NEW YORK -- President Vladimir Putin and his economic team were the heroes of the day at the seventh annual forum on Investing in Russia & CIS, hosted by Sachs Associates and Bloomberg at the Plaza Hotel last Thursday. In formal presentations and private conversations in the lavish reception rooms, conference participants agreed that Putin's stewardship has fostered unprecedented political stability and enabled significant macroeconomic reform in Russia.

"There is a sense of Russia truly coming of age," said former U.S. Ambassador James Collins, now a senior advisor at Akin Gump Strauss Hauer & Feld. "They've always known how to improve the economy, but the political environment hasn't been conducive. With Putin, this missing ingredient is finally in place."

Although the dreary performance of world markets has contributed to more modest GDP growth, the Russian economy had another surpassing year in 2002, outperforming almost every other emerging market. Central Bank reserves exceed $50 billion, foreign debt as a percentage of GDP has fallen by 20 percent since 2000, and real incomes increased by 10 percent last year. Russia was also one of only two nations operating a budget surplus in 2002, said William Browder, CEO of Hermitage Capital Management.

As a result, investor confidence has risen dramatically. General Motors, Caterpillar, and Frito-Lay are developing new projects in Russia, and enterprises as diverse as Nike, Dow Chemical and Wal-Mart have investigated the possibility of joining them. Last month, BP's landmark commitment of $6.75 billion to a joint venture with Tyumen Oil Co. served notice of a new era in foreign investment.

"We've reached the point when this kind of transaction leads to an increase in share price," said Charles Ryan, the CEO of United Financial Group. "Only several years ago, a deal like this would have sent shareholders out of the room gagging." Ryan also pointed out that Russians themselves were showing a newfound faith in their economy. Native capital returned to Russia in record numbers in 2002.

But disagreement between Russia and the United States on war in Iraq deflated some of the prevailing optimism. Both political and economic stability -- and, consequently, the investment climate -- depend on the course Putin elects. If the country sanctions the war, he risks handing the Communists, eager to portray him as an American lapdog, a public relations coup on the eve of parliamentary and presidential elections. A Russian veto, on the other hand, would likely restrict Russia's access to the spoils of postwar Iraq, a crucial source of income Putin would need to offset declines in revenue caused by falling oil prices and unwelcome reforms in pensions and the electricity sector. The Communist opposition draws most of its support from Russians embittered by poverty.

Dimitri Simes, the president of the Nixon Center, noted the dramatic change in Russia's position on the war in recent weeks. "Just several weeks ago, you had Russian officials privately reassuring the American government that the talks with France and Germany were meant merely to appease public opinion back home," he said. "That kind of implicit guarantee hasn't been available in the past 10 days. There is a distinct possibility that Russia may choose to veto. We've really underestimated the degree of resentment in Moscow toward U.S. foreign policy."

Boris Nemtsov, a leader of the Union of Right Forces, said the Russian government felt short-changed by the Bush administration. "After 9/11, Russia was the first country to support the United States in its war on terror," Nemtsov said. "We provided assistance in Afghanistan. We approved American bases in Central Asia. And what did we get in return? Even Jackson-Vanik still exists. It's like a bad joke."

Simes and Nemtsov warned, however, that Russia could not weather the consequences of a veto, referring to the promises of economic retaliation from American officials in recent days.

"We have to think about our long-term strategic interests," Nemtsov said. "We can't afford rash behavior. Sometimes it's tough for men to set aside their emotions, but there's no other choice here. President Putin understands that."

Conference participants disagreed on whether the economy were sufficiently diversified to withstand a fall in oil prices. Christopher Weafer, the chief equity strategist at Alfa Bank, conceded that Russia remains oil-dependent, but he said that it was far less vulnerable than several years ago to a steep slide in oil revenue. "In 1998, the Russian economy needed more than $26 a barrel to balance," he said. "Today, that figure is $16." Whether the Russian economy will come to resemble Portugal's -- as is Putin's much-publicized aspiration -- or Venezuela's, its fortunes determined by boom-and-bust oil cycles, remains to be seen, he said.

Ryan pointed out that the oil sector claimed a mere one-seventh of foreign investment in Russia, and that considerable gains posted in consumer goods, construction and engineering offered evidence of a diversifying economy.

Most presentations ignored Iraq and oil dependence altogether, focusing instead on strides in ownership rights and debt servicing, and reforms necessary to encourage investor confidence. Speakers said an overweight, obstructionist bureaucracy and a weak judiciary sabotaged foreign investment, as did unreliable corporate governance and persisting corruption. As usual, the harshest criticism was reserved for the banking sector. A proliferation of small banks subsisting on negligible assets unbound by effective regulation have resulted in mistrust of the banking system.

Nonetheless, the consensus seemed to be that Russia had earned investment-grade status, the coveted seal of approval conferred by rating agencies such as Moody's. Helena Hessel, a director at Standard & Poor's, was less sanguine. She cited the deceleration of reform in view of impending elections and declines in GDP growth as reasons the upgrade was at least two years away.

Browder coyly undermined her assessment.

"It would seem that the market has been a better indicator of economic performance," he said. "The credit agencies failed to downgrade Russia for 163 days after it defaulted in August 1998. They did a little better with Enron -- that downgrade came only two days after the company filed for bankruptcy."

The comment drew grateful snickers from an audience sapped by a day of phlegmatic presentations delivered either in a joyless monotone or with earaining speed required by the brief time allotted to speakers.

Rushing through his PowerPoint presentation, Weafer seemed to propose that oil sector reform might begin with the unpronounceable names of firms like Surgutneftegaz, but the audience, casting longing looks toward the coffee and dessert being served in the outside hall, failed to pick up on the humor.

In the reception chambers, the mood was more upbeat. Though half the name tags on the welcome table remained unclaimed, the conference brought together many old acquaintances and business partners, lending a genial atmosphere to the proceedings. Amid the bullish banter of the assembled brokers, investors, and company executives, it was sometimes difficult to imagine they discussed a nation that only four years ago seemed at risk of receding into chaos. Indeed, if it weren't for the surnames, the accidental visitor might have assumed this was a fund drive for the South Koreans. The bland lunch of grilled chicken and pasta salad was avowedly stateless in its influences, and the gallantly attired Russian executives who made presentations seemed to have embraced the global nature of their economy to the point that the English translator wandered the halls without much to do. Investment in Russia seemed a no-brainer.

"We are always accused of being boosterish here," said Robert Langer, the bearded, affable moderator of the afternoon panel and a partner at Akin Gump. "And we certainly should talk more about what we've gotten wrong. But I think the glass is definitely half-full rather than half-empty. What it's full of, I'm not sure I could tell you."

(The Moscow Times 17.iii.03)