How to Reform Russia's Klepto-Economy

Igor Shuvalov is first deputy to Russian Prime Minister Vladimir Putin, charged with reforming Russia's economy. He also runs Russia's $200 billion sovereign wealth fund. Considered one of the key liberal voices in Russia today, Shuvalov has the task of helping wean the country off its dependence on natural resources. He spoke to NEWSWEEK's Owen Matthews in Moscow. Excerpts:

Two years into President Dmitry Medvedev's anti-corruption campaign, Russia remains one of the most corrupt countries in the world.
There's a difference between our image abroad and the real investment climate. Studies of foreigners who actually work in Russia show that, yes, they meet corruption and other difficulties every day, but they have a more positive perception than you read in foreign studies. So we need to work on our information policy. But we're not divorced from reality; we can also see that there's a real problem.

The experience of foreign and Russian companies that have been stolen from their owners suggests that well-connected bureaucrats can take what they want. What are you doing about that?
Strengthening property rights is one of our key priorities. We've passed new rules to make it harder to steal companies. We can't pretend that we'll change the whole system instantly, but it's our job to change something every day. At the same time, no country can allow foreign investors to do whatever they like. We've become more civilized over the last 10 years, and investors also have to learn that they can't behave like barbarians.

Many investors see the case of Sergei Magnitsky—the lawyer who tried to expose a $500 million official tax fraud, and died in jail last year—as a worrying sign that the government is reluctant to investigate or prosecute top officials.
Don't rush to judgment. A detailed investigation will take time. Note that Medvedev's response was immediate and absolutely firm: that there would be a thorough investigation.

How high can such an investigation go?
It is no longer possible to protect yourself through your connections. No one is above the law. Nobody.

Not even the Federal Security Service?
There have been prosecutions of FSB officers too. The culture is changing. People no longer join the police expecting to steal their whole career. But the government and the Kremlin both see very clearly that problems with corrupt police are one of the greatest brakes on Russia's development.

How are you planning to wean Russia off its dependence on oil and gas?
The greening of the world's economy will reduce demand for hydrocarbons. We'll continue to supply oil and gas while they're needed—but we shouldn't bet our future on them. Russia has huge natural resources, but we also have a huge population, every one of whom is educated. People compare us to Brazil and India, but in fact we're unique, having such a highly educated population. So we need to harness our know-how to our natural resources. For a long time there was no mechanism for doing that, but now we have encouraged universities to open businesses, and I recently headed a delegation to MIT to find out about their small-business incubators.

Does the Customs Union that Russia just signed with Belarus and Kazakhstan mean that joining the World Trade Organization is no longer a priority?
It's still an important priority. But our partners don't seem to want to let us in. So we decided to go ahead with the Customs Union on our own. It will not interfere with or replace our WTO commitments. In time, we want to turn the Customs Union into a single economic area along the lines of the European Union, eventually with a single currency. But that is for the future.

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