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 Committee for Russian Economic Freedom
Twitter @RusEconFreedomhttp://russiafreedom.wordpress.com/  
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Russia and the Corruption Perception Index
 Analysis: Committee for Russian Economic Freedom
The Russian government’s contempt for the Rule of Law and the simultaneous proliferation of corruption is a huge impediment to direct foreign investment for this key player in the worldeconomy. The point was driven home yet again with the release of Transparency International’s2009 Corruption Perception Index. This year Russia ranked 146
th
out of 180 countries, fallingbehind the likes of Libya, and Pakistan and Honduras.According to reports and US State Department statistics, it is estimated that corrupt officials robRussia of an estimated $300 billion annually, a sum equal to 18% of Russia's gross domesticproduct. The response to the newly-adopted package of anti-corruption legislation initiated andpromoted by President Medvedev and passed by the Duma in December 2008, has been tepid atbest. Medvedev recently admitted publicly that corruption is endemic in Russia. The excessiverole of government in the economy and business sector, which spurs the supply side of corruption, aggravates the problem.
 
 Committee for Russian Economic Freedom
Twitter @RusEconFreedomhttp://russiafreedom.wordpress.com/  
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By comparison, the chart shows that in 2009 Georgia posted a score of 4.1 up from 3.9 in 2008,illustrating that that country’s corruption reform efforts continue to be highly effective in earningdomestic and international confidence and improving the country’s image. Brazil, China andIndia, part of the BRIC emerging markets block, consistently score higher than Russia as well.
Russian Economic and Investment Issues
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Russia expects to see a worse fall in economic production this year than initial forecasts,with the country now preparing for a continuation of the economic crisis long into 2010.
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Russia suffers from minimal domestic financial intermediation because inept state banksdominate the financial market
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President Medvedev announced in May wide-ranging budget cuts previously put on hold,and conceded that Russia was far from out of the economic crisis.
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For the Russian government, investor perception of Russia as a high-risk country is avery serious issue. One of President Dmitry Medvedev's key programs is to create adiverse economy and to encourage a higher level of foreign investment. In July 2008, heurged the government to put an end to the bureaucratic practice of creating "nightmares"for businesspeople, such as needless inspections and various extortion schemes to forcebusinesses to pay bribes to bureaucrats to stay in business.
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In October 2009, Carrefour, the world’s second largest retailer withdraws today fromRussia, citing an absence of growth prospects in the short- and medium-term just monthsafter opening its first store in June 2009.
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IKEA, in June 2009, declared a moratorium on investment in Russia after the CEOdeclared that he refused to be extorted.
Impact of the YUKOS Affair and the Khodorkovsky Trial on Russia’sEconomy and Foreign Direct Investment 
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As the trial progresses it has become increasingly clear that the systemic corruption inRussia’s legal system is threatening the sustainability of every business in Russia anddeterring the foreign investment so desperately needed.
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International investment and trust in Russia have been undermined as a result of thefrenzied burst of tax terrorism and state-backed raiding of private property, the extent of which has been highlighted by the prosecution’s case against Khodorkovsky.
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The respect of property rights and international agreements which protect investors isneeded if Russia wants to pull itself out of its downward economic spiral.
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The YUKOS Affair and the trial of Khodorkovsky is a symbol of Russia’s problems:
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Ordinary, widespread business practices have been labeled by prosecutors in the trial as“criminal”, demonstrating a willful disregard for the most fundamental aspects of the oiland gas industry and the operation of either a major Russian or an international verticallyintegrated oil and gas company.
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Spanish investors in July 2006 sought compensation from the Russian government for theforced bankruptcy of YUKOS. The former YUKOS investors are seeking damages of upto $100 billion, claiming that the Russian government violated the Russia-Spain BilateralInvestment Treaty
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