MOSCOW BLOG: Kremlin moves to clean up image

By bne IntelliNews February 11, 2010

bne -

The Kremlin has launched a charm offensive to counter the Russia-bashing that has dominated the international coverage of Russia since Vladimir Putin took power in 2000.

That is not to say it will be successful. Moscow may have defeated Tbilisi in the eight-day Russo-Georgian war in August 2008, but Tbilisi thrashed Moscow in the media war for the sympathy of the world. The Kremlin is not very good at schmoozing.

Still, the Georgian war was the first time since the fall of the Soviet Union that the Kremlin attempted to put out a coordinated message. Top officials gave never-seen-before live interviews to the international press and all sang the same song. Deputy PM and at that time presidential hopeful, Sergei Ivanov, was put up on CNN to defend the Kremlin's actions, though Mr Ice, as he's sometimes known, is not very good at playing Mr Nice and came across as wooden and, frankly, a little bit scary.

Even so, it remained a first for a government that doesn't usually do diplomacy, preferring to ignore criticism: one of the golden rules of Russia-watching is if the Kremlin is given a choice between preserving its image abroad and addressing a domestic political issue that opens it up to criticism, it always chooses to do the domestic thing. Mikhail Khodorkovsky or Bill Browder? I need say no more...

Tricks of the trade

Now the Kremlin is ramping up and there is every sign it will attempt to learn the tricks that come naturally to the likes of Georgian President Mikheil Saakashvili or Ukrainian Prime Minister Yulia Tymoshenko.

Over the last few weeks, a new message has been coming out of the mustard coloured walls that stand over Red Square from all quarters. The most recent was PM Putin's admonishment in the second week of February to the party of power, United Russia, to spend more time listening to the people. But more convincing was the hour-long lecture First Deputy PM Igor Shuvalov - the third most powerful man in the country - gave to a hall full of investors at the recent Troika Dialog investment conference in Moscow. "Today, when we talk about investment, [the government] doesn't distinguish between foreign investors and local business as they have the same problems," said Shuvalov. "We want people to set up businesses and be prosperous in Russia - but unfortunately we don't have the conditions for it now... Our people need to change themselves. We need to learn to fasten our safety belts, to obey the traffic laws, and respect your own health."

These statements are startling in a country where the traffic laws are widely seen as optional and most men die before they reach the age of 60 usually on a Monday (Monday being the day after a vodka-fuelled weekend). They were also somewhat ironic as Troika's founder, Ruben Vardanyan, introduced Shuvalov by complaining about corruption and the difficulties in doing business in Russia if you are not an oligarch (like him).

But Shuvalov's comments weren't made in isolation. President Dmitry Medvedev struck the same tone with his State of the Nation speech in January and there was a JF Kennedy moment when he called on Russians to take the initiative and not rely on the government. Indeed, Medvedev has consistently called for a more pluralistic political society and is overseeing the start of Russia's first serious attempt to stamp out corruption: over 800 senior officials were arrested or sacked in 2009 for graft. This is nowhere near an anti-corruption campaign; it seems to be more like warning shots over the bows of the rotten bureaucracy that change is coming.

In the meantime, Shuvalov has been appointed the head of a presidential commission that will oversee the drive to improve Russia's investment climate. The same week Putin introduced draft amendments to the law on foreign investment that are supposed to make it considerably easier for foreign companies to invest into Russia. "We should take additional steps and measures to make the investment climate and treatment more favourable," the PM stated, adding that, "the matter concerns an additional adjustment of the tax system." Putin even sent out the draft changes to 27 big foreign companies so they could have some input.

So what is behind this rising tide of talk on improving the investment climate? The simple answer is that the Kremlin has no choice if it wants to go back to the fast growth of recent years. Before the crisis in 2008, Russia attracted a record $70bn of foreign investment, the amount rising steadily as foreign companies flocked to Moscow. Russia was poised to overtake Germany as Europe's largest consumer market (and even became - briefly - the largest car market in Europe in the middle of 2008).

The crisis has knocked investment back, though it still came in at a respectable $40bn in 2009. However, the big change is that much of the money the state had saved up from windfall oil revenues - and which was going to be used to finance $1-trillion investment drive to rebuild Russia's crumbling infrastructure - has now been used to prop up failing companies and flagging regions. The need for heavy investment is still there, but the resources have gone. Without attracting serious foreign investment, Russia's economy will stagnate and fall behind its BRIC peers that don't have the same investor image problem.

Russia's critics are rightly sceptical of all this talk - and that is all it is so far, just talk. As a journalist I have personally been approached by the Kremlin three times in the past 15 years and asked for advice on how to improve Russia's image abroad - most recently in the summer of 2008. However, each time it revs up to tackle the problem something terrible happens - like a financial crash (twice) or the outbreak of the war in the Caucasus - and everyone becomes so distracted that the project is dropped.

What gives the optimists hope this time round is that with the global economy in intensive care and unlikely to be discharged for several years, the Kremlin for once has a real goad to make it act. A budget deficit of around 6% will have a bigger affect on policy than a decade worth of sniping by the likes of Amnesty International. However, the real issue here is not the Kremlin's desire to improve the investment environment, but its ability: the Kremlin may be bad at diplomacy, but it's worse at implementing policy.

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