Magazine article Business Credit

Speaking Up, Rising Up: Is Growing Unrest with Perceived Putin Corruption Undoing Business Strides in Russia?

Magazine article Business Credit

Speaking Up, Rising Up: Is Growing Unrest with Perceived Putin Corruption Undoing Business Strides in Russia?

Article excerpt

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Russia is a democracy. Yet, to characterize it as low on credibility during Vladimir Putin's stints as president and prime minister would be extremely charitable. It's an image problem that has dogged the nation despite its prominence in industries related to natural resources and its firm positioning as a member of the vaunted emerging BRIC (Brazil, Russia, India and China) economies.

Still, headway had been made here and there from a business credibility perspective, not the least of which was Russia's recent admission, after many delays, into the World "Dade Organization (WTO). But last-forward to the run-up to this year's Russian "election" and something is different. More so than perhaps any time since the fall of the Soviet Union, the iron-fisted Putin is being challenged by a populace angry with perceptions of deep corruption among Putin and his supporters comprised primarily of Russia's wealthiest citizens. The leader, not known for accepting dissent in any public form, is finding widespread public cries of voter fraud and allegations that elections are rigged for him and his allies.

Already troubled by extremely late payment histories, shady banking practices and a massive wealth divide, the ramifications of building civil unrest has already caught the eyes of at least one of the "Big Three" U.S.-based ratings agencies. That said, should companies doing business with Russian-based firms be increasingly concerned and looking at their term-granting policies as a result? Or, is it time to expand there?

WTO Opens Door

Perhaps the most notable development to come out of the December WTO conference was the approved accession terms for Russia and formal invitation for it to join the prestigious trade body. In order to join the WTO, Russia agreed to lower tariffs on a wide range of goods, open its services markets and align its trade regime with WTO rules. Ratification, which is widely expected, was still required as of the printing of this article.

"Russia's membership will give American companies greater and more predictable access to an important and growing market, which will spur new opportunities for exporters," said U.S. Commerce Secretary John Bryson. "Notably, those in industries such as technology and agricultural entrepreneurs are expected to, in theory, gain better access to what a bevy of federal lawmakers see as an attractive growing market." He added that it was another important step toward greater credibility in the business world there.

"I think it's positive," said John LaRocca, director of global credit for Hitachi Data Systems Corp. and FCIB board member. "I believe the Organization did some level of due-diligence before making its decision, and the outcome of that had to be at least satisfactory, if not more than that."

Not everyone believes the inclusion is a positive, given the perceptions and realities about politics, crime and punishment, and business conditions in modern Russia. Even while hailing the inclusion of Russia and exporting opportunities for those in the United States and around the world, officials like U.S. Trade Representative Ron Kirk warned that companies there and the Russian government needed to put an end to "business as usual" and boost transparency. Deep skepticism exists in the business world too, though credit professionals like Susan Fattore, CICP, ICCE of Heico Companies LLC hope it marks a turning point.

"Hopefully, with them having to follow the rules and guidelines of the Organization, it will reduce some of the corruption they are so well known for," she said. "Hopefully, that will make it easier for us to do business there, that money will get out of the country and we don't have to have such a high level of fear. If everything works out well and it benefits their economy, I believe it will knock down some of the barriers, and they will be more transparent"

Bubbling Populous Anger Garners Attention

For eight years as president, Putin--and plenty of experts contend he never truly ceded power to now lame duck President Dmitri Medvedev in anything more than a window-dressing title change--ran what has been often characterized as a closed democracy, where rivals were closely scrutinized or penalized and public dissent was rarely allowed to go on display without harsh consequences. …

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