08:19 GMT +314 December 2018
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    Investors not worried about upcoming Russian elections

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    MOSCOW. (RIA Novosti economic commentator Mikhail Khmelev) - As a rule, investors in some countries view approaching elections as a big headache. This primarily concerns developing countries with unstable institutions of state authority and uncertain guarantees of economic continuity.

    Until recently, Russia was viewed as such a country. Local business operations ground to a halt, and investment was suspended prior to parliamentary and presidential elections and until the commotion in the corridors of power subsided.

    Russia has passed through several election cycles since 1996, and it is unclear whether national and foreign businessmen will also behave similarly this time.

    Every four years, Russian and foreign investors have suspended their operations in the run-up to elections. Most businessmen wishing to expand on the local market put off important decisions until the "post-election period."

    Russia will elect the State Duma, the lower house of the Federal Assembly (Parliament), and its next president in December 2007 and March 2008, respectively.

    It appears that investors should now go into hiding and assess possible political and economic changes in the wake of election-campaign populism and the post-election personnel reshuffle.

    But all factors imply that the 2008 presidential elections will become an exception to the rule because Russia no longer ranks among third world countries, which lack stable economic and political systems, and where investment risks soar dramatically prior to elections.

    A rigid power hierarchy has been established in this country, thereby making it possible to talk about political continuity. The authorities no longer have to convince businessmen that the liberal economic policies of the last 15 years will be preserved.

    To be frank, the Russian electorate will vote for the candidate supported by the incumbent president, the most popular national politician. Most members of President Vladimir Putin's inner circle and his potential successors have repeatedly discussed more or less liberal concepts with foreign investors and will doubtless implement consistent liberal economic policies.

    Foreign investors are calm because politicians who are ready to continue the current economic policies will eventually take over.

    Russian and foreign investors are behaving differently in the run-up to the 2008 election campaign, because the situation is now completely different from that in 2000. Instead of subsiding, investment activity is on the rise as the elections approach.

    By May 2007, the country had accumulated $150 billion worth of direct, rather than speculative portfolio, investment. Foreigners are actively buying local companies and building factories here.

    In January-March 2007, the Russian economy received $24.6 billion worth of foreign investment, or 180% more than in the first quarter of 2006. Direct investment swelled by 150% over the same period to reach $9.8 billion. Experts said the nationwide investment boom would last until late 2007, and that Russia would receive an amount of foreign capital unprecedented since 1992. The influx of foreign investment proves that foreign business likes the Russian economic environment.

    Analysts said pre-election investment had become a new and previously unknown form of business operations in this country. Foreign companies want to do business with trustworthy government officials while formal and informal agreements are still in force.

    Although the rules of the game will not change after the elections, new officials will be appointed, and some terms of incomplete contracts will have to be discussed once again.

    Nevertheless, foreign investors do not expect any drastic changes in the local rules of the game because all objective changes will be facilitated by Russia's democratic development.

    This country will have to go through another stage of the tax administration reform and will also finish overhauling its judicial system. The new national leaders, due to take over in 2008, will have to define the extent of state intervention in the economy, set deadlines for incomplete reforms and determine their scope.

    The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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