3.9 percent in 2012, the worst performance among the BRICS group of the world’s biggest emerging markets that also includes Brazil, China, India and South Africa. The dollar-based RTS has declined 7.1 percent, while the MSCI Emerging Markets Index is little changed for the year.
The ruble has lost 3.4 percent this year against the dollar. Brent crude, the grade that underpins prices for Russia’s Urals export blend, has tumbled about 16 percent as Europe’s debt crisis worsened and the U.S. and Chinese economies slowed. Energy exports account for about half of budget revenue.
Russia-dedicated equity funds posted redemptions for a ninth week, registering a net outflow of $20 million in the week ended June 20, according to VTB Group, which cited EPFR Global data. Russia has endured $340 billion in net private capital outflows since 2007.
There weren’t more U.S. investors at the forum because “people are afraid of Russian risk. And in bad times you don’t look for extra risk,” according to David Bonderman, a founding partner from TPG Capital.
Putin, 59, returned to the presidency after four years as prime minister, effectively swapping jobs with his protégé Dmitry Medvedev. Protests at his 12-year rule that began after disputed parliamentary elections in December haven’t fizzled out, with at least 18,000 people gathering June 12 to march through central Moscow.
That demonstration was amplified by police searches of opposition leaders’ homes the previous day. Investigators summoned protest figureheads including anti-corruption blogger Alexei Navalny and TV personality Ksenia Sobchak for questioning the day of the event. Sergei Udaltsov, another of the organizers, defied the request to address the crowds.
The risks for demonstrators have intensified since Putin’s re-election. The president signed into law this month a bill that increases the maximum fine for those attending unsanctioned protests to 300,000 rubles ($9,037) from 2,000 rubles and to as much as 600,000 rubles for organizers.
A presidential human rights commission asked Putin to reject the measure, saying it violates the constitution. Putin has said the legislation is in line with European practice.
“Anyone who considers himself a politician is obliged to express his position exclusively within the confines of the law,” he told the forum yesterday. “The thirst for change is undoubtedly an engine of progress but it can become counterproductive and even dangerous if it leads to the destruction of civil peace and the state itself.”
Rule of Law
During a 45-minute address to delegates after a four-year hiatus from the St. Petersburg forum, Putin reiterated plans to bolster the business climate and improve Russia’s graft rating, the worst among the BRICS nations in Transparency International’s annual corruption-perceptions survey.
The rule of law was questioned last week after the independent Novaya Gazeta newspaper alleged Russia’s chief investigator threatened the life of its deputy editor, Sergei Sokolov, over an article he wrote. Alexander Bastrykin, head of Russia’s Investigative Committee, later admitted having an “emotional conversation” with the reporter.
Implementing major changes like the ones Putin has proposed isn’t possible without overhauling how Russia is run, according to billionaire Mikhail Prokhorov, who challenged the president at March’s election.
“The thing about slogans, ideals and intentions is everything looks very good,” Prokhorov said yesterday in an interview in St. Petersburg. “But in order to reach them we need to change our political structure: we need to fight against monopolies, because we have monopolies not only in gas, but in politics, public life, everything.”
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