MOSCOW – Russia’s government is sitting on a giant pile of cash that it plans to invest in foreign assets. The glimpse of its economic muscle was revealed this week when the Prime Minister of Iceland announced that Russia may come with about $5 billion to save its troubled economy. Who could have thought that, given the chaotic Russia of the 1990’s, only ten years later it would be in the position to bail out a developed country? Even more surprising is the fact that the helping hand for Iceland comes at a time when the domestic stock market is in a free fall and trading on the Moscow stock exchange is routinely halted.
The Kremlin thinks that now is the time to buy assets cheaply, using the current financial crisis to emerge as a powerful global economic player. As Prime Minister Vladimir Putin remarked at a recent meeting with the CEO of state-owned bank VTB, “Perhaps we should buy something [abroad]? Something that is up for grabs?” According to Arkady Dvorkovich, an economic aide to President Dmitry Medvedev, the government will support – both diplomatically and financially – the expansion of Russian companies abroad.
Following the Russian-Georgian war, the West is scared that Russia’s government will use its cash not just for economic purposes, but as an aggressive foreign policy tool. Should the West really consider blocking Russian investments abroad as a way to influence Russia?
Trying to erect an Iron Curtain around Russian funds and businesses will prove counterproductive. Indeed, a large-scale “invasion” of Russian business would be a positive development, because it would foster economic interdependence. This is true even if the economic expansion is led by state-owned companies and by Russian sovereign wealth funds. By investing in American and European assets, Russia’s government and business elites are buying a stake in the global economy. This should bring better mutual understanding and a more rational and accountable foreign policy.