Russia's Economy Looks Good From Davos

APDeputy Prime Minister Alexei Kudrin — live and on screen — addressing one of the sessions at the World Economic Forum in Davos, Switzerland, on Thursday.
DAVOS, Switzerland -- Augie Fabela II, co-founder of VimpelCom, did not look the least bit worried as he stretched back in his seat and flashed a smile as white as the snowdrifts outside.

Around him, the world's biggest investors and politicians were nervously debating at the World Economic Forum the impact that the U.S. financial crisis would have on the global economy, how big the crisis might grow and how long it would last.

VimpelCom, which trades on the New York Stock Exchange, has seen its shares there drop 19 percent in the last 10 days, as markets around the world have shuddered at the prospect of a possible U.S. recession.

"Our share price will have the typical liquidity problem," Fabela said Thursday, casually crossing his legs to reveal stylish snakeskin boots.

"But the subprime crisis is a crisis in a moment of time," he said, adding that it had little bearing on cell phone users in Russia. "It should not affect day-to-day business."

Fabela's upbeat assessment that Russia will ride out the storm is being echoed by many participants at the annual five-day gathering in the Swiss ski resort of Davos. Senior Russian officials, including Finance Minister Alexei Kudrin and Andrei Kostin, head of state-owned VTB, are extolling Russia as an island of stability.

Kudrin also sharply defended Russia's stabilization fund, which contains about $160 billion in windfall oil revenues, saying Thursday that no country, including the United States, could impose rules on how sovereign wealth funds invested their money.

U.S. Secretary of State Condoleezza Rice sought to set the mood for the forum by offering assurances that the financial crisis would be short-lived. Speaking at the opening plenary session Wednesday night, Rice touted a proposed stimulus package by U.S. President George W. Bush as a "meaningful" solution.

"If there is a recession, it will be short at most," former U.S. Treasury Secretary John Snow said at a separate session.

But business leaders gloomily regarded U.S. efforts as too little and too late.

"What we have today is not a normal crisis," George Soros, the billionaire financier, said at the session with Snow. "I think this is more than ... another five- to 10-year crisis. ... This is the end of an era."

Soros, speaking later at a private lunch, predicted that developed countries would remain mired in the crisis for some time, causing a realignment of economic power in favor of emerging markets like China and India.

Asked about the role of Russia, the world's second-biggest exporter of oil, Soros told The Moscow Times that Russia did not need the crisis to become a heavyweight.

"I think it has become an economic and political power using energy as a political tool," he said.

"Russia is a major beneficiary of the high price of oil, but it is not benefiting as much as it could," he added, blaming the inefficiency on the "authoritarian regime" of President Vladimir Putin.

But Soros, too, conceded that Russia was unlikely to suffer as long as oil prices remained high.

Jean Lemierre, president of the European Bank for Reconstruction and Development, said investors had little to fear about the recent volatility of Russian shares, noting that they had charged to all-time highs last month.

"For the time being I see this as a correction," Lemierre said.

Before Thursday, the ruble-denominated MICEX index, where Russian stocks are most traded, had shed 20 percent since its Dec. 12 high -- the common definition of a bear market. On Thursday, the index jumped by 5.8 percent, its biggest gain in 19 months. The dollar-denominated RTS index added 5.2 percent Thursday. (Story, Page 5.)

Optimism over Russia's outlook seems to be prompting some investors, including Pakistan's largest private bank, Habib Bank, to take a closer look at the country. "I think the emerging markets are going to be largely immune to the subprime crisis," said R. Zakir Mahmood, president and CEO of Habib Bank, which has more than 1,400 branches.

Mahmood said he was looking to establish ties with Russian banks and companies and would attend the St. Petersburg International Economic Forum this June for the first time. The St. Petersburg forum, organized jointly by the Russian government and the World Economic Forum, is the country's premiere gathering of business leaders and politicians.

Other than being seen as a safe haven, Russia is taking the spotlight at Davos for its rapidly growing stabilization fund, which Kudrin said Thursday would pass $200 billion by the end of the year. Davos participants are earnestly debating the role that the money held by sovereign wealth funds should play in the global economy. About 20 countries have sovereign wealth funds, holding a total of some $2.5 trillion.

Amid fears that governments might use the money to bet against other currencies or for other political purposes, U.S. Deputy Treasury Secretary Robert Kimmitt on Thursday called for rules to be drawn up to regulate the funds.

Kudrin, speaking at the same session as Kimmitt, denounced the proposal, saying it could create problems where no problem existed.

"So far we have not identified any negatives, yet we are talking about a code to protect us," he said.

Kudrin and the leaders of other countries' funds insisted that the money posed no threat. Noting that the first funds were established more than 20 years ago, they said the sole purpose was to make high returns so as to provide a cushion in the event of an economic downturn -- not speculative, political investments.

Kudrin said he saw a double standard in the U.S. call for stricter rules. He said developed countries had no problem investing in developing countries in years past but now were unhappy that the developing countries wanted to reciprocate.

Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, also said he saw a double standard when it came to Russia and the stabilization fund. "Why do people want to do business with Gazprom but not with a Russian sovereign wealth fund?" he said at a session Wednesday.

Rice, meanwhile, aimed a thinly veiled dig at Russia and China in her speech, saying some economies were prospering despite the crisis. "Yes, some states are growing through authoritarian capitalism," she said.

Rice later reiterated her belief that frayed relations between Washington and Moscow did not signal a return to the Cold War. "The recent talk of a new Cold War is hyperbolic nonsense," she said, accusing Moscow of ratcheting up the rhetoric.

Rice called for the "political freedom" of the Russian people and urged Moscow to develop a "transparent and open energy economy."

Energy was also the topic of discussion at a dinner Wednesday night with Ukrainian President Viktor Yushchenko. After discussing Western Europe and China's future energy needs, participants concluded that Russia was a crucial part of the equation and vital to any discussion.

No Russians, however, participated publicly in the dinner discussion.