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. Last Updated: 07/27/2016

Fradkov: State to Take Active Role in Industry

The government will take an active role in managing industry as it seeks to curb inflation and open markets to attract investment, Prime Minister Mikhail Fradkov said Monday.

"Russia shouldn't be ashamed to have an active industrial policy," Fradkov told a conference organized by Brunswick UBS.

"There are huge infrastructure problems where private business will never go and the state needs to make the initial investment."

Fradkov said he also wanted to curb concentration of capital and pay "more serious attention to corruption."

The economy is growing for the sixth straight year, buoyed by commodities, with prices for key exports such as oil, gas and metals rising 11 percent in the first half, he said.

The stock market dropped by as much as a third in the second quarter as investigations into Yukos threatened to bankrupt Russia's largest oil exporter, sparking concern among investors that the probes may undermine property rights under President Vladimir Putin.

Those concerns have eased in recent weeks as some investors decided the Yukos dispute would remain an isolated case, sparking a rally, analysts and traders said.

"The Yukos situation has been neutralized to an extent by the Gazprom announcement," said Sam Barden, director of sales at Trust investment bank in Moscow.

The government is preparing to merge Gazprom, the world's biggest natural gas producer, with state-owned oil company Rosneft. Russia will strive for better management and greater transparency at Gazprom and is committed to protect the rights of minority owners at the company, Fradkov said.

Fradkov will seek similar improvements at state-controlled Sberbank as the country tries to attract more money to its equity and bond markets.

The RTS index advanced 0.6 percent to 629.62 on Fradkov's comments, extending a two-month rally that has carried the market up by 20 percent since July 28.

The government considers developing financial markets a priority and plans to ease limits on foreign ownership in insurance companies to 25 percent from 15 percent, Fradkov said. Russia also plans to introduce laws on trading in derivatives to help further develop financial markets, he said.

The recent rally still has a long way to go to regain the ground lost in April through July, when the cases against Yukos and Mikhail Khodorkovsky, Yukos' biggest owner, reached court.

Al Breach, chief strategist at Brunswick UBS, said the Yukos dispute threw into doubt the political stability that was the hallmark of Putin's first term.

"Putin's second term has not started well. Putin remains an enigma," Breach said. "The question of when there will be a Yukos II hangs over this market."