Recently, I heard a commentator on CNBC say that he is bullish about
1.) Falling oil prices pose a serious risk to
2.) Government corruption and general disregard of the rule of law are serious problems within
Unfortunately, the courts offer little recourse for private investors. The Russian legal system is ineffective and fails to provide adequate protection over property rights, which is a pre-requisite for private investment. Judges serve at the mercy of the President and the ruling siloviki. Corruption also permeates the judicial system and society as a whole. Openly acknowledged as a part of doing business in Russia, the country received a 2.1 out of 10 rating on the corruption index (with 10 being a low rate of corruption) while the corruption market is valued at $300 billion or 20% of GDP. Many large Russian companies seek justice in London and the European Court of Human Rights is flooded with Russian cases. Apart from the ineffectiveness of the legal system and the prevalence of corruption, it is also dangerous to be a high profile legal operator within Russia.
3.) Russia has recently seen a rise in ultra-nationalism that has undercurrents of neo-fascism and xenophobia. The most glaring example of the danger of this ultra-nationalism is the recent murder of prominent human rights lawyer Stanislav Markelov. Mr. Markelov was gunned down in broad daylight in central Moscow along with a freelance journalist working for Novaya Gazeta, a Russian newspaper highly critical of the government. Speculation is that he was gunned down by ultra-nationalists for announcing that he would fight against the release of a Russian tank commander who was imprisoned for murdering an 18 year old Chechen woman. The journalist is the fourth Novaya Gazeta reporter to be murdered or die under mysterious circumstances since 2000.
The rise in ultra-nationalism is due in part to the influx of immigrants during
4.) Aside from nationalistic rhetoric, the Russian government also uses the economy to further its political goals, specifically its power within the international energy markets. President Putin is highly involved within the country’s energy industry, and has been active in using politics to prevent Central Asia from building a pipeline to Europe that bypasses Russian territory. These actions, involving Russia’s most attractive industry, are likely to come at the expense of private business. The most recent example is the government’s shutdown of a natural gas pipeline to Ukraine that distributes heating fuel to homes throughout Europe. For three cold weeks much of Southeastern Europe was without heat as Russia renegotiated natural gas contracts with Ukraine. Although it superficially involved natural gas pricing, the undertones of this disagreement are Ukraine’s overtures to the West, contemplation of NATO membership, and weapons sales to Georgia.
The Ukrainian episode along with the war in
It is not a foregone conclusion that any of these trends will hurt GDP growth or hinder returns on investments in
Michael Reyen is a former bank auditor and graduate of Colgate University. He is currently pursuing his law degree and Masters in Economics at the University at Buffalo.
 The anti-West: An Axis in Need of Oiling, The Economist,
 Down in the Dumps: The rouble, a symbol of the Kremlin’s power, is looking sickly, Economist.com: Finance & Economics,
 Russia: The Long Arm of the State, The Economist.com: Special Report,
 Michael Schwirtz, Leading Russian Rights Lawyer Shot to Death in
 Michael Schwirtz, For Russia’s Migrants, Economic Despair Douses Flickers of Hope, New York Times, Feb. 10, 2009, at A11.
 Russia: The Incredible Shrinking People, The Economist.com: Special Report,
 Andrew E. Kramer, Russia and Ukraine Sign Agreement on Gas, New York Times, Jan. 20, 2009, at A11.
 The anti-West: An Axis in Need of Oiling, The Economist, Oct. 26, 2008, at 71; Associated Press, Krygyzstan: Vote to Close U.S. Base Is Delayed, New York Times, Feb. 10, 2009, at A11.