Editor’s Letter : Putin’s Dangerous Game

Dear Reader

What a difference two years can make. As we find out in our cover story this month (see

Cover Story

), the currently frosty investment climate in Russia is showing no signs of warming up any time soon. President Putins Kremlin is becoming, if anything, more interventionist, prompting foreign and domestic companies alike to review their plans for investing in Russias markets.

All this is a far cry from spring two years ago, when this magazine was confident that Russia had becomefinallya safe place to do business. Back then, the country was eagerly anticipating a flood of new foreign investment, prompted by a conviction that Putins government had succeeded in creating a fair, transparent business environment.

Then came the so-called Yukos affair, which marked the start of the countrys slide down a long, slippery slope. What looked initially like an isolated, politically inspired tussle now appears to be part of a much bigger plan to bring much of Russias business world back under, or at least close to, state control. Putin is said to have assured investors that he has no plans to revisit privatizations that took place more than three years ago, but for many nervous investors that provides little comfort.

The Russian president may have perfectly good reasons for his apparent crackdown on big business, but the impact of his hard-line approach could hardly be clearer. During 2004, the year that optimistic Russia-watchers had predicted would see the return to Russia of large amounts of flight capital, official statistics show that money was leaving the country at an average rate of more than $21 million per day.

That moneyalmost $8 billion in 2004has to go somewhere. In a world where emerging markets investors are often spoilt for choice and where capital flows can be capricious, Russias leader is playing a dangerous game.

Until next month,

Dan Keeler