Feb 20, 2012 | 19:15 GMT

2 mins read

Russia's Changing Privatization Plans

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After nearly a decade of economic consolidation, the Kremlin believed that it had enough control over domestic politics, security, businesses and the financial sector that it could allow certain foreigners to purchase pieces of Russia's most important strategic enterprises and invest in and modernize many financially attractive sectors. The twin modernization and privatization programs were meant to rapidly move the Russian economy forward, with its growth financed mostly by foreign investment groups. (Russia is not lacking in funds, but the Kremlin would prefer that others pay for its plans.) The programs were to bring in more than $200 billion in investment by 2015, with most of it flowing in between 2011 and 2013. The Kremlin began shifting Russia's domestic legal framework to allow foreign firms and individuals to own more assets in the country. However, the European financial crisis and political instability within Russia have complicated the Kremlin's plans. It currently appears that Russia will delay most privatization efforts until 2017. The goal is to allow enough time for the European economic crisis to play out in hopes that the Europeans will want to invest in Russia in the future. Furthermore, the Kremlin is likely to start spending its own money in several strategic sectors in which it is not willing to wait for foreign investment. Stratfor sources say the Kremlin is also now willing to pay for projects that will bring in foreign modern technology. For example, Russia's version of Silicon Valley — Skolkovo — is expected to receive increased Russian government investment, as it is attracting technology from foreign firms such as Siemens AG, IBM, Nokia Corp., Intel Corp. and Cisco Systems Inc. The Russian government has approximately $600 billion in its rainy day funds (although Stratfor sources say twice that amount is stowed away). The Kremlin did not want to part with those funds while others were willing to invest in Russia, but now the circumstances have changed.

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