in science and technology from. the future. for the full story we've got. the biggest issues get a human voice face to face with the news makers. here without him from moscow now the top stories and the falling apart colonel gadhafi forces a strike against anti-government protesters again bringing the overall death toll in the raging on rest in libya to well over a thousand. times as violence spreads throughout the oil rich middle east the world faces a surge in fuel prices threatening to drag economies into it. and the wiki leaks founder slams a british justice handing him over to sweden solving accusations of hypocrisy about

how the u.k. harbors those facing a far more serious charge. plus it's a race for the hearts and minds of all the lippitt fans as russians are set to choose the must go for the two thousand and fourteen winter games in such. weather drive for modernization and russia is adding momentum to efforts to improve the country's investment climate but can also become a global financial center or is it doomed to remain a regional economy people. are discussing this next in our new show on them. hungry for the full story we've got it's. the biggest issues get a human voice face to face with the news makers m a r t. a logan welcome to on the money where the business of russia is business today

we're talking about russia's financial modernizations its prospects and challenges and to do that i'm joined by electing with a of he is deputy head of research and head of the macroeconomics research team at v t v capital and hark sunshine he is managing director portfolio investments and i have seen metropole also we have you supply a bit she is chief economist on russia and c.i.s. the n.p.p. area park and we also turn to daniel salter he is chief eat m.e.h. equity strategist at unicredit securities first alexei i'd like to go to you now not long ago a think tank in london came out with a following the london base said and thinking which produces my annual rankings of global financial centers based on their competitiveness going to russia moscow sixty eight out of seventy five i was in some temper of last year they said nothing has changed to play sixty eight out of seventy five it's not very good now it's not

very good but then quest prez there are seventy five national financial centers on the world of kind of sixty countries right so but seriously i think that russia has a unique. option here if russia doesn't screw things up and are things right in terms of setting up the environment and infrastructure it is a natural advantage of russia being a natural center for the serious financial markets have been large saying first. country wide then regional threats not obsessional all russian for for at this stage is regional center for other serious countries firstly for the central asian countries and possibly for. or equally impossible to build a reason for this one evidence of that which is below is trying to replace which is the first evidence of russia becoming somewhat a financial center ok hawke if i can go to you when you talk to your clients what are they looking for what is the major problem they see one of the major problems here russia is infrastructure i'm totally not surprised that russia's rate sixty to seventy five although i agree with alex say that they are there are they really

seventy five financial centers the problem here is infrastructure when you arrive at the airport the lines for passport control the house of getting to the center of town it takes hours to get to the center of town and sometimes if you want to take a car unlike other financial centers. i think the infrastructure has to be drastically improved here improved here in russia before russia can lay claim to more than just a regional financial center you know julie you know you're an economist i mean it from a macro scale what do you think the major barrier is because we've heard we heard even back in two thousand and eight and pretty president didn't want to make this one of his priorities now we had to go through different actual crisis russia's done reasonably well but if he learned anything from the financial crisis are we just right bar in the same place we were back in two thousand and eight. i would agree that infrastructure is the main problem and the main obstacle but at the same time i would also highlight the importance of the west bank climate in my view.

a lot of efforts made by the russian government to improve. sentiment about foreign and westerners and to boost importance of foreign and the west in general how. is not that simple. a lot of logistical problems for foreign investors and at the same time. it has a reputation that it is not fully in the western for the country in general so i would. of. the table as well. i mean which match the rhetoric with actions i mean i sure do. russia wants to become a major financial center and i even heard that your financial center what is being done is to actions and rhetoric matching him anyway. i think you're seeing gradual

progress being made we've seen recently the merger of the two main markets in russia the my six and the r.t.s. index that's one thing you've seen people to know are foreign companies to list in russia using r d r programs russian to patrice receipts you seen big developments in terms of derivatives trading so things are progressing gradually there's still a lot of good if i could see if you don't why are russian companies still listing bond issues on foreign exchanges here i mean there it is an attractive enough in what need to change for that to happen yeah of for me that reasons firstly it's very easy to list over seas you've got a lot of expertise you've got all the noise you got all the accountants all the all the legal experts overseas already in places like london and new york so it's a one stop shop you get all the all the services you need in one place the other one is in russia we've still got a very underdeveloped domestic asset management industries and if you look at most

of the successful financial markets around the world you've got very strong domestic investors other by the pension funds or insurance companies and that kind of. more stable money within russia is yet to really develop on a large scale alexia like the one stop shop now that what it's really all about isn't it here not suddenly but the point is that is the place where russia can a given and she's the russia's far less realist environment because once the trial for the act and for european lands whatever degree just and all the sort of things you don't have to list all the swaps you were produced in in washington have to report all those huge reporting freighting agencies are not liable for their ratings in russia and so on and so forth so i think that for some countries where it's not just people to produce financial accounting standards and conflict small companies for. people would last more than laura's in order to condoms i think there because i covered the concerns of transparency for some people what question is the transparency begins and stops and bernard so basically. crystal's we didn't

start interfere glisten if you listen she was present as a lot of friend of a friend actually don't talk about us personally actually literally limiting the bible is your definition more explicitly talk you listen to paul walker he does not finish work that we're very lucky wrestled as i'm sure you want who want to jump in there i totally disagree with alex in to see that the lack of regulation in the market is is a great thing then we'd say well we could take that to the absurd and say well then the congolese or the cameron stock exchange it would be would be even better. because when you have absolutely no regulation if you take a look at where where money is in the world a lot of this money is institutional money a lot of this money is sophisticated investors and in a market that's not regulated and is taking alex's words and saying that with a they don't perform due diligence at a certain level on companies then investors investors money even want to get involved in that market because they'll know the risks are very high and it's the

same kind of market they would appeal the private placement sort of investors if you look at if you look at the world you see how many financial global financial centers do we need three to maybe one to cover each time zone so that there's always one working i mean there's a lot of competition to become a global financial center and i think that the way of saying that we have new regulation would would not be the proof that russia is going to take in order to increase its significance. particular to crease its significance as a global financial center i'd like to be required i did say that i agree with you that no regulation i mean look at the congolese or ignore whatever other stock market obviously it's no relation is bit and she's too much it's taken it would have sort of one third but i think that the american british knows her complications you know and i know that move from london to singapore industries right singapore has become christian capital of the world is this rate you should it's not because of personal tax regulation because the hedge fund managers who are making huge amounts of money don't want to pay fifty percent plus taxes in new york

or learned your taxes over. of course a major issue of course but profit asking for placement ok let's talk about i want to go to julian want to talk about another issue that a lot of people talk about in that is the rule of law and this is an issue that is brought up i asked him in going with rush i used to one time be a financial analyst at a major bank here in russia and that was back in the late ninety's and i still hear the same complaints to this day so julian what about the rule of law. he has a right a lot of complaints sounds like the sun is improving but improving very good a deal as a result. at least one more detail to. remove this problem so this is easier timing is crucial as he was all in the global. financial center in the global sounds of this or it is possible to dog whether we're likely to get a result in two three years. east.

asia and where they are likely to continue all these efforts will improve this if and into the use. war it is imposed a lot of the of from the war and of your financial sector it is a more global problem for us ok daniel if i can go to you i mean we hear a lot what the russian government wants to do we here we are ministry of finance and other institutions and in other banks what they want to do but what are your investors saying they want to see happen in russia before they me move more money in there into this country because we all know there's a certain amount of dollars out there and then go to a certain number of places what can be the attraction to come to russia as opposed to another market. well i think it's the opportunity

investors will come to wherever they can buy stocks where they can trade them where their markets are big quids and where they feel protected and i think you know over them what you'll see in russia is that russians are grown are living longer life expectancy is increasing and so you'll see naturally over time russians looking to save money and that money in terms of pension funds and insurance money will be invested and put into the russian market and i think when you see that's happening these russian business investors will want to feel protected they'll watch their domestic legal system. environment of the stock market to improve to protect their own life savings i think that is what will change the markets and and cause from investors to become more confidence in the environment here before going to recollect a very interesting point to be talking about foreign investors all the time but russians are becoming themselves much more sophisticated in dealing with their finances because before you just put the money in the bank and you know it is you hope that they didn't collapse in the one nine hundred ninety s. totally different environment today well i'm not sure i actually agree with that i

have heard of the financial services industry outside of banks have collapsed during the last last crisis and the government has done a good job bill not the bigger system but they didn't do anything to save the. mutual funds and the insurance companies and so on what insurance which will cause don't exist in russia that's a problem i completely agree with daniel here and also to some fairly common i'm not all right after a short break we'll continue our discussion on modernizing russia's financial sector stayed with our chief.

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welcome back to on the money time peter lavelle tree mind you were talking about what russia is doing to modernize its financial system but first let's have an overview of where russia is on this issue where it's going. the global financial crisis which exposed the international banking system so overt catastrophe but they experienced on the line they need to expand their domestic financial sector and provide local authority there's a loose things and the emplacements corporate russia takes overseas it is increasingly seen as essential but also the same profound changes for the russian finance and corporate world it is a question so for countries to build such from mention some truck necessary from. in russia it will depend on foreign investments for

many many many years to come and to attract these funds you have to attract investors you have to track to foreign institutions you have to makes a country. vote coming form investments not just for the investor but to a lot of these foreign institutions to make money to be part of the environment to be properly treated there though being greater confidence in the legal system and protections for minority shareholders remains their priority this fight holding out better than wildly expected during the economic downturn. experience. for her to local credit. foreign investors minority investors during this recent crisis. again in a situation where a lot of difficult negotiations had to be held major restructuring said is all of

them got together and negotiate a difficult solutions. but for the most part the core essence of the contractual claims that they were untrue entered into had intruded into were respected all thought needed to be an overhaul of national savings and pensions development companies that you should know investors and still are a services human capital and the range of financial instruments if you will not happen in the short term but only through fraud development can the financial system help reduce volatility and so you can only grow that if you rush are on the money are. ok but you talk about two issues that we haven't really mentioned i could almost see here first in the studio let's talk about the ruble where the ruble needs to go for russia wants to become a financial center a major financial center and inflation here let's talk about both it is the ruble we're trapped enough to compliment a financial center every financial center has

a currency well that's a good point and i think that the catalyst of course is investment. because there are a lot of countries where our current sarah threaten your conversion but not necessarily it is going to become financial center seven or seventy five i'm sure that the must be some. truth. but nevertheless and so the point is that it's obviously through the fields of the she's very productive builds of one triple the c. market and stability and clearly the foetid inflation is no creeping at the level of around ten percent as a problem. in a problem for russia for a long time actually was a financial crisis that actually slowed it down for the first time that i've lived here at the nubs absolutely and in fact i think that a lot of things for example the law and central bank was devised in one thousand nine hundred eighty in country to change the changes then that's a major problem or those things need to be addressed a myriad of things which need to be addressed and clearly in order for russia to become we got a financial center is a place where people commonly some people come. and invest in political democracy if you want is one of the major. problems ok if i can do to you is the government

doing enough to deal with inflation and we have to look at oil prices are on the way back up in a big way you know i think that the government's monetary policy has been unpredictable in the in the past if we look at a couple months ago we saw oil prices rising from a crisis level of let's say forty dollars to ninety dollars and we see the ruble barely reacting to that and in very high levels of inflation i think that the the monetary policy the government has been inconsistent and the. ruble exchange rate the ruble stability is unpredictable there's no stability and they're largely in the foreign investment community i don't think there's much much faith or interest in the ruble as a as a global currency let's look at the dollar for examples compared of the ruble the dollar to take to extremes we see most we see almost we see a large majority of global financial instruments listed in dollars i think that is

i think the rubles a long way off from from becoming a global currency but as alex he said this is not necessarily necessary to become to become one of the to move up in the rankings from sixty to seventy five global financial but ok julia but if i go to you it certainly would be a nice plus if we had the you people were attracted to the ruble as an exchange unit. well i also believe that russia has some advantage. of this currency say i have no capital controls and the russian capital controls are very unlikely to be. produced in future. in the my view i would agree was as you see that. michael is an understudy lety is easier for me it is a very important to have more or less predictable the ruble to be sure the. russian properly developed into a global financial center currently ruble is

a very dependent on oil prices and oil prices are through all the tiles. and that is this is unlikely to disappear in the coming years in my view as a result all parts of the garment who just approach. where to position in. playing with the least aware is only sixty. eight from seventy five. and likely to result in some. practical outcome nevertheless. any movement in the right direction is very positive and my view identifying the you and me of thinking in a conversation about finance and russia it always seems to get back to all which you know you. prices are going up there are certain people here that are very very happy and then there are a lot of other people the world that are on is it always going to be tied to the

ruble and with regards to be tied to the price of oil and then we have the inflation factor is how is this a vicious circle that can be broken out of somehow. it's clearly going to be an actually seal for russia it is a commodity producing country the government can try and stabilize the ruble by using things like saving the all surplus over seas as they've tried to do in the past that can help a bit like course norway does putting money into a stabilization fund into an overseas savings account but i think what will also happen is over time we'll see creation of long term investment products in russia you have long term pension funds looking for long term assets long term bonds markets developing in russia and that will make things more stable as it will mean the flows of money into and out of the ruble could become a bit less importance when you have a bust because the rest take the savings base looking to buy russian. russian assets russian financial assets and inlets hearing about you here in the studio one

of the things that really bothers me with being in russian i've been here for almost thirteen years is the lack of competition is there a lot of competition in the banking sector another key pillar of being a financial center is there enough competition in the banking sector well i think that the central bank has worked very hard to establish a little bit equal x. liquidity and we obviously know that's very different right and it's their bank and everybody else and you know well it will prosper because different rates i think are for us to stuff them but the. you name it. even with them but how many how many banks or how wide variety of about of instruments which you can have when we look at retirement and we look at these kind of things here i mean we still only a small number of people actually think that's exactly the point it's not the number of banks you have you have countries an advantage you're going to work in right that's the point the point is there's really underdeveloped system or for saving completely completely agree with you here is there is life insurance mutual

funds things like that as they develop as the government actually works courage ensure that people have trust in those things and fully financial system itself will be. it was that started to do and become truly progressed in our government talks about you know developing pension system going so those things develop then the local savings base localism base is crystal so the banks that's when the actually the biggest corporation financial center it's i think actually lies if i go back to you i mean with competition more in the marketplace here i'm up for russians within their market he would that be more attractive for foreigners coming in here see that there is competition here because there isn't a lot in a lot of sectors well i agree with you i think that i think that increasing competition does not make the market more attractive it makes it less attractive but allowing the potential for competent competition certainly would. you know i think that there are a lot of barriers to maybe not formalized but some of the administrative barriers to opening up shop here in russia there's a lot of rules that keep competition especially foreign competition out of russia

and i think that the definitely makes russia less attractive place for foreign investment and therefore number sixty eight out of seventy five on the list again you have are you worried about more car competition in the marketplace will be make it more attractive for other people to come in here and make it a global center that mr madrid really wants it to be. i think competition is good because it breeds excellence usually the more competition there is the better the service standards are and so therefore the more attractive it is that as a financial center rush will become people want to come to the best banks the best legal firms and so on in the world now there's clearly a risk that a couple of big stated this is good stocks dominate. i think it's a good move in the short term you're creating a domestic expertise base an investment banking but the challenge for the government will be to provide the biggest use is becoming too dominant in the markets. going to finish of a jury here i'm told it can directivity its diversity and get. a city i'm

marketplace our financial center what needs out of those three what needs russia needs to do most on a hierarchy with the most important thing you can do the last word in the program. i will. rapture it is a more transparent. and simpler. still got a few seconds what would you say your your priority but i think that the thing that right because a lot of for a place where you kind of going for this but there's no actual difference here and that's i think what's really important which is forrest gump under people is concerned. well connected isn't it i mean. the right is not much but everybody can actually much. pressure. but some callers are with much more on from much more ahead than the freshmen this seventy five or whatever and so i think that it's very deft and domestic initial base that you work for all right ok we've run out of time

i want to thank my guests here today and i want to thank our viewers for watching us here on on the money team next time and stay with our team. blood rushes would be soon which would rise or if you move down someone from funds to impressions. these for instance our teeth don't come.

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