Economic Team Has Hard Job Abroad

ria-novostiKhristenko, right, listening to Sergei Naryshkin at the Cabinet on Monday. Naryshkin is Medvedev's new chief of staff.
Prime Minister Vladimir Putin may have unveiled an overwhelmingly liberal-leaning economic team in his Cabinet on Monday, yet the government faces an uphill battle as it seeks to promote Russian business abroad in the face of widespread fear of overdependence on the country's politicized economy.

The economic team, headed by new First Deputy Prime Minister Igor Shuvalov, is tasked not only with ensuring the continuity of Russia's explosive growth and managing runaway inflation, but also with promoting Putin's longtime goal of turning Russian firms into global players.

"We encourage and will continue to encourage ... the investment activities of our companies abroad, because we consider this an additional step toward the integration of Russia in the world economy," Putin said in a major speech to the State Duma before being confirmed as prime minister Thursday.

While Russian firms have made headway into the U.S. market, they have faced a tougher time penetrating the nearby European Union, amid growing concerns over the bloc's dependence on Russian energy supplies.

And some Russian firms, such as state oil champion Rosneft, face potential legal action if they go seeking acquisitions abroad, resulting often from complaints by minority shareholders of hardball tactics, which Putin's new government hopes to leave behind.

One of Shuvalov's main tasks will be overseeing Russia's entry into the World Trade Organization, a task the country hopes to accomplish this year after more than a decade of negotiations. Russia, whose GDP stood at $1.4 trillion last year on the back of sky-high oil prices, remains the only major economy outside the world trade body.

Moscow must still sign bilateral-trade pacts with Saudi Arabia and Georgia. Georgian President Mikheil Saakashvili's government has called off talks on the WTO amid worsening relations between the two neighbors over Russia's support for Georgia's separatist regions, Abkhazia and South Ossetia.

Analysts said that was one of the justifications for Putin's announcement Monday that the Industry and Energy Ministry would be split in two, with the Industry Ministry, headed by Viktor Khristenko, also tasked with foreign trade. Under the previous administration, that portfolio fell to the Economic Development and Trade Ministry, now simply known as the Economic Development Ministry and still headed by Elvira Nabiullina.

"That they removed the trade bloc and control over WTO negotiations from the economy ministry is logical," said Yevgeny Gavrilenkov, chief economist at Troika Dialog. "There is no need for further technical negotiations on WTO -- it's largely political," he said.

Khristenko, an affable chain-smoker who had headed the Industry and Energy Ministry since 2004, will now be tasked with boosting Russian industry, from developing at home to selling it abroad.

"It's no longer negotiations with the rest of the world, it's simply arranging industrial and foreign trade policy," Gavrilenkov said.

A spokeswoman for Russia's chief WTO negotiator, Maxim Medvedkov, said he continued to "hope" that the country would officially join the WTO this year.

Yet in a sign that Russia's entry to the WTO was far from sealed, Swedish Trade Minister Ewa BjЪrling warned in an interview with The Financial Times last week that Russia's recent decision to double tariffs on timber exports showed that it was not yet capable of "joining the market-economy family."

The issue could delay Russia's WTO membership, BjЪrling warned.

Analysts welcomed Shuvalov's role in the trade talks.

"Shuvalov is one of the most knowledgeable government officials about foreign relations, both economic and political issues," said Andrew Somers, president of the American Chamber of Commerce in Russia. "He is highly respected in Russia and abroad. It's a very good move."

Shuvalov oversaw Russia's preparations for the Group of Eight summit in St. Petersburg in 2006.

The government has yet to decide, however, who will lead Russia's negotiations with the European Union over a new partnership and cooperation agreement -- a process that promises to be tough after months of wrangling within the EU that has already significantly delayed the start of talks.

The current agreement, which governs relations between Russia and the EU, expired last year.

Slovenia, which holds the rotating presidency of the European Union, confirmed this week that Lithuania had lifted its objection to starting talks. The EU's 27 member states must unanimously agree to begin negotiations.

Lithuania had been calling for a tougher stance toward Russia, particularly on energy, following a line similar to that of Poland, which dropped its objections to starting talks earlier this year following Moscow's decision to lift a ban on Polish meat that Warsaw had called politically motivated.

A formal decision on whether to start talks with Russia will be made after May 26, EU external affairs spokeswoman Christiane Hohmann said.