Tuesday, September 30, 2008

Window on Eurasia: Moscow May Help Russian Firms Buy Foreign Companies at Fire Sale Prices

Paul Goble

Eagles Mere, PA, September 30 – Moscow now has “a unique chance” to exploit the international financial crisis by using money from its government reserves to help Russian companies purchase stakes in foreign firms whose share prices have fallen recently, according to a senior advisor to the Russian president.
In comments reported by “Vedomosti” last Friday, Arkady Dvorkovich said that Russia has the money in its reserves to allow it to do two things at once – integrate into the world economy through the expansion of Russian capital abroad and acquire a stake in companies that will again be profitable (www.vedomosti.ru/newspaper/article.shtml?2008/09/26/162616).
Dvorkovich said that the Russian government had been discussing the possibility of using government funds in this way for “about a half a year” – or well before the crisis broke this month – but was now especially interested given that the prices of shares in some of the companies Moscow is interested in have fallen, allowing Russia to acquire more for less.
He added that this program is part of the government’s four year plan which is now being finalized, but another government official, apparently speaking on condition of anonymity, said that as far as he knew, “there are still no concrete decisions” concerning just how much money might be involved or what companies Russian firms might seek to purchase.
Many experts and officials expressed extreme skepticism about such a program. Sergei Silvestrov, the deputy director of the Moscow Institute of Economics, said that such a program might be a good idea if it were not the case that so many domestic problems in the economy remain unresolved.
Other economists said that whatever Dvorkovich might think, there is “hardly a large enough reserve” of money to make such purchases given everything else that is going on and given the restrictions on the share of government holdings that could be devoted to such an effort.
And specialists abroad like Harry Hufbauer of the Washington Institute of International economics have pointed out that “”from a political point of view,” it would have been difficult for Russia to choose a worse time given the events in Georgia to “make strategic investments in American companies.”
Not only would Russia have to seek approval in many cases from the US-government Committee on International Investment in the United States (CFIUS), something not easy to secure in many cases, but Hufbauer said, “the very fact of the publication of such a declaration by a Russian official will attract the attention of the Congress” as well.
(Indeed, Dvorkovich’s statement has attracted attention already. The Barents Observer, which monitors Russian activities of all kinds in the Scandinavian region, yesterday reported this story in language guaranteed to get Western governments concerned. See its report at
Consequently, despite Dvorkin’s standing, his idea may not take off, especially as so many economic advisors to the Russian government say Moscow should be focusing on resolving the domestic problems of many Russian high technology companies and of that sector as a whole.
But of course, it is entirely possible that Dvorkovich’s statement was less a declaration of Moscow’s immediate intent than as a reminder to the United States and other Western countries of a capacity it might use at some point in the future to cause problems for businesses and governments there.

No comments: