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Corruption clouds ability to address economic reform

Key addresses by Russia’s political leaders have underlined economic reform’s place on the national agenda. But corruption will limit their ability to face up to that reform unless it too is addressed.

In his state-of-the-nation address President Dmitry Medvedev pinned the major problems on Russia’s political inertia and lack economic diversification.

Just one week later Prime Minister Vladimir Putin is giving his own keynote address to the United Russia party in St Petersburg. He's likely to go further than the President in delving into the economic failings of modern Russia. Deputy Chairman of VneshEonomBank, Sergey Vasiliev says there are major economic issues to be faced.

“His address was mainly political and it was quite substantial. But there are big economic problems. Although we have passed though the bottom of the crisis and inflation is moving down, we still have certain challenges for our future development. One of the biggest is revival of investment activity in the country, and it will depend on the external financing. That's why we have to think about a proper investment climate, proper legal system, and lessening of bureaucratic barriers."

The 3rd most powerful person in the world according to Forbes magazine – Vladimir Putin’s address will be monitored closely for signs of the future direction of Russian economic and foreign policy.

Given the country's dependence on the rest of the world for the success of it's economic life, in particular on prices for natural resources, there's only so much Moscow can do. But one of the major problems that can be addressed locally, is corruption – which has been cited by all the most powerful people in this country as standing in the way of progress. Aleksey Moiseev, Chief Economist, at Renaissance Capital says it erodes the administration from within.

“Corruption probably is the biggest threat to the Russian economy and Russian state in general. At some point corruption is like cancer and paralyses the ability of the civil service to react to the messages from the very top. It's not only the civil society concerned about corruption but the PM and President should because their orders go unnoticed by operatives because they are more concerned about their corruption interest rather than fulfilling their obligations.”

Hopes to create a more innovative society, which the government has made priority, are also being stifled by graft. New laws have been introduced and promises made, but so far it's all bark and no bite. Russia's economy has slid into deficit and been forced to spend its reserves on anti-crisis measures. And while it may not be the best time to turn towards an innovation based economy, the last 18 months have underlined why it is necessary.