June 21, 2012 / 7:15 PM / in 6 years

Russia's Putin wants new economy, warns on protests

ST PETERSBURG, Russia (Reuters) - Russian President Vladimir Putin sought to reassure investors on Thursday that he is committed to building a “new economy” through liberal reforms and privatization, and said he would not let protests against his rule spill over into civil unrest.

But in his first big speech to investors since his return to the Kremlin in May, Putin offered almost nothing new and not everyone was convinced he will do any more to carry out promises of economic and political reforms in his new six-year term than in his last 12 years as Russia’s paramount leader.

“He was saying the right things to this audience, but the impact of those words is becoming less and less,” said Roland Nash, chief investment strategist at Moscow-based hedge fund Verno Capital. “What we really need to see is implementation - and if they get that right there’s a major opportunity.”

Addressing the main complaints about business in Russia, Putin said he would press on with the sale of non-strategic state assets, fight corruption, reduce red tape, strengthen property rights and cut Russia’s reliance on energy exports.

Privatization, he said, must be fair and honest, and open to foreigners - a reference to deals in the past that allowed a few Russian businessmen to amass wealth and power.

Russia is due to sell assets worth close to $10 billion this year but a battle has been under way behind the scenes over the pace and scale of the program.

In another move to reassure investors who fear they have little protection when they do business in Russia, Putin named Boris Titov, the former head of a business lobby group, as his ombudsman to defend company owners and directors’ rights.

“We have worked out an entire program of large-scale reform. It has received broad public support. I see its fulfillment as my primary task as president,” Putin told an annual investment forum in his home town of St Petersburg, the cradle of the 1917 Bolshevik Revolution.

But in a 45-minute speech at Russia’s answer to Davos, Putin made clear there was no revolution coming in his thinking. Instead, he underlined the need for economic and political stability and announced no new policy initiatives.

The message was that Russia is strong and stable, and will reform at its own pace and in its own way as it builds a “new economy - an economy resistant to all kinds of shocks and capable of strong growth in a tough external climate”.


Several private equity and sovereign wealth funds took the first tentative steps to invest in Russia at the forum, saying they saw signs of change.

“Russia is no longer addicted to oil resources,” said Lou Jiwei, chairman and CEO of Chinese sovereign wealth fund China Investment Corp, which oversees $410 billion.

At times Putin even showed some of his old swagger, starting his speech by saying Russia was in a better state than many others, particularly Europe’s debt-stricken economies.

He finished it with a warning for the organizers of the biggest protests against his rule since he first rose to power in 2000, saying they must act within the law.

“Anyone who considers himself a politician is obliged to express his position exclusively within the confines of the law,” said the former KGB spy.

Indicating how seriously he takes the protests, Putin hinted that he would depict them as a threat to the very state itself and use this as grounds for a crackdown if they got out of hand.

He acknowledged that a desire for change often brought progress but added that “it becomes counterproductive and even dangerous if it leads to the destruction of civil peace and of the state itself.”

Putin was elected president with almost two-thirds of the votes in March and protests against his domination of Russian politics, mainly confined to big cities, have become less frequent since then.

Even so, a rally in Moscow attracted tens of thousands of people this month and although he has strong support in the countryside, Putin faces more open political opposition than at any time during his eight years as president until 2008 and four years as prime minister from then until May.

Protests have continued despite a sharp increase in the size of fines for protesters who step out of line and clear signals from Putin that he is losing patience with the protests.

“I think Putin is a master of phrases. But in fact it’s obvious that the civil peace is in fact undermined by the rigging of elections, undemocratic authorities and their unwillingness to go,” said Gennady Gudkov, an opposition leader.

Aware that he faces skepticism from investors as well as the political opposition, Putin reiterated his commitment to a sound fiscal policy, a floating currency and free capital flows.

He said Russia would not impose restrictions on capital flows, $80 billion left the country last year in a sign of a lack of confidence in its economy, and underlined how far it has come since the Soviet Union collapsed in 1991.

Michael Phillips, a partner at Apax Partners LLP, told Putin during a meeting later on Thursday that he welcomed his promise of “transparency, stability and trust”.

But some investors said they had heard similar words too often in the past to believe they would see action now.

A Western banker said: “He spent a lot of his time making the case that the rest of the world is a mess and we are strong ... He was saying: Don’t tell us how to put our house in order when you aren’t able to yourselves.”

Additional reporting by Douglas Busvine, Steve Gutterman and Gleb Bryanski in St Petersburg and by Gabriela Baczynska in Moscow; Editing by Jon Hemming and Louise Ireland

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