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The Moscow Times
February 28, 2002

INVESTMENT SPECIAL: Russia Increasingly Ripe for New Investment

We asked a number of experts to compare Russia's present investment climate with that of 1998.

Dmitry Vasilyev, head of the Institute of Corporate Law and Government and a former head of the Federal Securities Commission:

"If you compare the investment climate in Russia today with the situation directly after the default, you will find improvements have appeared in the past three years.

"Political stability is much stronger, which is a very important factor in how business feels about the country, about marketplace participants and the behavior of the participants themselves.

"A great shift has been made in legislation, especially tax law. Entrepreneurs are more stimulated to conduct legal and transparent business, but this process is not yet over.

"The first promising steps have been made in the way of liberalizing the economy. Firstly, there is less red tape when creating a new business, when licensing and so on. This creates the foundation for the appearance of small and medium businesses.

"The financial position of the state has changed in respect to its abilities to fulfill its budgetary responsibilities. Now the government has a budget surplus and is able to fulfill most of its duties toward society and to its subsidiaries, which makes for increased social stability and lessens the amount of non-payments that were killing natural monopolies such as UES and Gazprom.

"Due to devaluation and good global conditions, the ruble has gone through some positive changes and gained new stability. Currency and gold reserves have grown considerably and the danger of a serious currency crisis has decreased.

"After the 1998 crisis, Russia became a social outcast. The default ruined Russia's relationship with its creditors, banks either stopped or decreased payments, investors lost large amounts of money as notes decreased in value, and as a whole, Russia was dropped from the investment plans of foreign countries. Russia has since restructured most of its debt to its creditors and the country's debt today is actually decreasing, helped considerably by the fact that Russia is not only paying its debt on time, but ahead of schedule. This has led to an upgrading of Russia's credit rating, making it easier and less expensive for both the government and companies within Russia to borrow money.

"There have been considerable positive changes in corporate governance and entrepreneurial behavior. The changes in ownership structures have made a different way of doing business possible, one based on cordial relationships between ownership and management. Russian enterprises have become more aware of their corporate governance practices, and this has made them more attractive to investors."