Khodorkovsky Release Is Nice, But Not Enough
Published: January 20, 2014 (Issue # 1793)
It does not matter what real crimes former Yukos CEO Mikhail Khodorkovsky may have committed as he rose to become the richest man in Russia at the end of the 1990s. The highly selective case against him remained an open wound in the country's investment reputation for an entire decade. Now that he has finally been released, can Russia expect a sharp change in global investor sentiment?
Unfortunately, for the country's business community, the short answer is no. Khodorkovksy's release is great news. It lifts a huge dark cloud from Russia's financial reputation. But in the end, his imprisonment was only a symptom of a much larger and pervasive economic disease. Russia has spent the last 10 years marching down an economically debilitating path, at odds with the values and ideals of the 21st century globalized environment. Although his release was positive news, it does not reverse the destructive path that it symbolized.
Not all is bad, though.
While President Vladimir Putin's announcement ending 10 years of personal acrimony was a complete surprise, it appears to mark a change toward realpolitik. The signs are increasingly hopeful that Russia is moving back toward a more pro-market phase. It has been clear for several years already that Russia's pre-crisis growth model is broken and that the missing component of gross domestic product growth is investment. Sure enough, the government, led largely by Prime Minister Dmitry Medvedev, has made improving the investment climate a top priority.
How Khodorkovsky's Arrest Ruined Russia
The catch is that what investors despise more than anything else is being duped. Many agree that the government is today committed — at least for now — to its efforts to begin a new era, but investors will take a long time to forgive, forget and trust once more. Fresh in their memories are repeated instances of state-owned enterprises abusing their privileged positions to seize assets and market share, the rewriting of rules that define investment returns for long-term projects and arbitrary application of regulations and taxes — all of which are underwritten by a pervasive environment of systemic corruption.
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