Russian CEOs glimpse relief from uncertainty
Saturday, May 24, 2014
ST. PETERSBURG, Russia (AP) — With the Russian economy and stock market in the doldrums, CEOs gathered at a business forum here on Friday were eager for some sign of a let-up in their country's high-stakes standoff with the West over Ukraine.
President Vladimir Putin delivered, promising to respect the result of Sunday's presidential elections in Ukraine, a move which decreases the risk of more sanctions against Russia.
Stock indexes in Moscow and the ruble rallied. But many experts believe it's not so simple: foreign investors could continue to hold back from Russia in coming months to see whether Moscow is truly willing to engage the new Kiev government and kick-start important economic reforms at home.
"The rally is based on encouraging words, but for the next stage of market improvement we want to see what actually happens," said Chris Weafer, an analyst at Macro Advisory in Moscow. "I don't think we'll recover all the losses we've seen."
In Moscow, the MICEX stock index rose 0.6 percent after Putin's speech at an annual economic forum in St. Petersburg. The ruble rose 0.5 percent against the dollar, adding to recent gains to trade at 34.1 rubles — its strongest level since February, before Russia made moves to annex Ukraine's Crimean Peninsula in early March.
Putin signaled that he would back the Sunday elections and seek peace and stability in Ukraine, where the U.S. and the European Union have accused Russia of fomenting unrest against the pro-Western government in Kiev. The frontrunner in Ukraine's Sunday election is the billionaire candy-maker Petro Poroshenko, who played a prominent role in the three-month long protest movement that helped oust Ukraine's Russia-leaning president in February.
The promise was important because Russia's markets and economy have taken a hit in recent months as western countries imposed economic sanctions on many leaders for the role in the Ukraine crisis. Though most of the sanctions were on individuals, there were concerns that they could be broaden in the future and impact economic ties — particularly the lucrative energy industry. That weighed heavily on confidence, leading investors to pull money out of the country in droves.
That has helped weaken Russia's economy, which is sliding into recession, according to some estimates. It contracted by 0.5 percent in the first three months of the year compared with the previous quarter.
The Kremlin has moved to defuse tensions with Ukraine in recent weeks, announcing on Monday that all Russian troops had left the border with Ukraine and returned to their regular bases. Many at the forum praised Putin's speech, saying his remarks on Ukraine were key to stabilizing Russia's flagging economy and staving off further sanctions.
"This (Putin's comments on Ukraine) was the most important economic news of the day," said former finance minister Alexei Kudrin, who resigned after a dispute in 2011 over economic reforms with then-President Dmitry Medvedev. "Russia is not going to increasingly isolate itself or restrict its cooperation with the west."
While Kudrin and other more liberal Russian voices struck a victorious note after Putin's speech, they spent much of their time at the forum sparring publicly with more conservative members of the elite, who rallied for Russia to defy sanctions and find a way forward economically without rapprochement with the West.
"This forum is of a different sort," said Bernard Sucher, a Moscow-based entrepreneur and board member of Aton, an investment company. "On the one hand you have people who are very pugnacious and nationalistic, (on the other) there those people who are downright scared and depressed."
Foreign investors, however, are likely to remain cautious as they wait to see whether Moscow will foster productive ties with the new Kiev government. One potential boiling point between the two countries is Ukraine's massive debt for Russian gas. Last week Putin said that Ukraine's gas bill stood at $3.5 billion, and threatened that Moscow could stop delivering gas from June 1 if Kiev does not start paying in advance.
"Now there's just a sense of relief," said Weafer. "I think the investors will wait a couple of months to see whether or not there are more positive engagements with Ukraine, particularly avoiding a gas war."
Existing corporate deals are nevertheless likely to continue, particularly in sectors like energy, where investment plans are huge and take months of negotiation to complete. On Friday, French oil company Total said it was going ahead with a joint venture with Russia's Lukoil. The deal had been under negotiation since December.
Many say Russia has also failed to resolve deep-seated barriers to economic growth, such as corruption and a byzantine bureaucracy. Part of Putin's economic plan unveiled on Friday called for more government investment to boost the national economy — something that has often led to large scale corruption in the past.
"If the best Russia has got to stimulate a recession-era economy is more of the same, then they're going to have a deeper recession," said Sucher. "And they're going to have fewer resources when they try to do something again."
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