Ministers complain, will Putin listen?

Glasnost, the policy of public honesty that helped sink the Soviet Union when Mikhail Gorbachev embraced it a quarter century ago, is blooming again among Russian officials as Vladimir Putin prepares to reassume the country’s presidency for a third term next month.

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"And a dacha for you! And a dacha for you! Everyone gets a dacha!"

Putin himself may tend toward the steely and unapologetic. But the more liberal, Western-leaning wing of his government has become self-critical almost to a fault. Whether that reformist spirit can pry loose the dead hand that Putin’s own hypercorrupt bureaucracy has clapped on the nation’s throat (RSX, quote) remains to be seen. It does make for some lively panel discussions, though.

One of these took place yesterday in New York when a posse of prominent Russians turned up at the swank Palace Hotel to mark the Manhattan office opening of Moscow’s most vigorous investment bank, VTB Capital.

The visitors could have been forgiven some crowing on such an occasion. It wasn’t so long ago (like four years) that Anglo-American and German banks did all the opening in emerging markets like Russia, and the host countries were supposed to feel grateful for the privilege. Now VTB Group (VTBR), a state-owned institution that has molded a world class IB team out of the best young Russian financiers the Kremlin’s money can buy, had come to flex its balance-sheet muscle in the shadow of Wall Street.

The senior bureaucrats at the launch ceremony sounded anything but triumphant, however. “Investors are not ready for our stock market because we cannot send a clear message that the risks are acceptable,” declared Alexei Ulyukayev, the deputy central bank chairman who has steered Russia’s monetary policy with a deft hand since the 2008 crisis.

“We feel strong pressure from the resource curse,” added deputy finance minister Sergei Storchak. “When you are used to getting something for nothing, you have weak motivation to improve.”

Storchak’s former boss at Finance, Alexei Kudrin, the man most responsible for transforming Russia from a bankrupt into a foreign reserves champion during the 2000s, summed up: “It’s no big secret for any of us in government how to improve the business climate, yet it has not been done.”

Kudrin left unstated the not-big secret of why not: a critical mass of insiders are getting filthy rich off the way things are in Russia, manipulating access to everything from road construction to oil export. And some of the biggest winners are among Putin’s closest friends, like oil-trading king Gennady Timchenko or Arkady Rotenberg, an old judo partner of the boss’ who now controls a pipeline building empire.

Yet the Westernizers near the top of the government labor on with some hope. Stung by mass protests during the winter’s election campaign, Putin endeavored to have his cake and eat it too. To his party faithful, he posed as the iron-willed guarantor of stability in turbulent times. For the restive middle class, he declared himself committed to “an entirely new economy” driven by unfettered enterprise, global investment and advanced technology.

Storchak, the deputy finance minister, put some cautious faith in Putin’s latest five-year plan style promise: to lift Russia from a dismal 120th place to the top 20 in the global “ease of doing business” index published annually by the World Bank.

Meanwhile Putin, who was duly re-elected on March 4 but does not assume office until May 7, is relishing his beloved pastime of keeping his courtiers in suspense over who gets which advancement. The make-up of the new cabinet, the first concrete indicator of the leader’s commitment to change, is a closely held secret, and Putin may not even have made up his own mind yet.

The chances of Russia leaping forward to match Japan or Germany in business-friendliness, or rivaling India or Taiwan as a global tech power any time soon are remote. But that does not mean investors should assume six years of stagnation during Putin’s next term and close the book.

Open discontent from the streets to the economic ministries may nudge Putin toward significant if not sweeping reforms as he looks to etch his place in history. That could spell opportunity in perennially downtrodden Russian stocks.

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