FINANCE: U.S. Uneasy Over Russian Money

By Kester Kenn Klomegah Reprint | | Print |

Kester Kenn Klomegah

MOSCOW, Jun 21 2007 (IPS) - Political obstacles could stand in the way of Russian investment into the United States, analysts say.

Nabi Abdullaev, analyst with the investment company IFC Metropol identifies major stumbling blocks. “The first is the predominantly critical attitude towards Russia among U.S. lawmakers,” he told IPS. “They still refuse, for example, to lift from Russia the outdated Jackson-Vanik amendment that was intended to restrict U.S. trade with the Soviet Union because of the limitations Moscow had imposed on the emigration of Jews.”

Many prominent U.S. legislators still pick on what they see as the Kremlin’s poor democracy record as a pet topic, he said. Moscow has therefore shifted its foreign policy and business focus on building a strategic partnership with Western Europe, he said, even if the results have been less than expected and even frustrating for Moscow.

“This suggests that attempts at large-scale direct investment from Russia in the U.S. economy will be subject to very critical Congressional scrutiny, and the whole issue will be very much politicised,” he added.

On Thursday the international committees of the U.S. House of Representatives and Russia’s lower house of parliament, the State Duma, held a joint session in Washington to discuss democratic and human rights. But Russia now speaks as a growing economic power.

“While political differences still persist in the two countries’ diplomatic relations, the obvious fact is that investment into the Russian economy is increasingly booming, and the rising domestic consumer demand is encouraging rapid economic growth,” State Duma deputy and member of the Foreign Affairs Committee Dmitry Rogozin told IPS. “Our economy is fast changing, capital continues to flow into country, and labour productivity and incomes are also growing.”

The Russian economy is growing at six to seven percent annually. This led deputy U.S. treasury secretary Robert Kimmitt to take a delegation to Moscow this week to negotiate increased investment into the U.S. economy from Russia’s reserve and welfare funds.

“Russia has recently approved the transformation by 2008 of its oil stabilisation fund into a reserve fund and a fund for future generations, sometimes called a national welfare fund,” Kimmitt told reporters in Washington before leaving for Moscow for his Jun. 20-23 visit. “The current oil stabilisation fund operates on the basis of publicly available investment guidelines, and we hope that that will also be the case for the fund for future generations, especially if it too is to invest abroad.”

Russia’s international reserves grew from 303.7 billion dollars from January to 402.2 billion dollars by the end of May. Russian companies have invested about 140 billion dollars around the world, according to the trade and development ministry.

“As they look to make decisions about investment opportunities abroad, we want to make sure that they understand that we are open to investment,” Kimmitt said.

Kimmit said that President George Bush released an important policy statement last month making clear that the United States is open to foreign direct investment. He said this was the first U.S. government statement on open investment in 16 years.

Kimmit said that China and Russia, together with the Gulf Arab countries, are three of the largest repositories of sovereign wealth funds, and each has taken steps to diversify their sovereign holdings.

But Nabi Abdullaev said that past experience demonstrates that Washington genuinely seeks to engage Russia only when it comes to U.S. national security. Lack of Russian money is not seen in the United States as big threat to national interests, he said.

The Kimmit delegation attracted low media publicity. The U.S. Treasury press service said that during his visit to Moscow, Kimmit will participate in just one media event – a presentation at the American Chamber of Commerce and Industry in Moscow.

Some investors are confident that political resistance can be surpassed.

“Russian companies are looking to expand their international footprint, and to acquire a sufficient international dimension to compete with the top international firms in their fields,” Eric Kraus, managing director of the firm Anyatta Capital told IPS.

“The U.S. economy has been relatively closed to foreign investment from politically sensitive countries, but as foreign inward investment into the U.S. has crashed, they are apparently getting a bit desperate.”