Ben Aris in St Petersburg -

Russian President Vladimir Putin stunned the audience at the St Petersburg International Economic Forum (SPIEF) on June 21 by actually turning up on time to deliver his keynote speech. He's been notably tardy at recent events, perhaps the audience have German Chancellor Angela Merkel - who appeared on stage with him - to thank for his unusual punctuality.

The relatively short speech touched on several key issues, but the main thrust was that the government is going to commit some serious resources to infrastructure, spending up to half of the national welfare fund - a rainy day fund usually used to top up things like pensions. The rest of the money will be tapped in the form of state backed infrastructure bonds, the first of which have already been issued.

Part of the speech also played to the gallery, as the government attempts to recapture the middle class from the nascent opposition movement. Putin specifically singled out the government's performance on inflation, which recent survey's have shown is a key concern of the man in the street, and far ahead of worries about terrorism, political freedoms and decaying civil rights.

"We have paid a high price from adhering to responsible financial policy and the fight against inflation," Putin said to the assembled delegates at what is Russia's premier investment event. "It has fallen to 6.6% last year and now is 7%, which is a big higher but acceptable, but we still have a long way to go."

The president also talked about introducing measures to protect and promote consumer rights. He suggested that a series of consumer councils be set up to coordinate legislation with the people that it will affect. He added that this effort should be lead by the All Russia Popular Front (ONF), - a political "movement" which held its first conference earlier this month and elected Putin its head.

It's a move that smacks of poacher turned gamekeeper. On top of that, many of the dominant companies in the economy - especially in finance - are owned by the state, so promoting an organisation headed by the president to lead the charge doesn't really bolster confidence in the effectiveness of the idea.

However, more interestingly, Putin highlighted the need to improve people's rights in their relations with local government. The opposition has failed to find an issue to unite the frustrations of protesters other than getting rid of Putin, which is not a platform. But the shoddy service and rampant corruption that dominates municipalities - and the poor state of much housing, which is largely their responsibility - makes it one issue that could potentially spread across the spectrum.

Heading east

Putin is in a healthy position as far as the economy goes. That's not to say there are not problems; Rosstat confirmed growth in the first quarter slowed a mere 1.6%, - the lowest level in a decade - and industrial production has basically come to a stand still. However, in stark contrast to many others around the globe, Russia has virtually no debt, a balanced budget, and lots of growth potential. The issue Putin is facing is simply how to get the wheels turning.

The answer is to spend heavily and replace the country's crumbling Soviet-era infrastructure. It's a task that must be undertaken anyway, but if it's carried out now it will give the economy some badly needed stimulus. At the same time, the idea has been extended to take the opportunity to try to open up the potential of Russia's Far East, and in effect link the European part of the country to the increasingly vibrant Asian Pacific region, which was largely ignored by the Soviets.

Putin specifically called on investors to co-finance the first three big projects: a high speed rail link between Moscow and Kazan, the capital of Tatarstan, Russia's most progressive region; the Moscow circle road - a motorway around the Russian capital that will improve the economy of the whole northwest of the country; and the modernization of the Trans-Siberian Railway, which will become a more efficient artery linking the west with the east.

All of these are strong projects, and could have transformation effects on the physical and economy geography of the country if completed. However, the thrust of these ideas belie the ongoing volte face of Russia, from the European Union as a partner towards Asia as the key to Russia's future. Putin's comments (and Merkel's too for that matter) were focused on energy supplies to Europe, rather than investment and cooperation. The Russian investment projects mentioned are clearly pointed eastward not westward.

Investors, not partners

Westerners are being invited to participate in Russia's revival, but as investors, not partners. Putin went into quite a lot of detail on the ongoing capital market reforms that will integrate Russia's financial system to the global one. But he specifically reiterated the fact that all the upcoming privatisations of state-owned companies will be carried out on the domestic exchanges rather on the international exchanges of London and New York, as was seen in the past.

He specifically highlighted state-owned VTB Bank's recent secondary public offering as an example of the "success" of this policy. He slid over over the numerous technical issues, as well as well as the fact that two thirds of the issue was bought by three sovereign wealth funds following intensive negotiation, rather than simply offered to the open market, in the hope it would invest.

The president stressed again that the state-owned companies will be forced to improve their transparency and corporate governance to make them more open to potential investors. However, the refusal by Rosneft to share its cash with minority shareholders following its take over of BP-TNK makes a mockery of this promise.

It's the sort of story that continues to hold back the Russian equity market. The Moscow index has been punished more heavily than any other major emerging market by the pullback that has been sweeping the globe in the last week, while it's been range bound for almost two years, while other markets have recovered somewhat.

Still, opening up the Russian capital markets will help, and the experiment with opening the bond market since the start of the year has been a complete success. Albeit during the emerging market rally that now looks to be busted, the exchange attracted over $20bn of fresh investment, in the first quarter, against expectation of just $5bn.

Bottom line then is that Putin said most of the right things. But having good ideas has never been the problem in Russia. Where it always falls down is on the implementation.