November 1st, 2011

Ivlev to Russian-American Economic Forum: Press Putin regime on meaningful reform

Founder and chairman of CREF Pavel Ivlev presented the following letter to participants of the annual Russian-American Economic Forum held in New York City:

Pavel Ivlev

Distinguished guests:

The 2011 Russian-American Economic Forum is a wonderful occasion for business leaders from both countries to explore new opportunities to work together. It is my hope that over the next few days you also find time to speak frankly about the challenges the businesses community faces when looking to invest in Russia.

With an educated workforce, vast natural resources and an expanding middle class, Russia seems well-positioned for sustainable economic growth. At the same time, political realities dictate that the opposite is just as likely to happen, if not more so, with the nation mired in the authoritarian rule of Vladimir Putin. That could mean another dozen years of instability, corruption and crony capitalism.

Over the last month former members of the Russian regime have openly acknowledged that Putin’s so-called “return” to power next year (as if he ever left) is a frightening prospect for those seeking to mitigate investment risk through the rule of law. The smallest small businessman and the greatest private equity titan remain concerned with his regime’s track record for stealing assets, commercially inspired arrests and midnight raids targeting even those companies once singled out as allies.

At the same time the price of entry remains high to entrepreneurs in a number of economic sectors, since such a large percentage of the economic output – from banking to transportation to natural resources – is vested in state-run monopolies that have no immediate plans to privatize. This centralized control allows Moscow to pick winners and losers and scares away the emerging class of young, educated Russians – half of whom are looking to emigrate, according to recent data from the Levada Center.

Investing in Russia requires more than just writing a check. It requires that corporations increase their odds of financial success by pressing the Putin regime to impose changes that will preserve and bolster their returns.

If the goal is to truly modernize Russia’s economy, opening it up to the West, Putin in his third term will need to understand that it’s in his best interest to strengthen the independence of Russia’s judicial system and protect intellectual property and contracts, end rampant bureaucratic corruption and put a stop to the use of Russia’s tax authorities and prosecutors to threaten Western investors and service providers. He will need to end the practice of confiscating private property, re-nationalizing natural resources and punishing political opponents and critics.

These are all basic steps that would make doing business there more tenable and that would improve your bottom line. I hope you have the opportunity to discuss these pressing issues in the coming days.

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