Putin turns to mega-projects to crank up investment in Russia

June 21, 2013

Russian President Vladimir Putin announced Friday at an annual forum for international investors that his government will draw on the country’s pension fund to finance a highway and two ambitious rail upgrades — mega-projects that economists said would do little to address Russia’s most pressing economic needs.

The country’s gross domestic product grew at an annual rate of just 1.6 percent in the first quarter of this year, and the government is seeking to show that it is prepared to invest in the Russian economy, in hopes of persuading private investors to follow suit.

But while the three projects, expected to cost a little more than $14 billion over five to six years, will be useful if actually built, they will not be transformative, Alexei Kudrin, a former finance minister, said after Putin’s speech.

The infrastructure projects address none of the more intractable economic problems identified by speakers at the three-day forum, including disregard for the rule of law, bad corporate management, a poisonous environment for small and medium-size businesses, high interest rates, red tape, and a continuing reliance on revenue from gas and oil. Russia has been in denial over the changes being wrought by shale gas, and Putin did not deviate in his Friday remarks.

He was interrupted by applause when he endorsed an amnesty for prisoners convicted of economic crimes. Russia has about 100,000 such prisoners, many of whom landed in prison for what would be considered breach of contract elsewhere, or were simply the victims of hostile takeovers by rivals who had friends in the police. But the amnesty is so qualified that only 13,000 will probably be eligible.

this graf cbk Some convicts guilty of actual fraud will probably be included. “It’s better to have this amnesty than to keep even one innocent person in prison,” said Boris Titov, the government’s business ombudsman.

Putin appeared alongside German Chancellor Angela Merkel, who represents Russia’s biggest trade partner and spoke sharply about respect for private property and rule of law. Russia should adopt “transparent rules and a transparent legal environment” and make “a clear commitment to private property,” she said.

Merkel also denounced the recent Turkish crackdown on demonstrators in a way that some in the audience interpreted as a slap at Putin’s handling of domestic protests in the past year.

The advent of shale gas has been one factor contributing to reduced expectations for the Russian economy and for the sustainability of Russia’s most powerful company, the state-controlled Gazprom.

Putin brushed away a question about shale gas from Daniel Yergin, the prominent American energy historian and consultant. The Russian president said he believes that shale gas is uncompetitive economically, causes “blackness” in drinking water and requires large territories for extraction because it sets off lots of “explosions.”

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