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Russia: WTO Entry Poison Pill Or Necessary Medicine?

Russia has made accession to the World Trade Organization one of its economic and foreign policy priorities. Participants at this week's World Economic Forum in Moscow discussed the benefits Russia could gain -- and the costs it could incur -- by joining the exclusive club.

Moscow, 31 October 201 (RFE/RL) -- Participants at this year's World Economic Forum in Moscow -- both foreign and local -- have been singing the praises of Russia's recent economic performance.

The figures appear impressive: an estimated annualized GDP growth rate of over six percent for the past three years, $39 billion in foreign exchange reserves, and stabilized inflation.

President Vladimir Putin, in his keynote address yesterday, promised far-reaching reforms to attract foreign investment and prepare the country for induction into the World Trade Organization. Russia hopes its membership in the WTO will mean the removal of tariffs for its export goods and open access to Western markets and financial services. Putin warned that Russia would seek fair treatment and would not accept any limitations on its membership.

"Under no circumstances will we agree to join the WTO according to non-standard conditions. We are looking at the whole issue with optimism, but we resolutely want standard conditions to be applied to us. We don't want demands imposed on us that other candidate countries would never accept."

Even if Moscow is accorded the fair treatment Putin has demanded, Russia remains some distance from meeting WTO membership criteria. To a great degree, Russia owes its recent positive economic performance to high oil prices. But as several participants noted at the Moscow forum, reliance on oil exports will not bring Russia the long-term wealth and development it seeks. Natural resource wealth more often than not translates into corruption and poverty -- as seen in much of the developing world -- rather than stability and democracy.

As Vladimir Mau, director of the Moscow-based Working Center for Economic Reform, observed: "Everybody knows that the most prosperous countries -- in terms of natural resources -- are the poorest countries. Rich natural resources are a great temptation and a great danger. Moreover, I would say that only very developed countries, with stable democracies, can afford rich natural resources, since they have the institutions and the experience to use them properly."

Cash and oil reserves, it is clear, will not suffice for Moscow to make it into the WTO. Among the greatest reforms the government has yet to undertake -- as required by WTO statutes -- is an overhaul of the country's moribund banking sector, which continues to act merely as a conduit for channeling public funds to favored firms. Forum participants said an overdue and crucial reform is needed to allow Russian banks to stand up to foreign competition while acting as true engines of domestic growth.

Yevgeny Yasin, from Russia's Higher School of Economics, put it this way: "If we don't have a more or less decent bank system in the next two years -- let's not take into account what the oil price will be --we won't have any growth in Russia, since the capital will be transferred abroad. We don't have in our country a mechanism that helps transform savings into investments. Without a mechanism of this kind, the situation will be catastrophic since sooner or later we'll have to collect more taxes and control capital investments from the center. We can wait, if we want. But, in my view, we don't have the time."

Andrei Kostin, who heads Russia's Vneshekonombank, said he believed as many as 90 percent of Russia's banks would not survive the adoption of international accounting standards: "Most Russian banks will not be able to survive when these reforms are introduced."

But Kakha Bendukidze, general director of United Heavy Machinery -- one of the country's largest enterprises -- said bluntly that this would be no great loss. He observed that most of Russia's so-called banks did not deserve to be described as such: "We have no banks. What does 'bank' mean? A bank is some fiduciary institution. How many fiduciary institutions do we have in Russia? How many institutions do we have that you can trust? How many institutions can you trust? Five? Three?"

Some experts say the cost to other sectors of the Russian economy after WTO admission, could be equally dire. They point to the indirect subsidies many businesses enjoy and the import tariffs that favor domestic goods over foreign ones. But here again, Bendukidze disavowed conventional wisdom. He noted that in fact, few Russian companies ever pay import tariffs on foreign goods, preferring to bribe their way around the law. In his view, most Russian companies are already exposed to foreign competition with little or no protection. WTO membership could make it easier for Russian exporters on foreign markets, and the introduction of transparent corporate governance, he said, would help local companies rather than hinder them.

The months ahead will show how serious the Russian government is in its reform intentions, and how prepared the other WTO members are to take its membership bid seriously. Finance Minister Alexei Kudrin predicted at the Moscow Forum that Russia would be finished in its negotiations by the end of 2002.