Oil booms, but investors flee Russia

[coda]

Oil booms, but investors flee Russia

Tue Apr 12, 2005 4:00 AM ET - The Christian Science Monitor

Kremlin battle between proponents of a free-market model and those of a state-run economic vision is scaring off investors.

By Fred Weir, Correspondent of The Christian Science Monitor


MOSCOW - The price of Russia's main export, oil, is hovering at record highs. The government is currently pocketing nearly $20 on every barrel produced.

So why are foreign investors running for the exits, and the country's economy suddenly slowing?


A high-stakes battle for the direction of the Russian economy is creating new uncertainty, prompting investors and others to pull back. On the one side are Russian liberals, who favor rapid market reform and merging with the world economy. On the other are the siloviki, ex-security men who want to build a state-guided economy.


<snip>


Unless we are able to consolidate our elites, Russia as a single state may disappear," Kremlin chief of staff Dmitri Medvedev said in an unusually blunt interview last week in the business magazine Expert. "Whole empires have been wiped off the face of the earth when their elites lost their unity and engaged in deadly battles.... The breakup of the Soviet Union will look like child's play compared to a government collapse in modern Russia."


<snip>


Underlying the looming crisis, critics argue, is the economy's long-term failure to generate a viable middle class - the bulwark of social stability in most developed countries - based on a rising tide of small and medium businesses. According to OPORA, a Russian business association, Russia has about 900,000 small companies - around the same number as a decade ago - which account for 12 percent of GDP. (In the US, small businesses account for about 50 percent of GDP.)



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