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Top Russian officials want foreign policy shift

30 January 2008

Two of Russia's top economic leaders made a rare public call on Wednesday for Moscow to change its hawkish foreign policy, saying it was affecting foreign investment.

The calls, by Finance Minister Alexei Kudrin and state electricity chief Anatoly Chubais, came ahead of March's presidential election and were unusual because policy disputes among Russian officials are almost never aired in public.

President Vladimir Putin has pursued an increasingly tough foreign policy towards the West in recent years, boosting Russia's military might and attacking Washington over plans for missile defence, an independent Kosovo and the war in Iraq.

"Our dependency on global economic ties, on our exports, is felt so strongly, that in the nearest future we need to adjust our foreign policy goals to guarantee stable investment," Kudrin said at an investment forum.

Russia will see its hefty current account surplus slashed to zero in the next few years as imports rapidly rise and oil production stagnates. This will increase Russia's dependency on foreign capital as a source of currency and investment.

Kudrin called for Russia to pursue its foreign policy goals through greater international cooperation, such as by joining the World Trade Organisation.

Chubais, a close ally of Kudrin and a former Kremlin chief of staff in the 1990s, was more blunt in his remarks at the same event. He said that with Russia's shrinking current account surplus, hawkish policies were unsustainable.

"We really have to think about how much our foreign policy costs our economy," he said in a panel discussion with Kudrin at the same forum.

Power Struggle

Chubais was particularly critical of Russia's decision to close two branches of the British government's cultural arm, the latest step in an escalating dispute between Moscow and London over the murder in 2006 of a Russian emigre in London.

"If we want, we can go on persecuting the British Council and closing down their St. Petersburg offices," he said. "This is a disgusting event".

When questioned later by journalists after the panel discussion, Kudrin toned down his comments, saying: "I do not think that we made any big mistakes in our foreign policy recently. Russia is simply defending its interests."

The Foreign Ministry declined comment on Kudrin's call for a change in foreign policy but analysts said it was a fresh reminder of a fierce power struggle among warring Kremlin clans ahead of the March election which is expected to be won by Putin's chosen successor, Dmitry Medvedev.

"There is no doubt there is a non-stop under-the-carpet struggle being waged in the Kremlin now with (hardliners) trying to attack the group associated with Dmitry Medvedev," said Dmitry Oreshkin, head of independent think-tank Mercator.

"On the foreign policy front the hawks are doing their best to spoil relations with the West over the British Council, Kosovo and a number of other issues. They want Medvedev to face a fait accompli when he becomes president."

Kudrin also implied during the earlier panel discussion that Putin's decision last year not to alter the constitution to allow himself a third consecutive presidential term marked a victory for the Kremlin's liberal camp over hardliners.

"The main political event of last year was that Russia did not change its constitution and did not yield to those who called for Putin to be elected for another term," Kudrin said.

Foreign investment flows are at record highs as Russia's economy grows for a tenth straight year, crowning the country's longest boom for a generation. Last year, foreign direct investment was $47 billion.

But some senior officials say Russia – which needs to spend billions of dollars on major oil projects and infrastructure upgrades – still attracts too little investment compared with other high-growth countries such as China.

Kremlin officials explain the hawkish foreign policy by saying Putin has merely reasserted Russia's clout on the international stage and pursued the country's legitimate national interests after Moscow's influence drained in the chaos that accompanied the fall of the Soviet Union. But some officials privately concede that Moscow may have gone too far, damaging Russia's image among investors and businesspeople in the process.