Thursday, July 13, 2006

Criticism of state involvement in the economy

The head of the US regulator SEC has insisted that, in order to fully attract foreign investment into Russia, the state should stop being a major shareholder in many of the country’s biggest companies.

This argument has attracted praise and criticism from analysts and there are those that say that the upcoming Rosneft IPO shows that Russia still attracts investment even if the companies’ shares don’t hold the same level of rights compared to those in the West.

Mr. Cox said that “state interests sometimes don’t coincide with the interests of the market” and that decisions “are likely to be influenced by politics”.

Freedom of press also attracted criticism from him, as it “goes against principles of transparency, which are vital for the investing community and correct functioning of the market”.

Currently, state controlled companies are attracting large level of investment. LukOil, Rosneft are all in favour with large multinational clients and the list is growing. Short-term outlook seems to be good.

In the long run, the success of government involvement in running companies is likely to fall to zero. Companies are more effective when they are not run by the state. Some even state that the recent stock market growth might have been even steeper had it not been for Kremlin’s involvement in the economy.

When will the government cease to be a shareholder? When the budget deficit appears, possibly relating to the fall of oil prices, say some analysts. Reforms could happen then together with the full market liberalisation.

Gazeta, RusEcon

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