Medvedev Plans Russian Fund to Lure Investors, Damp Terror Focus

President Dmitry Medvedev said Russia plans to create a “special sovereign fund” to attract foreign capital as he tries to shift investors’ attention from a deadly terrorist attack on Moscow’s busiest airport this week.

“It may make sense now to think about creating a special sovereign fund that comprises state property and money to attract an array of private investments from abroad and within the country,” Medvedev said in an interview with Bloomberg Television yesterday at the World Economic Forum in Davos, Switzerland.

Medvedev, 45, announced a plan to create an investment fund within a year at the St. Petersburg International Economic Forum last June. At that time, he said the fund would help to draw “strategic investors” by raising 3 rubles of private capital for each ruble of state money.

The Jan. 24 terrorist attack on Domodedovo Airport left 35 dead, including eight foreigners from the U.K., Austria and Germany among other countries, and more than 150 injured, raising investors’ concerns about security in Russia.

Medvedev said later in his keynote speech in Davos that the terrorists behind the airport bomb blast had tried to deter him from addressing global business chiefs at the forum. The militants thought they could bring Russia to its “knees,” he said. “They miscalculated.”

Heightened Security Measures

The bombing was the worst in Moscow since last March, when 40 people died in twin subway explosions during the morning rush hour. Doku Umarov, a militant from the southern Russian region of Chechnya, where government forces fought two wars against separatists between 1994 and 2000, claimed responsibility for those blasts.

Medvedev after the airport attack called for heightened security measures at the 2012 Asia-Pacific Economic Cooperation summit in Vladivostok and the 2014 Winter Olympics in Sochi. Russia will implement a “complete screening” of passengers and baggage similar to Israel, he said.

Sochi is near the mainly Muslim North Caucasus in southern Russia, where Chechnya, Ingushetia and Dagestan are hotbeds of unrest because of poverty and corruption. Sochi will also host some of the games in the 2018 soccer World Cup.

‘Humiliating’ Reliance

Medvedev wants to attract foreign technology and capital to help end the Russian economy’s reliance on oil and natural gas exports as the world’s largest energy supplier, which he has called “humiliating”. Plans for an international financial center in Moscow may make the city a magnet for the former Soviet bloc, he said in his speech.

Foreign companies as early as this year should be able to raise loans in rubles in Russia, Medvedev said, also pledging that the Russian government won’t impose any direct taxes on the financial industry.

Russia, holder of the world’s third-largest reserves, has stowed away its oil wealth in two sovereign wealth funds, created after the splitting of its Stabilization Fund in January 2008.

The National Wellbeing Fund, which contained $88.4 billion at the end of last year, can be tapped to finance pension savings. The Reserve Fund acts as a safety net for the budget and has been used to finance the shortfall in the past two years. The stockpile shrank 58 percent last year to $25.4 billion as the government sought to finance its second fiscal gap in as many years.

Bond Investments

Russia’s funds, which are managed by the central bank under guidelines set by the Finance Ministry, may invest in government debt issued by Austria, Belgium, Britain, Germany, Canada, Denmark, Luxembourg, Netherlands, the U.S., Finland, France and Sweden. The ministry last November excluded Ireland and Spain from the list.

Medvedev rejected criticism of an additional six-year prison term for Mikhail Khodorkovsky, the jailed former billionaire head of Yukos Oil Co., who was due for release in October after serving eight years for fraud and tax evasion.

European governments and the U.S. criticized last month’s guilty verdict on oil theft and embezzlement charges as a step back for judicial independence and Russia’s drive to attract investors.

“Investors, Russian or foreign, should observe the law, otherwise they can get a jail term as happened with Khodorkovsky and Madoff,” Medvedev told Bloomberg Television, referring to Ponzi scheme architect Bernard Madoff.

‘Legal Nihilism’

Khodorkovsky, 47, once Russia’s richest man and a critic of Prime Minister Vladimir Putin, said in interviews published yesterday in Le Monde, Corriere della Sera and Sueddeutsche Zeitung that he’s “disappointed” in Medvedev for not honoring promises to improve Russia’s rule of law.

Medvedev, a 45-year-old trained lawyer, succeeded Putin as president in 2008 promising to fight corruption and end what he termed “legal nihilism” as part of efforts to attract investment and diversify the economy away from natural resources.

Putin, 58, hasn’t ruled out a return to the presidency in 2012. Medvedev said he would decide later this year whether to run himself for a second term.

To contact the reporters on this story: Lyubov Pronina in Davos at lpronina@bloomberg.net; Ryan Chilcote in Davos at rchilcote@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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Russian President Dmitry Medvedev

Vladimir Radionov/AFP/Getty Images

Russian President Dmitry Medvedev.

Russian President Dmitry Medvedev. Photographer: Vladimir Radionov/AFP/Getty Images

Jan. 26 (Bloomberg) -- Russian President Dmitry Medvedev talks with Bloomberg's Ryan Chilcote about plans to create a "special sovereign fund" to attract foreign capital and the outlook for economic growth in Russia. Chilcote also discusses Russia's economy with Tom Keene at the World Economic Forum in Davos, Switzerland, on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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Dmitry Medvedev, President of Russia

Simon Dawson/Bloomberg

Dmitry Medvedev, president of Russia, speaks following a Bloomberg Television interview on the first day of the World Economic Forum (WEF) Annual Meeting 2011 in Davos.

Dmitry Medvedev, president of Russia, speaks following a Bloomberg Television interview on the first day of the World Economic Forum (WEF) Annual Meeting 2011 in Davos. Photographer: Simon Dawson/Bloomberg