Medvedev Scolds U.S., Offers a Hand

MTMedvedev speaking with foreign CEOs at a closed session moderated by Klaus Schwab, founder of the World Economic Forum, in St. Petersburg on Saturday.
ST PETERSBURG — President Dmitry Medvedev took aim at the United States on Saturday, blaming it for the current global economic gloom, while positioning Russia as a key player in restoring confidence and stability.

"An underestimation of risks by the largest financial companies together with the aggressive financial policy of the world's largest economy led not only to corporate losses," Medvedev told investors at the St. Petersburg International Economic Forum. "Unfortunately, the majority of people on the planet also became poorer."

In his first major international appearance since becoming president, Medvedev took a page from his predecessor, Prime Minister Vladimir Putin, in making one of his most strident speeches to date. He attacked what he called "egoism" and the protectionist policies of other countries.

"The modern world is already globalized. And in such conditions mistaken policy in some countries, not to mention national egoism, immediately affect the situation in the entire global economy," he said.

"We see companies maximizing their benefits without sharing with their neighbors. There is a growing economic egoism," he repeated later.

From an investment standpoint, Economic Development Minister Elvira Nabiullina said Sunday that domestic and international companies had signed $14.6 billion worth of deals during the summit, an increase of about $1 billion over the reported total for last year's event.

But Medvedev's words on protectionism rang a bit hollow for some participants, coming as they did against the backdrop of recently passed legislation limiting access to certain sectors and the elbowing of certain strategic investors to the sidelines of key projects in favor of state-controlled domestic companies.

Royal Dutch Shell was forced to cede control of its landmark Sakhalin-2 project in mid-2006, while TNK-BP was forced out of the Kovykta gas project and now faces renewed attacks from its Russian shareholders over claims that CEO Bob Dudley's allegiances lie with the British shareholder.

Presidential aide Arkady Dvorkovich added Saturday that the government was opposed to foreign investors who obstructed Russian subsidiaries' plans to expand abroad, in an apparent dig at BP, which is said to have opposed TNK-BP's efforts in that direction.

The company is also facing investigation over its tax payments, part of a wider struggle that has been interpreted as a move by the government to tackle the last of the legacy issues and regain control over its energy sector.

Tony Hayward, CEO of BP, criticized the government for its failure to uphold basic principles and implied that it was a drag on investment.

Russia needs to show "respect for property rights and respect for rule of law," he said. "If these … [principles] are applied consistently, there will be very significant investment into the energy sector."

In opposition to the criticism leveled at the United States, Medvedev's speech stressed Russia's relative economic strengths, noting that it had escaped much of the fallout from the global financial crisis and provided a broad outline of the country's plans to emerge as an international financial center and establish the ruble as a global reserve currency.

He also argued for the removal of barriers for Russian companies looking to invest overseas, stressing that its outward investment is neither "speculative nor aggressive."

Existing global institutions are becoming obsolete, he said, demonstrating their inability to tackle pressing global problems like rising food prices.

"We understand our responsibility for the destiny of the world and are willing to participate in formulating the new rules of the game, not because of imperial ambitions but because we have the appropriate capabilities and resources," Medvedev said.

Russia's economic stability and ability to establish itself as a leading global economy is at the heart of a debate in government, with the liberal faction represented by Finance Minister Alexei Kudrin arguing that the economy is expanding at unsustainable levels.

German Gref, president of Sberbank and former economic development and trade minister, reiterated that view Saturday, adding his voice to a chorus of leading international economists who say Russia's economy is showing all the classic signs of overheating, which threatens its long-term prosperity.

Jim O'Neill, chief economist at Goldman Sachs, said his bank predicts that Russia will be one of the leading eight economies by 2020, up from 10th place now, as the rapid jumps in the oil price slow down over the next decade.

This forecast is at odds with those from the government, which expects Russia to overtake Britain this year as the world's sixth-largest economy and to move into the top five within the next 12 years.

In response to O'Neill's comments, Economic Development Minister Elvira Nabiullina, who was moderating the session and is one of the government's keenest proponents of accelerated economic growth, accused him of "forecasting inertia."

Russia sizes its economy by purchasing power parity, by which measure it ranks seventh in the world, according to the government. Standard measures of GDP put Russia in 10th place.

On Sunday, First Deputy Prime Minister Igor Shuvalov showed more interest in policy than the intricacies of economic measurement, arguing that the government should take a liberal tack and step back from interfering in the economy if it is to modernize.

In a keynote address, Shuvalov said Putin had agreed to cut the number of strategic enterprises in the economy and that the government was committed to high levels of corporate governance at the board of directors level.

He insisted that the protection of private property would be the state's chief priority, responding to regular complaints from investors about corruption and a weak judiciary.

"We have to repeat again and again — the protection of property rights is the top and most important task for the state," he said.

Other state officials offered some of the veiled threats that have become a more regular occurrence on the international stage in recent years.

While he reiterated Gazprom's commitment to meeting its long-term gas contracts, the state-owned monopoly's chief, Alexei Miller, appeared to target some of his comments at Europe, which is heavily reliant on Russia for its gas supplies.

Domestic trends are changing, he said, with many of the monopoly's industrial customers prepared to pay European prices for their gas, even without export duties, transmission costs and other burdens.

He further noted that Gazprom is looking at markets to the east, and expects to supply greater quantities of gas to countries of the former Soviet Union.

After his address Saturday, Medvedev's tone was less confrontational in a private meeting with a select group of CEOs from leading international companies.

Recounting the highlights of the meeting, Coca Cola president and chief operating officer Mukhtar Kent said the dialog was much more informal than the previous year's much smaller meeting with Putin and that the businessmen were "deeply impressed" with Medvedev's command of the business challenges, and his openness to a transparent discussion.

"The businessmen raised two issues to be addressed," Kent said. "Issue number one was the need for a more transparent legal and judicial system, and the second was infrastructure. Russia will become choked at this rate of development if major investments are not embarked upon now."

During the discussion, he said, Medvedev stressed that attracting foreign investment to diverse industries and his commitment to "see through" reform of the judicial system, a key tenet of his early presidency, remained his priorities.

"Medvedev wanted to emphasize that past and present have nothing to do with each other," Alireza Ittihadieh, CEO of British aviation company Freestream Aircraft, said following the meeting. "The summary of the whole thing was — this is me and this is not somebody else. The country's leadership is changed, so what I am saying is not what my predecessor said … He seemed to be trying to be more open-minded and to move things forward."

"After the talk, I am thinking optimistically about expanding business in Russia, but the question is whether the changes will really be made," he added. "Russia is a natural market for us, but so far the problem here has been in tremendous bureaucracy."