Investors See Tough Challenges for Medvedev

Ria-NovostiPutin paying tribute to Medvedev at a Red Square rock concert late Sunday.
As president, Dmitry Medvedev will have a tough time making good on campaign pledges to tackle the country's most pressing economic worries, foreign business representatives and analysts said Monday.

But despite that, the business community broadly welcomed Medvedev's crushingly predictable victory at Sunday's poll, with Vladimir Putin set to become his prime minister.

"The more boring the outcome, the better as far as business is concerned," said Neil Cooper, director of the Russo-British Chamber of Commerce. "Continuity and stability are the two things that investors want to see in this country."

During his muted campaigning for the presidency, Medvedev laced his rare stump speeches with economically liberal pledges to remedy economic concerns. These included promises to slash corruption, control inflation, improve infrastructure, reform the pension system and reduce the number of bureaucrats on the boards of state companies.

At the Krasnoyarsk Economic Forum on Feb. 15, Medvedev summed up his policies as concentrating on the four "I's" -- institutions, infrastructure, innovation and investment.

"The [election] process was far from ideal, but Medvedev, out of the field of people that was suggested as a potential successor for Putin, is the most consistent with the wishes of the international business community," said Alan Rousso, chief political adviser at the European Bank for Reconstruction and Development. Business often prefers a more open democratic process, he added.

Businesses have drawn comfort from the perception that Medvedev is close to the liberal economists in the government, Finance Minister Alexei Kudrin and Economic Development and Trade Minister Elvira Nabiullina.

"Foreign business tends to favor Medvedev because of his legal background," said Andrew Somers, executive director of the American Chamber of Commerce in Russia.

Although it is difficult to differentiate rhetoric from future reality, Rousso said that Medvedev's speeches were so pointedly liberal and in keeping with Putin's stated vision for the country that the promises were likely more than just PR.

With Putin as a potential prime minister, policy uncertainty within the government and between the Kremlin and the White House will likely decrease, Rousso said.

Medvedev would likely pursue tighter budgetary policies, possible reform of value-added tax, improvements in infrastructure and concerted attempts to develop the domestic capital markets, said Jonathan Schiffer, senior credit officer at Moody's Investors Service.

After years of talking about it, the country now needs to make serious strides toward further diversifying the economy, Somers said.

One key concern for businesses is how corruption will be handled under Medvedev. Despite much-heralded anti-corruption drives over the past few years, studies have shown that corruption and bureaucracy have increased under Putin.

"The inability to bring down the bureaucracy was one of the major failings of Putin's eight years" as president, Cooper said.

Despite his pledge to cut down on the number of state officials running companies, Medvedev will find it difficult to move against the influential groups that have come to power under Putin, said Tom Mundy, an analyst at Renaissance Capital. "Its not going to be easy," Mundy said. "Companies like Rosneft have helped to consolidate power around Putin and ... people like Sechin will try and block these moves. But Medvedev's rhetoric has been broad and he has not yet laid out the details of how he would do this."

Mundy said Medvedev would have to perform a tricky balancing act between keeping the rate down and increasing spending on much-needed infrastructure. "However dangerous inflation is, as long as it remains manageable the emphasis will always be on improving the infrastructure," he said.