UPDATE 3-Russian leader woos investors with tax cut pledge

Fri Jun 18, 2010 11:20am EDT

Related Topics

* Medvedev announces business-friendly moves

* "We have changed", Kremlin leader says

* Vows no turning back on drive to modernise Russia

(Adds market reaction, bankers on privatisation)

By Michael Stott

ST PETERSBURG, Russia, June 18 (Reuters) - Appealing to global business leaders to help him modernise Russia, President Dmitry Medvedev vowed on Friday to cut taxes on investment and announced plans for a new fund to channel money to big projects.

Making the keynote address to the annual St Petersburg Economic Forum, Russia's top business event, Medvedev said he was taking real action to steer the country away from its dependency on oil and towards a future based on innovation.

"Since our last meeting, a year has passed, but not just that. There was something more. We have changed," a confident, relaxed Medvedev said. "We are really modernising Russia."

Now halfway through his presidency, Medvedev has made modernisation his priority, launching a project to build a Silicon Valley-style technology hub near Moscow [ID:nLDE64R1N6] and promoting diversification of the economy into new areas.

Critics say Medvedev, a protege of longtime leader Vladimir Putin, will not succeed in modernising the economy unless he also opens up Russia's closed political system, curbs corruption, allows free media and promotes open debate.

As in previous years of Medvedev's rule, Putin did not attend the forum.

Underlining his determination to project a fresh image in front of an audience of 2,000 senior global executives, the Kremlin leader appeared on stage without the traditional anthem written to Soviet music and kept formality to a minimum.

Medvedev said the global crisis offered Russia a unique opportunity to build a modern, prosperous country based on a knowledge economy encompassing space, medical science, nuclear and information technology.

"Creating a comfortable environment for investors, in essence, is our greatest challenge," Medvedev said. "But today we put this task at the centre of our actions."

Medvedev said capital gains tax on long-term direct investment would be abolished from next year and held out the prospect of more tax cuts for business as the economy recovered.

CAUTIOUS ABOUT RECOVERY

"Reform is vital if Russia's historic valuation discount is to narrow, and investor-friendly remarks such as we heard today are, in our view, a step in the right direction," said Moscow investment bank Renaissance Capital in a research note.

The tone of the speech was more upbeat than last year, when Russia was in the depths of the crisis. Medvedev remained cautious about the recovery, saying the pace of growth was "not as inspirational as we would like".

Russia's economy is expected to grow by about 4 percent this year, clawing back about half of last year's contraction.

Addressing a commonly heard criticism of the Kremlin's modernisation plans, Medvedev said his government understood that a modern economy could not be built on orders from above.

"The state should not tear the apples from the tree of economics. What the government should do is help to grow our apple orchard, develop our economic environment."

Medvedev ordered the government to create a new investment fund financed jointly by the state and the private sector which would work along market principles.

"No matter how many state-owned corporations we have, modernisation will happen above all through private businesses," he said. "And only if there is competition."

On Thursday, the president implemented a previously announced move, cutting the number of companies that must be state-owned because they are "strategic" from 208 to 41.

This opens the way for more privatisations. Economy Minister Elvira Nabiullina reiterated that Russia aims to earn 72 billion roubles from privatisations this year, but is not yet planning to sell stakes in behemoths like Gazprom or Russian Railways.

Morgan Stanley (MS.N) chairman John Mack told Medvedev at a forum meeting with bankers that Russia needed to expand the number of listed companies on the stock exchange.

"Privatisations are critical to creating the volume and the flow of activity," he said.

A fan of technology, Medvedev said Russia had set a target of giving Internet access to 90 percent of the population and broadband access to 60 percent by 2015. He said technology could help develop democracy in Russia.

"Information technology is one of the key directions for the development of democracy," the Kremlin leader said. "Technological expansion guarantees freedom of speech".

Medvedev vowed to press on with government plans to promote Moscow as a regional financial hub and said this would help strengthen the position of the rouble as a reserve currency. (Additional reporting by Denis Dyomkin and Toni Vorobyova, writing by Michael Stott and Toni Vorobyova; editing by Jon Boyle)

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