Russia's new foreign policy puts business first

MOSCOW (Reuters) - Russia has discovered a new ideology in its foreign policy: money.

Namibian President Hifikepunye Pohamba (L) and Russian President Dmitry Medvedev hold talks in Moscow May 20, 2010. REUTERS/Alexander Zemlianichenko/Pool

Cold War-style tirades against the West are out. In has come a new friendly face for investors and business, which advertises pragmatism and profit over ideology and invective.

A leaked Russian Foreign Ministry draft of the new policy this month set diplomats’ tongues wagging. But experts say Moscow has been implementing it for some time already, with President Dmitry Medvedev in the vanguard.

“If you look at the treaty on strategic nuclear weapons signed with the United States, the improved relations with Poland, the agreement with Norway on Arctic sea see a warming on a broad front toward the West,” said Igor Yurgens, head of INSOR, a think-tank sponsored by the Kremlin.

“If that is not a new foreign policy, then what is?”

But behind Russia’s new focus lies a cold reality: Moscow needs foreign money and knows it must behave in order to get it.

The 2008 global financial crisis hit Russia much harder than the Kremlin anticipated, pushing GDP down 7.9 percent last year. Over-leveraged Russian companies, which owed over $450 billion, found their access to Western capital cut off. The weaknesses of Russia’s uncompetitive oil-fueled economy were cruelly exposed.

The government responded with a campaign to modernize.

“The economic crisis has eliminated the hubris that marked the end of the Putin presidency,” said Dmitry Trenin, director of the Moscow Carnegie Center think-tank.

“If you accept that unless you modernize, you are marginalized, and if you accept that you can’t modernize on your own....then your foreign policy is quite clear. You need to reach out to developed countries that can become resources for your modernization.”

The Kremlin certainly has plenty of ground to make up.

In 2007, then-president Vladimir Putin made headlines with a speech upbraided the United States for trying to dominate the world with “an almost uncontained use of military force.”

The following year, Russia responded to a Georgian attack on a pro-Russian rebel region by invading the U.S. ally, helping to trigger a meltdown on the Russian stock market.

At home, developments have not been helpful either. Despite Medvedev’s promises of reform, foreign investors still complain of rampant corruption, untrustworthy courts, stifling bureaucracy and poor protection for property rights.

Medvedev himself lamented at a Kremlin meeting on investment in February that foreign direct investment in Russia had slumped 41 percent last year and the country occupied 120th place on a list of 183 nations ranked by ease of doing business.


In an interview with a Danish journalist in April, the president addressed Russia’s image problem. When asked what face Moscow should present to the outside world, he replied:

“The one that I have now: a smiling face... We must not bare our teeth at anyone, get angry, sulk or feel offended, pushed into a corner... I would like to see Russia smiling and taking the face of a young modern person.”

The leaked foreign policy document, published by Russian Newsweek but not officially confirmed by the Foreign Ministry or the Kremlin, lists 61 priority countries for relations.

These include the neighboring Baltic republics -- where it says cheap assets are for sale -- and key EU business partners Germany, Italy and France, but also big Russian arms clients such as India, China and Venezuela.

Whether global investors preoccupied with the eurozone crisis will notice Moscow’s efforts is another matter.

“The Russian charm offensive has unfortunately been lost amid the overall market confusion globally,” said Roland Nash, head of research at Moscow investment bank Renaissance Capital.

“At the moment they are whispering into a hurricane.”

Diplomats say the still-powerful hard-liner faction in the Russian elite are far from won over to the new friendlier foreign policy and want the country to hedge its bets.

“They believe the crisis proved Russia was wrong to rely on Western money,” one envoy said. “And they don’t believe Obama is for the long term -- they want Moscow to be ready for a return of the Pentagon hawks in Washington in a few years.”

Chris Weafer, chief strategist at Russian investment bank Uralsib, believes that Putin’s failed attempt last year to broker a deal for Russia to invest in German carmaker Opel was a good example of how Moscow wants to use its investor-friendly foreign policy to assist economic modernization at home.

“Russia needs to get companies such as Opel to invest in Russia and to work with their Russian counterparts to help the domestic industry to become more efficient and to modernize quickly,” he said in e-mailed comments.

But the immediate beneficiaries of the new business- friendly foreign policy have largely been Russian state- controlled companies and banks rather than the private sector.

Putin has helped negotiate a string of deals around the world benefiting state oil major Rosneft, gas giant Gazprom, state nuclear agency Rosatom and arms exporter Rosoboronexport.

“Putin has become something of a super-salesman or negotiator for these companies to get deals,” Weafer noted.

Putin’s penchant for cutting deals on foreign trips has occasionally led to awkward moments. One EU ambassador recalls a meeting with his head of government when Putin tried to negotiate terms of an energy deal and was surprised to be told that this was not something the prime minister did.

“Well, that’s what I do and I’m a prime minister,” Putin is said to have replied.

Carnegie’s Trenin says that the motto “Russia’s business is business” first appeared in Putin’s second term from 2004-8.

“A lot of people thought (after the Georgia war) that Russia was in the business of... grabbing territory and invading neighbors,” he said.

“But they’re not interested in land-grabbing. They’re interested in succeeding in business the way they see business, that is the bunch of people who at the same time rule the country and own the country. Russia Inc. is them.”

Editing by Mark Heinrich