Dmitry Medvedev's idea of making Russia a world financial center, in spite of being somewhat exotic, even made Finance Minister Alexey Kudrin happy. (With him in the photo, from left to right: Russian Transportation Minister Igor Levitin, Minister of Education and Science Andrey Fursin and managing director of the World Bank Ngozi Ikonjo)
Photo: Mikhail Razuvaev
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Medvedev Gets to Root of Financial Crisis
// Not enough Russian influence on the world
Russian President Dmitry Medvedev opened the “international” part of the St. Petersburg International Economic Forum with a short speech in which he said that the United States has overestimated its ability to regulate the world economy by itself. Russia, which is becoming a world center of economic influence, is ready to correct the situation. For now, the idea will be implemented as a “world financial center” in Moscow, and Russia’s specific proposals for the world will be delivered by the president at the G8 summit in Japan.
Russian President Dmitry Medvedev, like First Deputy Prime Minister Igor Shuvalov, eschewed the formality of reading a report when he opened the proceedings at the St. Petersburg Economic Forum on Saturday, but his greeting was nonetheless one of the main topics of discussion that day. The president provided ideological underpinnings for the first time for the plan to found an international financial center in Russia. The essence of his argument was that Russia sees the 2007-2008 world financial crisis, global energy shortage and rising food prices as a potential opportunity to change its position in the world financial and economic system comparatively quickly. The “financial center” is only part of the plan for the next few years.
Medvedev’s most pointed words were in reference to the United States. “How illusory it is to suppose that a single country, even if it is the most powerful, can assume the role of global government,” he said. “Global governance institutions responsible for financial policy in effect do not have ways of influencing the strategies of those involved in the markets. It is a rhetorical question whether it could have been otherwise in a situation where the main blow fell on the world market's principal shareholder. In fact, it was the variance between the formal role played by the United States of America in the world economic system and its actual capabilities that was one of the main reasons for the current crisis. No matter how large the American market is and no matter how reliable its financial system is, it cannot serve as a substitute for global commodity and financial markets.”
Just before, he had stated that behind the innocuous “desire of individual countries to protect their economic sovereignty,” in his estimation, lurks “economic nationalism,” which is unacceptable to Russia. Medvedev found analogical faults in the European Union’s energy security strategy and in rising food prices. The problem with EU energy security, he said, is that, of all the energy sources the EU and U.S. have agreements on with suppliers, including Russia, in reality, only one is being fulfilled. That is the growth of the use of biofuels, which is leading to higher food prices.
Here, the president criticized, among other things, the policy of the government of Vladimir Putin. “Increasing desire worldwide to protect the interests of national agricultural producers leads to a spike in prices. This system works with subsidies, governmental and non-tariff measures designed to protect domestic markets – all of these are well known – but they also been unable to prevent the crisis,” he said.
The governments of Mikhail Fradkov and Viktor Zubkov (who is now the “agriculture” deputy prime minister in the government of Vladimir Putin) began to implement a package of protectionist measures in the agricultural sector, such as limitations on grain exports, increased state subsidies and increased trade regulation. The president concluded his criticism on a conciliatory note, however. “Pragmatism does not allow any of the countries to be the first in abandoning safeguards that they have imposed,” he said.
Medvedev said that, by taking a new place in the world economic system, Russia intends at least to correct an imbalance in influence in the world. The president plans to make several proposals at the June 13 G8 summit in Osaka (Deputy Prime Minister Alexey Kudrin has confirmed that the list of proposals is ready) and to implement his own economic policy once Russia becomes a center of influence in the world economy. “Moscow as a Financial Center” is but part of the whole plan. Minister of Economic Development Elvira Nabiullina stated yesterday that the first document for that project will be ready by July.
Deputy Minister of Economic Development Stanislav Voskresensky said that “we have to define our position in the next month” on lowering the tax rate on operations with securities and derivatives, and correction of regulatory practices on the financial market conjointly with the Federal Financial Markets Service and the Finance Ministry. “We will do everything we can so that it will be as comfortable as possible to work there. But it will be a multipart document, not in the form of Strategy 2020, but in the form of a corporate strategy,” Voskresensky said. “To my surprise, preliminary consultations show that officialdom and market professionals have a unified understanding of what needs to be done,” he added.
The naming of the ruble as the regional reserve currency plays an important part in the plan. A few hours later, representatives of Chinese state investment funds confirmed at the forum that they were investing in ruble instruments. Nonetheless, the transition to a free ruble exchange rate, announced by the Central Bank of Russia last year as a med-range goal, was not confirmed by Medvedev yesterday. Presidential aide Arkady Dvorkovich stated at the forum yesterday that founding a “financial center” implies mainly preparing the financial and facilities infrastructure: an exchange, a depositary system, simplified state regulation of the financial market and, for the financiers, modernization of the transportation system in Moscow, creation of a communications system and a maximally free visa procedure.
The actual construction of the premises of a world financial center in Moscow might take two or three years. It is unclear how to realize that financial status, however. Kudrin claimed that the distribution of the ruble as currency is comprehensible only in the CIS and possibly for major trading partners, such as Germany and Finland. The transition to trading, of hydrocarbons, for example, in rubles is a “long-term prospect” realizable in no less than ten years. The future status of the ruble is a mystery even for former economics minister German Gref. When asked at the forum about the prospects for Russia entering the euro zone, he first enlivened the crowd with the observation that “Whether Russia will us the euro or the euro zone will use the ruble – the chances are 50/50.” Then he got down to the specifics. “It is even more likely that we will both be using the yuan,” he said.
So far, the growth of prices for energy sources and raw materials since 2006 and, consequently, the capitalization of Russian companies, from oil to metals, have guaranteed Moscow’s rising status as a financial capital more dependable than the growth of the Russian GDP. In that sense, the goal’s of the “Medvedev plan” will be met through Russia’s rising exports, even if its conceptual points remain only declarations of intent.
Dmitry Butrin, Alexey Shapovalov
All the Article in Russian as of June 09, 2008
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