Govt must stay out of business: financier

By Michael Stott

MOSCOW (Reuters) - Russia needs to guarantee the rule of law and keep government out of business in order to guarantee future prosperity, a leading Moscow-based financier said at the Reuters Russia Investment Summit.

Boris Jordan, who helped advise on the country's first privatizations in the 1990s and now runs a $2 billion private equity and advisory firm named the Sputnik Group, said Russia had made huge progress since the rocky first days of capitalism.

The rouble was not fully convertible and currency controls had virtually gone -- but much remained to be done.

"The economic reform process, particularly over the last four years, in my opinion, has come to a grinding halt," Jordan told the Summit, held at Reuters' offices in Moscow.

"The big question is the rule of law ... probably the single biggest thing business in Russia today suffers from is that you can't really expect to get a proper court hearing," he said.

Jordan also mentioned the dispute between the government and one of the country's top 10 firms Russneft as an example of state interference which concerned investors.

Russia has charged Russneft owner Mikhail Gutseriyev with tax evasion and ordered his arrest and the confiscation of his Russneft shares. Gutseriyev has left the country proclaiming his innocence. His supporters say the whole affair was prompted by the Kremlin's wish to take over Russneft.

"I would say however that there is a level of anxiety over arbitrary political decisions that are made vis a vis business," Jordan said.

"The current disagreement between the government and Russneft I would bring up as an example of something the international business community is looking at very carefully."

Jordan also said reports of disagreements between mining oligarchs Vladimir Potanin and Mikhail Prokhorov over the division of their metals assets had caused concern because of fears that the government might get involved.

"The government really has not played a role in that sector at all to date, nor has it indicated that it wants to ... the sector has developed quite nicely away from the state," he said.

"The concern we all have is -- does this open up a window for the state to get involved in that particular situation ?"

Wealthy Russian investors were now keener than in the past to invest in their homeland but still faced a shortage of suitable projects requiring major capital injections, he said.

Jordan said Sputnik, a 15-person group which manages only its own money, had 60 percent of its portfolio invested abroad. This was not because of worries about political risk but due to a lack of suitable investment projects in Russia.

Equally, the financier said that recent flows of capital out of Russia had not been driven by worries about forthcoming presidential and parliamentary elections but rather by the global lack of liquidity in the financial system.  Continued...