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. Last Updated: 07/27/2016

Executives Upbeat On Putin's First Year

HARRIMAN, New York — Economists bemoan its troubling economic trends, while bankers lament a lack of restructuring, but executives working in Russia say Vladimir Putin's first year as president was a breath of fresh air.

"At least from a business standpoint, we are seeing tremendous improvement," in operating conditions, "and a normal restoration of solid law and order," said Shiv Khemka, chief executive officer of private equity fund Sun Capital Partners.

Khemka was among the academics, executives and politicians attending the 24th annual Arden House Conference on American-Russian Relations in Harriman, New York, sponsored by Columbia and Harvard universities.

"What is happening is a natural swing back of the pendulum from the capitalism run amok under [former President Boris] Yeltsin to a situation that may swing it toward a bit too much control, but that is slightly inevitable because it will swing back and forth a few times before Russia stabilizes," Khemka, whose family has done business in Russia since 1958, said in an interview.

In the 12 months since his election, Putin has achieved limited tax reform, methodically consolidated political power and left participants in the weekend conference split on whether his policies tread too heavily on individual freedoms.

Yabloko leader Grigory Yavlinsky told the conference that the stable business environment doesn't outweigh concerns about Putin's "very strong tendencies in creating some kind of corporate system" that could impinge on individual freedoms.

"There is a very clear feeling that the authorities are absolutely not prepared for any kind of internal criticism in the country," he said.

Yavlinsky cited attacks on the press and called the prosecution of Vladimir Gusinsky, head of the leading independent media group Media-MOST, politically motivated.

However, Dmitry Yakushkin, adviser to the chief of Putin's administration, Alexander Voloshin, dismissed Yavlinsky's take on both Gusinsky, calling it a "business matter," and the "corporate state" theory.

Unfortunately Russia "is either absolutely chaotic, or you have the other tendency" to introduce discipline, only it "starts spreading and controlling everything," Yakushkin said in an interview.

Philip Wegh, an operations director for Philip Morris Cos.' Kraft Foods unit near St. Petersburg, said in an interview that Putin's crackdown on customs agent bribes vindicated a company decision to invest in a coffee-packaging plant.

"So long as gray imports were condoned it was hard to justify manufacturing investments in Russia. Because customs duties are being enforced it is now hurting competitors that didn't make any investment at all in Russia," said Wegh.

Wegh said revenues for Kraft's Russian operations in 2001 should hit pre-crisis levels of between $30 million and $40 million.

Economists at the conference threw cold water on the optimistic view for Russia's economy, saying strong oil prices and the lingering effect of a 1998 ruble devaluation that slashed domestic production costs, caused the gross domestic product to surge 7.7 percent in 2000.

Columbia University economist Richard Ericson said a new tax code passed last year could not make up for an estimated $25 billion in capital flight in 2000 and that "a good bit of the Russian economy remains substantially unreformed."