A Time of Challenges and Transformations

February 15, 2012

 

On February 2-4 in Moscow, The Russia Forum took place for the fifth year in a row, organised this year by both Sberbank of Russia and Troika Dialog. Famous economists, political figures and world renowned experts discussed the prospects of the global economy, the path to overcoming the eurozone crisis and the new model of Russian economic policy in the current era of global changes.

This year around 3,000 people took part in the event, which is proof of the growing interest in The Russia Forum shown by business representatives, the government and the global professional community. The Forum has become one of the most authoritative discussion platforms. Key speakers this year were Russian Prime Minister Vladimir Putin, Moscow Mayor Sergey Sobyanin, ex-British Prime Minister Gordon Brown and distinguished Western economists Nouriel Roubini, Michael Milken, Paul Krugman as well as other high-profile representatives of the global political and economic elite. In total, at The Russia Forum 2012 and its Special Day “Cinema and Money” there were over 40 panel discussions and sessions focusing on a wide range of the most varied topics, from global economic challenges to investing in art and the potential of modern Russian cinema. The Forum was covered by 345 journalists representing 113 foreign and Russian media outlets from 12 countries, including 20 television channels.

The keynote of the first day of The Russia Forum 2012 was the understanding that the time has come to more actively invest in human capital. This applies to both developing countries and developed countries, which are have recently faced serious economic problems, the scale and consequences of which are yet to be fully assessed. Furthermore, leading Western economists and politicians, including Gordon Brown, are certain that Russia has the resources necessary to become one of the leading global economies and rise to the position of one of the top 5 most important players on the global stage within the next 5 to 10 years.

Russian Prime Minister Vladimir Putin is also optimistic. He talked about specific measures needed for improving Russia’s overall economic situation and business environment. “We need to move up 100 spots”, emphasised the head of the Russian government, “in order to go from 120th place to 20th place in terms of the business environment,” he concluded. Chairman of the Milken Institute, Michael Milken, also considers that Russia’s multitude of advantages – low sovereign debt level, rich natural resources and, most importantly, educated and creative citizens – will enable Russia to realise its potential if the country is managed properly.

During the plenary session “Russia’s Economic Policy in a Time of Global Change” – moderated by Herman Gref, Chairman of the Management Board of Sberbank of Russia – Vladimir Putin named the coming decade as a time of great challenges, risks and transformations. The panel’s experts came to the joint conclusion that task number one for Russia is to increase the effectiveness of its economy, government and investments. “If serious economic reforms are not made the potential of Russian economic growth will remain low”, stated New York University economics professor Nouriel Roubini. According to ex-Prime Minister of Pakistan Shaukat Aziz, Russia needs to first of all strengthen its political institutes and develop the rule of law. Moscow Mayor Sergey Sobyanin, who opened the second day of The Russia Forum 2012, assured investors that the government of Moscow will do everything possible to make the Russian capital even more comfortable for business, investment, and living.

Practically all of the discussion sessions touched on the current topics that concern the global community: the ambiguous situation that the global economy is in, pessimistic view of the eurozone’s future and the EU’s socio-political model. Discussion also continued on the sidelines of the Forum. Princeton University professor Paul Krugman considers that what is currently taking place in the world in no less dangerous than the crisis of 2008. However, according to the Russian Prime Minister, the deep-rooted reasons for the global crisis are not due to debt, but instead are down to excess production and purchasing power. Raghuram Rajan, professor at Chicago University’s Booth School of Business, considers that current economic problems are directly connected with social inequality, a theory confirmed by protest movements across the world.

The discussions of the second day of The Russia Forum 2012 focused on tendencies of the global and Russian banking sector and financial sphere, management of risk and investments, and also the situation in separate sectors of the economy – transport, telecommunications, retail and others. At the session “The Future of the Global Economy and Financial System”, William R. White, Chairman of the Economic Development and Review Committee of the OECD, gave his own pessimistic view: “The banking system’s dolce vita is over.” Nouriel Roubini added that Europe is stuck in a vicious circle where bank defaults lead to sovereign debt crisis.

In the next few years the banking sector can expect limited growth after going through stagnation. The key challenges for the Russian financial sphere and specific measures to develop it were discussed by the participants of the panel sessions: “Developed and Emerging Banks: A Case of Irreversible Decline vs. Irrepressible Rise?”, “Risk Management: Myth or Reality?”, Interest Rates, Exchange Rate and Liquidity: are there Resources for Investment?, and “Which Emerging Technologies will Kill the Traditional Bank? Crowdsourcing, Big Data, Social Commerce, Artificial Intelligence?”

The Moscow government’s plans for transforming the capital into an international financial centre are still limited due to the fact that foreign investors do not perceive the Russian market as a primary platform for placing securities. Participants of the discussion panel “Creating a Domestic Capital Base” – moderated by Bella Zlatkis, Deputy Chairman of the Management Board, Sberbank of Russia – attempted to understand how to remedy this situation. Madhu Kannan, CEO of the Bombay Stock Exchange, used India as an example, noting that in the middle of the 1990s the majority of Indian companies were making stock placements in Europe, but then a stock market infrastructure was created (in India) as well clearing and market access, all of which helped to attract investors.

At The Russia Forum there were many mentions of Singapore, a prosperous financial centre that regularly occupies leading positions in economic freedom indexes. Ruben Vardanian, Chairman of the Board of Directors of Troika Dialog, voiced the five basic principles of Singapore’s success, which many countries should embrace, but first of all, Russia: pragmatism, leadership, continuity, openness and respect for business. In the words of Sergei Guriev, Rector of the Russian New Economic School, if this strategy is upheld, at The Russia Forum 2018, completely different issues will be discussed – excessive capital inflows, an investment boom and the rapid strengthening of the rouble.