it's. s.-s. that joseph doubted that humble knowledge of the stone yeah but it's once again calls anger rage among activists who say timing of line volunteers out to me to have more tragedies similar to what happened in a way. that israel is bracing itself for the biggest protests around the scene of a new year's. demonstrations in the country adore you know paris and the arab spring up thing. coming up next. russia's capabilities in the world's financial winner or the addition of the money. i. mean welcome to on the money with the business of russia it

is business i'm peter lavelle today we're talking about russia in a volatile world. i discussed this issue i'm joined by chris we for here in the studio with me is chief strategist at i n g we also have yvonne he is chief economist for russia and c.i.s. at renaissance capital and we have anatoly miller cough he is head of asset management at gazprom bank and andre who is not so if he is c.i.s. russia strategist and vice president citi investment research and analysis at citibank ok chris i'm going to start out with you gentlemen let's all talk about the volatility in the world let's start with the eurozone where is it going is there any end in sight and if there isn't in sight what say outcome. no i don't think that's what we're not expecting to see any you know short term solutions to really this is a very extensive problem and it's going to require you know a substantial year or wait you know solution so i think you know obviously to the

summer months we expect to see some perhaps some temporary stopgap measures nobody has. been started that is for two years it's going to keep going like that i would think you know where we are now at the point where there has to be something much more radical we will need to see the banking system in europe for example have provide provide it with some substantial like trillion euro or backstop for example because that's the big threat to all of this is that if you do get a default in leave these countries that you start to run and we're going to talk about default in a second even what do we do you think it's going this year a crisis actual degree with class i think it's it's a problem that will get put there to protect for a for a number of years probably and it will take a lot of time to solve itself i think the key issue in europe is that you have the political countries that the noncompetitive toll and therefore it's very difficult for them in a few. exchange rate to recover this competitiveness and that's the core of the problem and told me if i can go to you where do you think the euro is going to go because it seems to be consensus here at least in the studio that if it's going to

be fixed it's going to take a hell of a long time and a lot of money well i can only agree that in the short term there's not going to be. some radical fix which will solve all the issues however i think. you know there is enough wheel to avoid. you know meltdown and. i think i strongly strongly believe that. there's not going to be default. in euro zone even in the peripheral countries because otherwise it's going to be really contagious and it will not be stopped you know from spreading from greece portugal ireland to ward spain italy and. later to germany because these guys will now will not have anybody to buy. their exports so it should be

stopped at every for all of europe otherwise it's going to be really really ok i'm going to fine go to you and we just heard that there's political will i think there's more fear than anything else that's why they have to fix it before we talk about how to fix russia what do you where do you think the euro is going to go. the problem here is on its face in. is quite fundamental and of course it cannot be solved in any near term future so that's why. european petitions are trying to put. the final solution of the problem for as long as possible so we will see some somewhat talk measures so that they can pretty soon bot. of course want to expect that the fundamental problem of. one of the policy and congress pacific fiscal policy will be solved any time soon ok chris let's go back to the studio here and let's go to the u.s. double dip in the future like to before we go to us could i just add one last point

on the eurozone i think that the political angle is very important here because it seems to me that you know while as you quite rightly say it's more more fear of a meltdown rather than political will i think the political aspect is important in that we are seeing these major political differences in other words the voting public in countries like germany that are very solid and they're increasingly getting fed up what you know you pay for exactly and i think that's the issue so i think i wouldn't automatically dismiss therefore some form of a default i think that the germans seem to be gunning far as you know to share the pain you know rather than have the german taxpayer pick it all up for example and i think it seems to me from listening to chancellor merkel is that she's in favor of some sort of a controls default if there is such a living selected yeah voltaren if this seems to be what they're pushing for extremely dangerous territory of course once you go down that road you don't know where it's going to go but it seems to me at least from the political side the solvent countries don't want to be picking up the tab all the time they want to

share this and i think that's at the core of this issue right now that the euro what i'm supposed to be all about what about of us us well i guess we all assume that the that the u.s. will strike some sort of a temporary deal to prevent the default in august. so that's what the market is assuming and i guess that the noises coming from us suggest that is the case but again we're looking at a stopgap measure we're looking at some sort of a temporary solution i think you know this whole issue of debt and deficits and trying to balance growth with stimulus is likely to be the backdrop in the u.s. and therefore globally right up to the election seems to be. flavor of the month what do you think about the u.s. because you know a temporary agreement looks like it's in the works here but that doesn't solve the fundamental problems the united states has with debt this may be the case but i think that still believe that the probability of a policy mistake in the united states is much less than the probability of policy mistake in europe i don't think that at this stage of the game there is an appetite

in united states for making such an error and actually it's very interesting because this is a very nice contrast to the lehman situation i think there was an appetite back then to say you know it's good to have a big investment bank fail and and and something actually happened but i don't think this is the case right now and probably this is the good news that united states if i can go to you on that one where do you think the u.s. is going and its economy and we look at volatility in the world because you know we're looking at the chinese are watching very carefully they don't want to see any kind of major breakdown in the u.s. budgetary system nor does anyone else in the world do you think the u.s. economy is going. well we don't expect you notice any. surprises on the positive side you know some unexpected jump in the. employment or the growth but. we think it's going to be pretty nice you know economy is going to expand moderately jobs will grow and you know there will be the

budget deficit will be reduced just the question to how much and as we all heard if it was not would be not enough you know to keep the economy going there would be quite a if using three and a let's talk about now in the ninety's a little bit later but is find a good point if i got it under you are you as optimistic on the u.s. economy is going to tell us well i'm more promiscuous equipment than on euro zone going to because you're going for almost. less fundamental i mean. they are going to be sold in the by the way. they will discuss in default or not default but it's a matter of how that will how much money will be printed to call that or. how much tax. can be raised in the future so in a sense they're less fundamental than that if you was ok gentlemen let's go let's

turn this to russia chris how it's all that we've mentioned in this program so far affecting russia and how will it affect russia well right now russia's been effective because investors globally are just risk adverse you know nobody's taking any major bets they're watching the big picture in europe and the u.s. and that means that they're generally very quiet in countries like russia let's face it peripheral countries russia continues to be viewed as something as a derivative trade in the global economy saw so that uncertainty is affecting russia and it's it's we're seeing volatility in the stock market or the market of course reflecting the news flow but in general there's not a great deal of investment activity in russia for now it has to be said you know thank god for libya. you can say that i did i mean it's keeping the oil price at that one twenty so russia you know relatively looks fiscally and in terms of its budgets it looks very good but it's still you know the backdrop obviously it's still viewed as a as a risk economy in the global context because we are so so exposed to the global

economy and that long term you know is obviously the big picture is the big story for russia if if the u.s. or europe doesn't get it right if they make a major mistake and we dare for go into some you know a double dipper or a big slowdown and global economy then of course russia is going to be whacked just as much as they will talk about oil in the second part of the program or what do you think about this i mean how is russia fairing through all of this volatility because we can later on we'll talk about what happened in two thousand and eight but you know is russia a better bet in some ways i mean it is a flight to quality. in some ways i think russia is more vulnerable now than before and i would like to go back to the fiscally sure that chris mentioned as everybody. that oil price that is needed to balance the budget right now it's a hundred and twenty five dollars it was much too. before before the crisis russia was was in a much better fiscal positions they had more money to do to put a aggressive counter cyclical fiscal policy if now if we experience

a major shock to all prices i think the where we thought of the right of the russian authorities is much less so disk would be an avenue where which they could be affected of course there are a number of ways in which actually russia is less probably going to be going to be less vulnerable for example they have a much more flexible exchange rate policy than before flexible exchange a more flexible exchange rate the less flexible exchange rate before and they have a much less share much smaller share of short term external debts than before the crisis and i think this is also going to be positive in russia should we experience a major external shocks in italy what do you think about that is russia more vulnerable now than it was before the start of the crisis in two thousand and. or of course much less vulnerable because so many lessons have been learned in two thousand and eight and now the policymakers are equipped with all these refinancing mechanisms you know the banks you know can be easily refinanced and much less

dependent on the borings from the international lenders and also the reason why in my house is that there is much less hot money from international investors right now in russia and there is no virtually no leverage in the stock market so. i would i would i would say that we await much less vulnerable and we'll learn a lot you know from the two thousand i want to go to i'm thirty four we've got it here i would under what do you think about that russia more or less vulnerable than it was to in two thousand and eight will quickly before we go to the uk i think that corporate russia is less vulnerable than it was before the crisis because the duration of that was increased and the corporates have food on the list and so of the cross and. overall market is more vulnerable because of this issue of ohio budget because the whole process and ok gentlemen i'm going to jump in here we go to a short break and after that break we'll continue our discussion on russia and global

volatility state with our team. well going into the. city big splash in the world of high tech business what turns advanced science into i judging products they don't understand. is this guy we follow russian innovators to ease your betters and broaden and their big breakthrough back home spotlight on startups on technology update here. we've got the future covered.

wealthy british style. markets why not. find out what's really happening to the global economy is a report on our. welcome back to on the money i'm peter lavelle today we're talking about russia and volatility but first let's have an overview of russia in the global economy. the two thousand and eight now down so global investors desire to live in the government to billions into liquidity and economic support the reserves but russia

had built up prior to that has been says largely rebuilt there is a reserve that has been built up and currently we have more than one hundred and twenty billion dollars. in the wealth funds. that those resources can be used to further attenuate any crisis that comes rushing this way furthermore there are there are more than five hundred billion dollars in f.x. reserves that russia has to try to deal with any volatility in the exchange rate front still however. it needs to be taken into account that these levels of reserves are lower than the ones that russia had before the first wave of the crisis in two thousand and eight immy two thousand and eleven key european players stupid and will default line despite the markets already pricing one in with

a major impact for russia like you. to me through financial markets china's first five g.d.p. growth was still stronger than expected after repeated trade hikes and it ministers of measures to rein in inflation that ended in two fears of a hard landing into possible flump in commodity prices the us debt ceiling impasse has the potential to bring the global economy to hold by the moon likely commodity variable is the and to q e two it has been a key factor inflating commodity prices including russian exports it into budget revenues and inflationary pressure still economists note that this q of government outlays has increased significantly so have to understand one point. eight zero when the crisis came russia's bodges breakeven federal budget brick of a level below prices was wrong six a gulp a barrel was a crisis because russia continued social spending also because. of the clawing with

the slowdown and now west day where the budget break in the under twenty dog about which is much much higher and if it delicately balanced global economy is due to rushing in to see forward to it see it as low levels of public debt and large reserves but the infrastructure that in that provide me down economics stimulus but the margin for error in the global economy worsens isn't less than it was an economic decision makers need to figure that into the shot on the money markets. ok gentlemen we talked about russian policy in this in the in a volatile environment but let's talk about corporate russia chris how how much very learned through this crisis and in let's say we have this more volatility that we have talked about a double dip the eurozone can corporate russia take that kind of blow well as a lot of people have actually said before the break up in russia is in

a better debt situation. right now than was the case in late two thousand and eight so from because they were because they learned lessons i suppose they learned lessons and also you know the country and the global economy generally has been you know other low or low growth or in crisis since since that period so there hasn't been the opportunity perhaps to grow as fast as was the case before that but i think in general you can talking to executives in russia's big companies you know they're all aware of you know how vulnerable they were in two thousand and eight and they're all determined to avoid making those mistakes again so i think lessons have been learned but we find out when we get into the next move when we think about that actually i would agree i would agree with that as you mentioned before the level of short term debt has been decreased and i think it would be very helpful if we experienced some out of difficulties of course the central bank before the crisis helped many of this corporates to page ok i want to show you all of the government was very important to that point of time again

a lot of short of that was repaid so obviously from that perspective at least the confidence in be getting a better share price. let's say if we get some major volatility and something of the magnitude of two thousand and eight two thousand and nine is the russian state in a position to bail out corporates and their debt issues because that's what they did this the last time are in a position to do it again if it's necessary. well. the question is only in the balance of the. foreign exchange law change and emanated loans versus denominated loans i think the corporate corporate switched more to the ruble to the ruble borings and the. rates are quite accommodative right now and they keep going down so now is the major russian corporation can borrow you know for five years you know the rates of six point five percent in rubles which is.

just perfect it's actually lower than inflation so i think that's that's just a good economics and i'm not sure you know they need to be bailed out. but in the in the case of the external shock of course you know they're much better prepared to go for the refinancing because the banks can't take not only the corporate bonds to the central bank to refinance with a bank and also take the corporate debt loads that in in the form they were underwritten so it's very very flexible now and lots of mechanisms how you know you can still provide fine lending to the corporates and the key question as we all know they know no business can be. financing there was a normal rate of boring for any for any business if you're in business and expect to pay back all your loans at some point then just better not started so basically that the question was learned so that the state of the banking system the shuttle

back has to be in a position to maintain this normal level of boring switch and i agree was all of the previous speakers their level is normal on that what do you think about that is really is corporate russia in a strong position now if there's an external shock or we have more volatility. yeah i would agree that they'll be my choice need to corporates if something happens externally. and still government has formed reserves exceeded the total amount of the four russian federation and the problem is that in case of major external shock the government will have different problems i.e. problems with the budget. but if it happens the government needs to focus more on our fiscal side than on our corporate side ok chris let's go back to an issue that you brought up earlier neighbors or will look

a thank god for libya that i'm quoting here ok. but that's you know russia still has a commodity driven economy to a large extent that is they're trying to change them and trying to change it for a while but you know if we get some kind of external shock meanwhile prices go down another commodity prices go down how is corporate russia and the russian state are they what's their strategy that is absolutely the key question in the whole you know some investment story for russia for the next few years as you say currently very commodity dependent means very vulnerable there for what happens in the rest of the world. the other government has been talking and identifying you know a whole series of reforms that need to be made across the whole is not enough is it enough come on you've been here a long time well what we actually want to see is progress on the reforms i mean you know providing lists of what needs to be done is fine we can all do that but what we're all waiting for and i think what investors are waiting for is some progress some action on those reforms to actually see that it has been implemented and i

think that's you know on the one hand you could say you know if the price of oil were to go up to one fifty one sixty then you know we go back to the sort of complacency and slow progress we had before you know i think there is certainly an argument to be made that if the price of oil were to go down to something let's say one hundred not one that something dramatic would sit down to one hundred. but there provides some financial stability but a lot more momentum and a lot more impetus to the reform program because you have to get armored and the key issue for russia looking over the next few years is that even one twenty one twenty five dollar oil is not going to prevent a significant slowdown in russia's economic growth the only way that can be prevent this is with a substantial increase in investment and a lot of that would have to come from foreign investors if we have a double dip global recession it will be much more difficult to attract that it means the government will have to try harder to make russia even more attractive so i think it's substantially different game for the government after the next election what do you think about that i mean you know we when you look at the.

price of oil and other commodities here do you think that the government is going in the right making the right move moves and making the right sounds because i've been here a long time and we've heard about diversifying risk for creation away from petroleum but you know it's a very slow process that is that is still what i think that is one fundamental difference from our economic perspective right now russia is already running a fiscal deficit i think in three or four years of time russia will start running a current account deficit therefore in three or four years' time that actual felt will face a classic tween deficit problem just means that these twin deficits on external side on the fiscal side have to be financed somehow and the only way for us to be able to finance this is to attract foreign investment i think the government maybe for the first time in a very long period of time understands that so they understand that they have to make some improvements in the overall business environment in order to be able to finance these deficits and i think that again russia has never lifted such deficit and it will be

a totally different paradigm for them and this is the only way for them to finance the deficit we have to improve the overall business environment you have to. decrease corruption and all these reforms i think that there will be more serious about because of the prospects of facing tween deficits in the future and i tell you what do you think about. this is a very good point it brings up about double deficits or is the state prepared for this. well it's hard to get you know prepared for this on one side you need massive investments in infrastructure and you need basically to not only help in a economy as that happened in two thousand eighty thousand and nine when the state was helping out the corporate sector the private sector to sustain the crisis but you really need to get the investment started you know the internal investment started. you know on the massive scale much much bigger than we ever seen before.

so that's that's a key thing and that's the micro cannot make. konami it's not a macro it's very hard for the can try the government can try but it just it takes time but what we see and what we just are very glad to see that the you know it's. you know the economic activity speaking up you know you know we get a call a cascade gentlemen we all run out of time here i don't know what point there i want to thank all my guests here in the studio and i'll bring some thanks for viewers for watching us on the money see you next time we stayed with our team. for the full story we've got. the biggest issues get a human voice face to face with the news makers. pretty free. free. free free.

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in india oldies available in the move to the joint be hotel rooms. the gateway hoto the brand imperial truly the tallest westin. you can know what's hotel until she says don't need to go and. read this and the colonel was her job as a retreat. the country is going bankrupt just look at the numbers and all the plans result the u.s. debt crisis falls apart in the senate with the clock ticking towards tuesday's deadline to avoid default. says spell.