A view from Moscow

Three years ago, Russia shook world financial markets when it announced that it would simultaneously default on its domestic debt, devalue the rouble and impose a debt moratorium on its residents.

Before August 1998, foreign capital had been flooding into Russia, turning Moscow into a boom town for Western companies and financiers – and the lawyers who service them. In the aftermath of the 1998 financial crisis, foreign investment dried up, and for most of 1999 and 2000 Western law firms in Moscow were left with a meagre diet of insolvencies and debt restructurings.
But 2001 has seen a quiet change in the Russian market. Last year the Russian economy grew by 8 per cent. The better Russian companies are again accessing the syndicated loan market, a number of Eurobonds are in the pipeline and Western corporates are taking a second look at joint ventures and acquisitions. The energy sector is especially buoyant: foreign investment in Russia's enormous oil reserves (particularly under production-sharing agreements with the Russian government) is increasing, and several of the cash-rich Russian oil majors are making downstream investments in Eastern Europe and beyond. For now, the deals are smaller in size than the deals of the 1996-1997 boom; they are also more complex – loans secured by a steady stream of export receivables are more common than general corporate credits. But the return of foreign investment (and the repatriation of Russian capital that had fled to safer jurisdictions) is unmistakable, creating an atmosphere of guarded optimism in Moscow.
So what has caused this turnaround? Some of the credit should go to President Vladimir Putin, who took office in January 2000. While Putin himself remains something of an enigma, he has succeeded in restoring a degree of badly-needed political stability. The Yeltsin tradition of sacking the government every few months has been abandoned, and the Russian parliament seems willing to implement the Putin administration's ambitious agenda. Putin has also reined in the notorious 'oligarchs', the tycoon politicians who, during the freewheeling mid-1990s, used their connections to acquire the crown jewels of Russia's economy for a fraction of their worth.
On the economic front, the Putin government seems to understand the importance of making legislative changes to support structural reform. This year has seen welcome amendments to Russia's byzantine tax code (including the introduction of a flat 13 per cent personal income tax, which it is hoped will bring some economic activity out of the shadows). Credit should also go to the sustained rise in oil prices since 1999. Russia is the world's second-largest oil producer, and the trebling of oil prices has contributed to a surge in tax revenues that has enabled the government to service its foreign debt, as well as to pay the wage arrears that bedeviled the Yeltsin administration.
Finally, some Russian companies themselves deserve credit for navigating successfully their return to the international financial markets. After the August 1998 crisis, many Russian blue chips continued to service their debts (despite a government-imposed moratorium instructing them otherwise), and they are now being rewarded with access to foreign capital.
On the downside, there are doubts that the current mini-boom is sustainable. Commodity prices are starting to fall, which could exacerbate a predicted cash crunch in 2003, when $19bn (£13.4bn) in foreign debt repayments comes due. And the intractable Russian government bureaucracy, which has stifled the reform efforts of ambitious Russian leaders, from Peter the Great to Mikhail Gorbachev, may prove just as much an obstacle to President Putin.
But for those of us who worked through the first boom and then the bust, it seems like a window of opportunity has reopened. While Russia will never fail to surprise even the most seasoned observers, it is hard not to feel excited that – this time around – Russia's tremendous economic potential (and the potential for international lawyers to maintain thriving practices here) might be fulfilled.
Michael Bott is a lawyer in the Moscow office of Linklaters & Alliance