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. Last Updated: 07/27/2016

Same Old Dream: Normal Banking

MTAven says BP's $6.75 billion deal with TNK has put Russia on a border, beyond which lies the big money.
As a senior government official when the Soviet Union collapsed and a leading banker when the economy collapsed, Pyotr Aven knows better than most what can go wrong in Russia.

But Aven, a former economics minister who now runs the nation's largest private bank, also knows what can go right, and he says the time to invest in the country is now.

Beware, the Alfa Bank chief says, but do not be afraid of economic and political uncertainty ahead of parliamentary and presidential elections or any potential fallout from the war in Iraq.

Aven, who graduated from Moscow State University with a degree in mathematical economic analysis, accepted an offer to advise the Soviet Foreign Affairs Ministry while lecturing at the International Institute of Applied Systemic Analysis in Vienna in 1989.

Aven established himself as one of the country's elite cadre of "young reformers" when in 1991 he joined Boris Yeltsin's first government under then-Prime Minister Yegor Gaidar as a deputy foreign minister. In January 1992, he was tapped to head the newly created Foreign Economic Relations Ministry. He resigned that December when parliament forced Gaidar from office.

But Aven wasted little time establishing himself as a pioneer of the new private sector, founding an eponymic company, Pyotr Aven Finances, in 1993 that soon forged a close relationship with burgeoning oligarch Mikhail Fridman's Alfa Bank. Aven eventually swapped 50 percent of his company for 10 percent of Fridman's and became president of Alfa in 1994. The two men have been partners ever since.

Although Alfa Bank remains part of a powerful conglomerate like many Russian banks, Aven says the group's owners have tried to develop the two businesses independently of each other.

"Any structure that is part of Alfa Group, whether the Alfa Eco commodities trader or the Perekryostok supermarket chain, is treated by bank officers as an ordinary client without special privileges," he says in a recent interview.

Aven, 48, says much has changed in the Russian business environment, but eight years after he took it over, the goals of the country's fourth-largest bank remain unchanged.

"From the very beginning our goal has been to establish a normal company in the Western sense," Aven says.

Alfa Bank posted a net profit of $104 million last year and has assets of more than $4 billion and capital of $709 million, but Aven wants more.

"We are trying to build a universal bank, and now we are diversifying our client base, targeting a wider range of private clients," he says. "We already have $1 billion of private depositors' money."

But even as Alfa works to improve itself, Aven says 2003 does not look promising for any structural reform in the economy as a whole.

"As in any other country, an election year is not the best time for serious economic reforms," Aven says. "So I do not expect any considerable progress in 2003 on any of the key structural reforms, including Gazprom, UES or the banking sector."

He did acknowledge minor improvements in the much-maligned banking sector, primarily the Central Bank's efforts to enforce tougher controls.

"I hope the Central Bank will be able to go forward in this direction, because a lot of banks in the market are well known but have bloated capital," says Aven, who now uses his political skills to lobby for better banking laws.

Aven says that although the economy has managed pick itself up and stand on its own two feet, future growing pains are inevitable.

"Any negative news from the Russian corporate sector or political scene can reverse the trend," Aven says.

But international dialog and active engagement with foreign investors can help insure a stable path, he says.

Venues such as the London Economic Forum, where he has been a frequent speaker, give Russian businessmen and politicians an invaluable opportunity to share recent developments in the country with the Western investment community, he says.

Since many investors base their investment decisions on personal feelings about a country, Aven stressed Russia must continue to promote its progress abroad.

"For Russia today, joining the World Trade Organization is a fundamental goal, as well as good relations with the major political powers, including the United States," Aven says. "I sincerely hope that Russia will use all its political skills to maintain good relations with the United States, regardless of the situation in Iraq."

He also wants to make sure investors understand possible risks, such as the economic threat associated with a drop in oil prices, which the budget is too heavily dependent upon.

While seeing no signs of a coming crisis, Aven says Russia needs a reasonable economic policy or it could eventually find itself with zero growth.

Thus, he finds heartening recent government attempts to address the country's over-dependence on oil.

But Aven condemns any attempt at a forced diversification of the economy. With the export-oriented sectors now driving Russia's economic growth, Aven says, the state would only cause economic damage by, for example, taking excess cash generated by oil companies and putting it into car production.

"This would be a deep-rooted mistake, which would only hurt economic growth without helping to improve the situation in other sectors," Aven says. Businesses must have the right to decide for themselves where to invest money, he says.

One promising sign of change in Russia over the past several years, says Aven, a member of the oligarchs' circle, is that business has become more transparent, more civilized and more intelligent.

"We have a lot of people with a Western education who work in Russia and understand the international rules of business and corporate governance," he says. "The number of Russian companies that meet international standards is much higher now than it was 10 years ago."

Proof of this is Alfa Group's own record deal with BP in which the British oil supermajor bought half of Tyumen Oil Co., or TNK, from Alfa and Access-Renova for nearly $7 billion.

This, the largest single foreign investment in Russia to date, should open the way for other global investors and could be a turning point in the development of the Russian economy, Aven says.

"Russia is now standing on a border, beyond which lies the big money. The $6.75 billion BP-TNK deal is only a harbinger," he says.