Deputy P.M. Shuvalov

At a meeting hosted by state-controlled Sberbank, First Deputy Prime Minister Igor Shuvalov said the way the state functions in Russia is “backward” and “one-dimensional” and that “Russia deserves a different political system.”

Adding insult to injury, Arkady Dvorkovich, a Kremlin economic aide, stated his belief that the state plays an excessively large role in the economy.

Meanwhile, former Finance Minister Alexei Kudrin, who fell out of the Kremlin’s favor last fall and is considering mounting an opposition campaign of his own, said he thinks businesses should have the right to finance political parties. “Only then,” he added, “will there be [political] competition.”

Read the full article here.

P.M. Putin

In the meantime, Putin was out with a 6,000-word article in Vedomosti (also excerpted in the Financial Times) making the case for why he should be elected for a third term as Russian president.

In it, he acknowledges a number of pervasive problems in the Russian economy and espouses a program of modernization. Yet to tackle Russia’s economic problems and implement an earnest modernization program would compel him to sacrifice the power system that has been in place since 2000.

He may say he wants modernization but it’s clear that any true actions in this direction would inevitably lead to self-destruction.

CREF Founder & Chairman Pavel Ivlev

Writing on CNN.com’s Global Public Square, Committee for Russian Economic Freedom Founder and Chairman Pavel Ivlev writes that the recent push for political reform in Russia is tied to the compulsion for economic reform:

[M]ore than just a rigged election, Russians are protesting the inability of the current regime to lead the nation on a path of modernization. While various statistics show that wages on the whole are rising, millions of Russians are in fact experiencing worsening inequality, decreasing opportunities and a repudiation of basic free market principles.

You can read Chairman Ivlev’s full op-ed here: http://bit.ly/xlZr8a.

The political situation is uncertain, and the Russian stock market has been in helter-skelter mode lately. Moreover, the local fund industry is littered with the corpses of fund managers who came, saw and failed to conquer; companies such as Pioneer, Templeton, Crédit Suisse and Deutsche Bank have all at one time or another withdrawn with their tails between their legs.

Vladimir Kirillov

The last time Russia looked ripe for investment was 2007, right before the financial crisis hit. Many more pre-crisis ventures failed than succeeded. Wealthy Russians retreated to funds based in Zürich or London, and the regulatory framework since has remained an obstacle for international investors.

Vladimir Kirillov, chief executive of TKB BNP Paribas Investment Partners, has a warning to those looking to get in:

The Russian fund industry is interesting for international companies but only those that are ready to develop this business in the long term. We don’t advise companies to come in and catch up.

Read the full article here.

All the leading investment banks predict more-or-less the same thing for Russia in 2012: a poor and volatile first quarter of the year with growth, investment and stock markets picking up and gathering momentum in the second half of year, barring a train wreck in the rest of Europe.

Moscow rings in the new year. Credit: AP

Bonar reports that capital flight of roughly $6 billion a month is predicted through the first quarter, with some 150,000 Russians looking to emigrate to improve their economic standing.

Lack of investor confidence in Russia also means “there is little prospect of any significant Russian IPOs” on the London Stock Exchange until the second quarter or later.

Economists, Bonar notes, are anxiously awaiting the March 4 presidential election, which, although the winner is predetermined, will be more interesting given recent demonstrations across the country.

Pavel Khodorkovsky

As rigged parliamentary elections provoked an outcry across the globe, Russian citizens have risen up to demand accountability from their leaders, writes Pavel Khodorkovsky, son of jailed former Yukos CEO Mikhail Khodorkovsky, in the World Policy Journal.

The protest movement is Russian through and through, Khodorkovsky explains, not provoked by an outside source. It’s a movement that he expects will only gain momentum as the nation heads toward a spring presidential election.

Read the full article here.

Prokhorov

Kudrin

As tens of thousands of Russians demonstrated across the country this weekend, protesting the rigged Duma elections of Dec. 4, two prominent figures, billionaire industrialist Mikhail Prokhorov (also known as the owner of the New Jersey Nets) and former finance minister Aleksei Kudrin have announced their intentions to run for president against Prime Minister Vladimir Putin in March.

More on this development here.

A man protesting the results of the Duma elections is arrested. Credit: Reuters

Tai Adelaja of Russian Profile notes that this week’s demonstrations in Moscow “may have started to take a toll on the country’s economy,” as state bank VneshEconomBank canceled its Eurobond placement and two Russian mining companies have completed their escape from the MSCI Index to the FTSE 100.

VEB’s bond postponement is the first of its kind since the early 1990s, as “bond investors who initially showed interest in buying VEB bonds have started to withdraw their applications, as uncertainty clouds political future in Russia.”

Meanwhile mining companies Polymetal and Evraz became the first Russian firms admitted to London’s FTSE 100, with analysts seeing “a political undertone in their decisions.”

Two other Russian companies, Russian Railways and TNK-BP,­ are planning to meet with investors next week, the results of which could signify how money managers feel toward Russia after the election.

Read the full article here.

Essentially, a vertically integrated holding company has been created in the country’s expanses – it has its own credit organizations that provide working capital, its own cash factories that pump oil and gas from the land, its own pipeline systems, its own transport of all possible kinds, its own structures that ensure security and weapons for it, its own communications, its own social amenities, its own services, including media services, and its own instruments of political control.

Vladimir Putin

Putin’s strategy was to completely control the political process, remove Yeltsin-era elites from government and replace them with loyalists and audit to death the private companies created in the aftermath of the fall of Soviet Union.

With the Yeltsin-era business leaders out of the picture and his own cronies in place, wresting control of major industries – finance, energy, military and infrastructure – became possible.

The full article, in Russian, is available here.

Blackstone Group's Steven Schwarzman

The executives of J.P. Morgan Chase, the Blackstone Group and Citigroup were in Russia last week advising President Dmitry Medvedev on how Moscow can improve its business and investment climate, writes the Wall Street Journal.

“Funds are actually scared to put money here. That’s the problem you must solve,” Blackstone’s Stephen Schwarzman told Medvedev.

Schwarzman counseled the Russian president to sell off state companies to private investors, while J.P. Morgan Chase CEO James Dimon recommended developing a “very strong set of legal rights” to lure investors, as the country’s notorious legal system and high levels of corruption often drive away investment.

You can read more here.

Even as semi-occupied skyscrapers rise up in Moscow’s new financial district, in hopes of luring large numbers of institutional investors, the country’s individual shareholders and bondholders face logistical issues ranging from required hand-delivered paperwork to limited redress for disputes with brokers or trading partners.

Retail investors often face bureaucratic red tape, and few are prepared for the volatility inherent in the Russian market, which has fluctuated between being the world’s best- or worst-performer in the past decade.

According to Alfa Bank the estimated number of investors participating in the buyback program has dropped from 60,000 to 18,000 due to “constraints at the registrar’s office [that] reminded us of lines that formed in the late 1980s for fresh food.”

Full article here: http://professional.wsj.com/article/SB10001424052970204777904576651081541236992.html.