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In Russia, a Mood of Cautious Optimism

In just two weeks, Russia goes to the polls for its third presidential election since the end of communism. Voters are expected to back the incumbent, President Vladimir V. Putin, by a huge margin. The campaign got lively when, in a surprise move on Feb. 24, Putin dismissed the entire government. Now, Russia is gripped with feverish speculation over who Putin will appoint as his new Prime Minister. No matter whom he chooses, many questions remain about what exactly Putin has in store for Russia after Mar. 14.

No faction is more curious than Russian business. It has good reasons to like Putin's economic reforms. But it also has reasons to fear him, particularly after the arrest on fraud charges last October of Mikhail Khodorkovsky, Russia's richest businessman and former CEO of oil company Yukos -- a case linked, many believe, to Khodorkovsky's political activities. So what will a second Putin term mean for business? Will he press ahead with liberalizing reforms? Or could more Russian businesspeople wind up in jail?

Igor Jurgens, executive secretary of the Russian Union of Industrialists & Entrepreneurs (RUIE), the country's largest business organization, is one of the top spokesmen for the business community. He recently spoke with BusinessWeek Moscow Correspondent Jason Bush about Russian business's hopes and fears. Edited excerpts of their conversation follow:

Q: How is the relationship between business and government in Russia progressing, and how do you expect the relationship to be during a second Putin term?

A: We've had assurances that liberal reforms will be carried on. The economic policy which is the foundation of those reforms is laid out. It would take a complete upheaval to redo it and to do something nonliberal, with more state regulation. And it would be contrary to all expectations. So yes, there is a measure of confidence that business-friendly reforms will continue in a second Putin term. We're expecting some significant improvements in the investment climate.

Having said that, democratic society doesn't live only in the economic sphere. Freedom of expression, freedom of the mass media, other freedoms, and a feeling of justice -- they are very important for the well-being of business, too. And here there's a lot to be improved.

Q Is the government consulting very closely with the RUIE and other business groups in order to elaborate its reform program?

A: About 100 of our experts are involved in different working groups -- on administrative reform, on tax reform, on pension reform, on currency regulations. So from this point of view the dialogue goes on. It's pretty fruitful.

Q: There seems to be no shortage of good intentions.

A: There are lots of good intentions. Whether all that will happen is a big question mark, because the history of Russian bureaucracy is not such a rosy one. It can easily suffocate all those reforms. But Putin understands that. He has mentioned three or four times recently that administrative reform is priority No. 1, so that government doesn't suffocate the existing positive trends in business development. Let's hope it will all go through.

Q: What about the concerns business had regarding Yukos? Has Putin helped to address those concerns?

A: I wouldn't say that all those concerns were addressed adequately. We've had assurances that there will be open and transparent trials. We're waiting for those.

I would say that the first one, which has just finished, was a relatively good result. But that was a minor case of one of the partners, Mr. [Vasily] Shakhnovsky. What will happen in the case of Khodorkovsky, I don't know. There is still a feeling of excessive pressure. And he is still being kept in prison -- a lot of people are asking themselves why. He could have been released on bail. All of this brings a lot of concern to some people, especially big companies. They're still, I think, a little bit anxious, and hesitant about their investment plans.

Q: Some people speculate there could be more investigations, and more oligarchs could be arrested. Do you think that is likely?

A: I don't think it would scare people if there are objective, transparent, adequate investigations. But if there are arrests and then investigations, like in the case of Yukos, that would scare a lot of people. From the point of view of international public relations, and for the investment climate, that would be a very serious blow to Russia's credibility.

Q: And do you think Putin understands that?

A: I hope he understands that. I'm sure he understands.

Q: Do you have any expectations about what the new government will look like and who will be Prime Minister?

A: If we advance toward a Western kind of political system, then the party that won the majority in the Duma is supposed to form the government, and the leader of this party should be the Prime Minister. So Mr. [Boris] Gryzlov, who is the leader of the [pro-Putin party United Russia], should be the Prime Minister. Then he will take all the responsibility for the carrying out of reforms. This is my candidate -- out of pure logic.

Depending on who the Prime Minister is, there will be a slight accent on the way the country will develop, but it's not a major thing. Who the President needs at this particular moment is someone loyal and friendly, who he will be cozy with in his day-to-day relationship. So Gryzlov, or [Defense Minister Sergei] Ivanov, or [Finance Minister

Alexei] Kudrin, or [Economy Minister German] Gref -- I think it doesn't matter much, actually.

Q: Will it be possible for business to get its voice heard during the second term?

A: If the continuation of liberal reform is a given fact -- and we hope it will be -- then lobbying will be much easier and more transparent. There will be fewer interest groups. There are now fewer political parties that play any role in the legislative process. There is only one [United Russia], actually, with whom you have to do deals -- and it largely depends on what the President says, so you can even lobby within the presidential administration.

Q: Regarding democracy and civil society: You mentioned there were serious concerns at the moment. Are you optimistic that, in 5 years or 10 years, this is going to improve?

A: It depends on us, the Russian people. It doesn't depend on Putin. He can expedite it a little bit, or he can put a little bit of a brake on political activities and civil society. In Russia there isn't a tradition of people going out on the streets unless they're undernourished or totally suppressed. I'm not that optimistic about the creation of civil society in five years. It's too short.

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