Some of the statements about Russia coming from Washington these days are politically incorrect, to put it mildly. Even the Democratic Party's presidential candidate, Barack Obama - who takes a more balanced and cautious stance than Republican candidate John McCain - has proposed revising the terms for
Russia's accession to the WTO. US Secretary of State Condoleezza Rice has called for Russia to be punished with expulsion from the group of leading civilized nations.
The attitude of senior officials in the US State Department and other agencies is understandable, in a sense. They have had eight years in power, and not a single substantial victory in foreign affairs. Mostly failures and miscalculations: starting with Iraq and ending with the conflict in Georgia.
What does all this mean for Russia? What are the potential scenarios for further developments?
First: the optimistic scenario. We enter into negotiations with rational leaders such as Sarkozy, Merkel, or Berlusconi - who have an accurate understanding of Russia's role in the world, and have no interest in conflict escalation.
In this optimistic scenario, there wouldn't be any major losses for the Russian economy - although it might seem at first glance that our stock market isn't in the best shape at present. After the conflict between TNK-BP's foreign and Russian shareholders, the state's harsh criticism of Mechel, and the start of the operation in Georgia, the Russian stock market was down by 33%. Compared to its maximal figures in early 2008, it has lost around $400 billion. But now that some good news has started coming in (no asset redistribution in the metals sector), and the operation aimed at compelling Georgia to make peace has been completed, the Russian stock market has started recovering. The ruble is striving to regain lost ground and retain its popularity at home and abroad.
Russia has a budget surplus equivalent to 7% of GDP. Unemployment is at a record low, and despite inflation, real incomes are growing quite rapidly. Blue chip stocks are regarded as undervalued, with a growth trend. Stock market analysts predict that LUKoil's share price could rise by over 70% in the near future - with an 80% rise for GazProm, and a 60% rise for Sberbank. Thus, our mid-range outlook is favorable. And much will depend not on America or Europe, but on the situation in China, India, and other Asian and Latin American countries, including Brazil. In other words, much will depend on the chief consumers of our setablished exports.
Yet there is also the pessimistic scenario. According to this, the offended Americans and displeased Europeans would continue whipping up anti-Russian attitudes. This would lead to some fairly long-term instability along our southern borders - with potential new splits in relations with Ukraine and Georgia. And the possibility of these two countries being fast-tracked into NATO membership cannot be ruled out. Relations would deteriorate further.
What is the most powerful economic leverage that might be used against Russia? We cannot rule out an attempt to freeze Russian assets abroad - state assets and private assets alike. That would be a serious blow. In my view, however, it is hardly feasible; it would mean a direct confrontation, with all the consequences of that.
Another vulnerable area is our stock market. If foreign investors start withdrawing capital from Russia deliberately, and senior executives start leaving our country, that would have palpable impact. It would lead to increased political risks in Russia, as noted by the international rating agencies. Investment would decline in the less-liquid securities of second- and third-echelon companies. Investment would focus on sectors that offer fast money-making opportunities: retail trade, energy resources, and so on. But the long-term investments that we need so much would start to decline. And that would pose a serious risk to our major infrastructure plans and the National Development Concept to 2020.
Finally, the third vulnerable point. At present, Russia has unrestricted capacities to import substantial amounts of cutting-edge technology - which is essential for speeding up modernization of the Russian economy. But if the conflict escalates, leading to general economic sanctions against Russia (by the USA, Western Europe, Japan), we could face an embargo on high-tech hardware, with no replacements for it produced in Russia. And despite some well-funded state programs in high-tech sectors, we couldn't expect this niche to be filled within a few months. This scenario is highly undesirable.
True, other countries haven't formed any such common front as yet; but it would be short-sighted to rule out the possibility. Therefore, we have to negotiate.
Russian diplomacy should now pay particularly close attention to subtle, skillful maneuvering between the three superpowers in direct proximity to our country's borders: China, the EU, and the United States. The precision and skill involved this maneuvering - and whether we can gain more allies than enemies at each stage - will largely determine the fate of Russia's investment climate and our country's long-term economic development (along with developments in domestic politics).
