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SLOWING investment growth following the Russian state's pursuit of Yukos has made it difficult for supply to meet booming domestic demand and left the country's economy facing "catastrophic" imbalances, according to Alexei Kudrin, finance minister.
The latest warning came days after President Vladimir Putin met the country's wealthy "oligarchs" and offered an effective amnesty on the murky 1990s privatisations that were the source of their riches.
The president's offer was interpreted as a signal that there would be no repeat of the attack on Yukos, formerly Russia's most successful oil company, as well as an appeal for the oligarchs to invest in maintaining economic growth.
"We have a catastrophic excess of household demand" over supply, Kudrin told a government policy seminar. "The economy is not able to respond to this demand.
"Our forecasts show growth will slow over the next three years, and results from the first two months of the year confirm that."
Kudrin's statements strengthened government signals that it was eager to improve relations with domestic and foreign investors. Putin, during his latest unexpectedly conciliatory meeting with business leaders, said he supported reducing the statute of limitations or time limit for legal challenges on privatisations deals from 10 years to three. Mikhail Khodorkovsky, the former Yukos chief executive, is on trial on fraud and tax evasion charges partly related to a 1990s privatisation. Yukos itself has been hit by a $28bn demand for back taxes and partially renationalised to pay off some of the claim.
State prosecutors demanded a 10-year prison sentence with hard labour for Khodorkovsky. His trial is drawing to a close, though the verdict is not expected until May.
A senior Kremlin official insisted the Yukos case had been justified, and that Russia would continue to act robustly against companies that evaded taxes. Igor Shuvalov, an aide to Putin, told an investors, conference that Yukos had in effect been a show case.
"Those who don't pay taxes should know they will be prosecuted," he said. "If it had not been Yukos, then some other company would have been brought to account for using tax evasion schemes."
But Shuvalov admitted the Yukos case had damaged Russia's investment image.
Investment growth slowed last year amid concern about respect for property rights. Capital flight, previously falling, also increased fourfold to $7.8bn last year, with Russians once again wary of keeping money in the country.
Russia has enjoyed six years of economic growth averaging 6.7 per cent since its 1998 economic crisis, boosted by record oil prices.
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FT Syndicaion Service
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