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Strategies & Market Trends : Investment in Russia and Eastern Europe -- Ignore unavailable to you. Want to Upgrade?

To: jbe who wrote (808)	11/14/1998 11:59:00 PM
From: Rob Shilling	Read Replies (2) \| Respond to of 1301

Exactly, the tax rates have discouraged industry from investment. The IMF wanted Russia to raise taxes even higher. Primakov wants to lower taxes in 1999 and focus on industry. I guess what I mean by Russia being an inefficient version of the U.S. is that Russia has the building blocks for a better economy if it utilizes them properly. Those building blocks are massive natural resources, educated hardworking people, infrastructure, and knowledge and expertise to build things like rockets, airplanes, electronics. But the press lumps Russia together with Brazil, Indonesia, and Hong Kong. Let's face its, it takes time to go from pure communism to capitalism (what ever form it might be). The number one thing communism does to a country is to eliminate incentives to be efficient, to do better (because everybody gets the same treatment no matter what). Add to that an economy that was centrally "managed" and you get rampant inefficiencies. The barriers to succeeding in democracy is that the communistic economy bred an attitude to be corrupt and steal from the state to improve ones standard of living. This is hard to let go. I imagine many people do not understand what they have to do to succeed in a democracy. It begins with focusing on what each person is good at doing, and what they want to do with their life. The Soviet system did not let people do what they were good at, they were assigned things to do. I guess what I am counting on is the fact that if corruption can be reduced enough, the capitialism in Russia will automatically lead to more efficiency, showing up as a growing GNP. Capitalism is like a disease in this respect. It tends to spread in an uncontrolled manner. A crisis like this current one is "creative destruction" that tears down the inefficiencies in the economy. In the Soviet System, the crisis would have never ended in rich people losing money and power. But look at the crisis today. The Oligarchs have lost a lot of money and power. The inefficient banks that did not do banking have failed and the medium sized banks are becoming prominent. Businesses that reinvested in swiss bank accounts for their bosses instead of the business itself are failing. The greed and corruption of the ones in power has led to a collapse that has purged many of the practices that have lead to low rates of return on capital. I appreciate your viewpoints. Your post says that you are a kind of Russian expert. I don't know as much about Russia as you do. Obviously my interest is making money on a long term investment. To me Russia is the ultimate investment because of the low valuations combined with the huge potential. If Russia becomes a more normal economy, say in 5 years, and its stocks trade at one times GDP, stocks like LUKOY and ROS would be trading 40 times higher for a 5 year annual rate of return of 110%. But the odds are that when the economy gets better there, the initial 1000% appreciation in the stocks will happen quickly IMHO