(For other news from Reuters Russian and Eastern Europe Investment Summit, click on http://www.reuters.com/finance/summits)
* Warns of protests if opposition leader jailed
* Blames capital flight on law enforcement actions
* Still more optimistic than some investors
By Douglas Busvine
MOSCOW, Sept 23 (Reuters) - A crackdown on Russia's opposition following President Vladimir Putin's return to the Kremlin in 2012 only increases the risk of violent change, leading liberal economist Sergei Guriev said from exile on Monday.
After opposition leader Alexei Navalny's strong showing in Moscow's mayoral election this month, any decision to jail him on a theft conviction would now unleash more and bigger protests, Guriev told the Reuters Russia Investment Summit.
"This offensive is leading nowhere," Guriev said by telephone from Paris. "It is clear that economically Russia is not doing very well - capital is leaving the country, Russian stocks are not performing very well, investment is going down."
A former advisor to Prime Minister Dmitry Medvedev, Guriev left Russia in May after facing pressure from state investigators. Supporters say Guriev paid the price for publicly backing Navalny, a leader of urban protests against Putin's election for a third term in March 2012.
The Kremlin denies any crackdown on the opposition and claims stronger support in Russia's regions than in Moscow.
Despite his criticism of the authorities, Guriev welcomed Moscow's Sept. 8 mayoral election as "reasonably honest by Russian standards". Navalny came a strong second, although he could not force a run-off against victor Sergei Sobyanin.
But if Navalny's Oct. 9 appeal against a theft conviction and five-year sentence ends in jail, the scale of protests would only increase, Guriev said.
"It is absolutely clear by now that the case against Navalny is completely made up," Guriev said. "It's going to be a very, very big protest if Navalny is sent to jail."
A year ago, Guriev told a Reuters Summit that "the regime could fall apart overnight" and he still held that view.
"If judges, prosecutors, investigators and policemen are now putting innocent people in jail, for them it will be much harder to retire peacefully," he said. "It is a very dangerous path."
Pressure on business from state investigators had been a major driver of capital outflows, depressing economic growth this year to around 2 percent - compared to the Kremlin's 5 percent target, Guriev said.
At the same time, he said the administration was showing greater realism than previously as it tightened spending and took steps to make the state pensions system more affordable.
Guriev also said he was more optimistic than some international investors.
"Portfolio investors talk about Russia as a disaster," said Guriev. "They look at the losses they made and they look at the expansion of state companies, they look at all the evidence of state-owned companies committing massive fraud and corruption." (Additional reporting by Jason Bush, Darya Korsunskaya, Maria Tsvetkova; Editing by Matthew Tostevin)