he's telling. me. to do for. three thirty pm here you go your headlines here with the first parliamentary poll sees the highest ever want to haze of. the election with slow to deliver the. human rights council. in syria russia says the report don't give the full picture unbalanced.

europe's debt crisis is here to stay as leaders. deal to a stable financial meltdown. and a legal loophole in the u.k. thousands of foreign criminals to stay in the country convicted. to escape punishment. all right. it's our interview show spotlight and at this time al going off talks to the i.m.f. head here in russia. how to support the ruble in the midst of a global economic. hello again to welcome to the spotlight the interview show on our. very my guest in the studio is. as euro zone as currency instability and

market meltdown it's a many economists say the second wave of recession is just a matter of time in russia a fierce debate between the central bank and the damage it was caused by their different views on how to support the ruble under the circumstances so what should we be prepared for and what's to view from the outside we're asking the head of the i.m.f. in russia mr hard headed back. in the crisis stricken economies return to growth or two years ago most of them are still weak and vulnerable the major indicators of the konami health are worse now than they were before the start of the financial crisis in two thousand and seven economists warn that entering the second recession at this stage would be much more painful to see the new wave is most likely to hit the u.s. and europe first but eventually every country will feel the pressure.

hello mr list mr breckon welcome to the show thank you very much thank you very much for coming well first of all everybody today is talking about an imminent second the way of recession does the i.m.f. share this pessimistic pessimistic negative mood and if yes when you least expect it ok well clearly the world economy has entered into a new and dangerous phase we adjusted down resort growth projections for the world economy only last month by about half a percent this year to four percent and also to four percent next year so we clearly do see that the situation is has deteriorated at the same time our baseline is as i said it's not it's not a downturn is not a recession it's a continued growth but it's a slower pace of growth having said that the risks that we do see in the euro zone the risk that we do see in the u.s. economy and so on clearly mean that the risks are now on the downside what is the

basic nature of this possible recession is it about the the something that would come your way to doing during leading the effort to overcome the recession in two thousand and eight but i think there are a number of things that happened more or less at the same time that hit fragile economy you had weaker growth in the u.s. you had into interest vacation of the eurozone difficult this you had you had the tragedy in japan and so on and so forth so there are a number of shocks to major economies in the world that have contributed to the slowdown in growth where would you say the situation you were as you mentioned the eurozone and the and the united states what would you say the situation is more is more vulnerable in the states or here in europe now well the situation of course is different in the europe in europe there is there is now problems in seoul and there are problems with banks. in the us probably the situation is more one of all slow

growth in the economy so slightly different different issues but obviously stemming from the same sources how much is russia's economy threatened by the new by the new possible wave wave of recession and how much should one how vulnerability is it russia clearly is is quite an unstable economy if you if you look at the developments over the last ten years say russia clearly stands out among peer countries in terms of the instability in terms of the variability in growth and this to a large extent stems from the fact that russia is vulnerable to what happens in the world economy it is well known bill in the sense that its exports are very concentrated on commodities and oil in particular and it is also wonderful because the capital flows in and out of russia are also affected by commodity prices so when the world economy is doing well the commodity prices go up capital also flows

into russia and you get it magnified effect and vice versa so clearly what we are seeing now as the world is going through a difficult phase of all it is seeing the spillover is through the russian economy as as we've done in the past so by the structure of the economy it's quite well built to lose what is happening what we've seen lately in the news is that moody's has downgraded degre russian making system from stable to negative is it is signed of a possible new credit crunch while credit has been recovering quite nicely since the crisis before the crisis credit was probably growing too fast in russia it was growing at forty fifty percent a year leading up to two thousand and eight. i don't think that should be the benchmark going ahead credit now is in the fifteen twenty percent growth rate that would be a good solid rate over time if that can be sustained the russian ruble has lost part of its value recently and it seems to be to be in the same route still so why. what are the reasons the major reasons that you see for this for this like

slow devaluation of. i think clearly as i said already russia is vulnerable to what happens in the world economy so that is the underlying reason when you compared what has happened in the financial markets in russia over the last few weeks month or so to that in other emerging markets what you see is that russia has not been hit that much harder in other words the sources of the recent volatility in the russian markets is very much driven by developments globally and not so much in russia does any have any. perspectives what do you think are the maybe the perspectives for the ruble in the short term while it will be continuing. to lose value well we don't make projections for exchange rates obviously i think i would answer your question by

referring to to the monetary policy of the central bank which is focusing more and more on the inflation which we think is the right the right thing to do inflation in russia has been very high compared to two countries that naturally would compare yourself with before the crisis russia was the only country that had double digit inflation within the g twenty group for instance and this has been because the largest because the authorities have tried to steer the exchange rate but you cannot state action straight and inflation at the same time this is a clear lesson now i think the central bank knows this very well it has a lot increased flexibility in the ruble and has been focusing more and more on inflation this is the right approach in terms of monetary policy we think and because low unstable inflation is important for investment and growth going forward so we think you will see more instability most likely because you will have more flexibility in the ruble exchange rate but that is the right policy and in addition

. allowing the central bank to focus more on inflation it also allows the action straight to act as a bit of a buffer when things change in the world economy you let the action instead move you will not be affected as much to mystically in russia you mentioned the high rates of inflation or should but this year so far the inflation has been what are called moderate not not very high. do you think that next year the russians will be able to to hold the inflation so that inflation away from two digit figures at least we certainly hope so we think that the central bank is moving in the right direction only a couple of weeks ago if it. published its monetary guidelines for the next two years it is a mean for inflation between four and five percent by the end of two thousand and fourteen we think this is doable and we think the central bank is heading in the right direction of course monetary policy cannot do it alone this has to be a broad policy approach and especially the budget deficit excluding oil revenue

needs to be brought down in support of this inflation target well what about the g.d.p. growth do you think it will continue growing next year in this country in russia we certainly project positive growth next year or latest projection for two thousand and eleven is four point three percent and in two thousand and twelve four point one percent now these projections were made one month ago and as we already discussed situation is changing quickly things are deteriorating so certainly the risks are on the downside also for those projections and most likely we will adjust our estimates down but what what are the russians saying i mean what we hear in the read in the press and the press is just me or just one side of the story but there is the other side story and you should know the other side the story said so what's the mood among the among the russian economists russian bankers russian power. yes

well i think in terms of expectations or growth projection is probably so average so i think we are not too far of the general mood i think what is what is striking in russia and i'm talking about the policy requirements in general the goals in general there is a very high degree of consensus on what needs to be done in terms of budget policy in terms of monetary policy and so on in order for russia to realize its growth potential and to become less dependent on oil to become a more diversified and stable economy and that's a shared view and as a shared sentiment i think and and clearly what the crisis what spillovers are showing us today is that this is important while this high level of consensus is good about for me well on the one hand it helps it helps one rule the country with the other and it it deprives the government our options does it now i think obviously we all are in favor of open debate and exploring options and so on. but

russia has had certain experiences that have crystallized i think some lessons over the years and i will of the mentioned some like monetary policy frameworks in russia have not been strong enough to be to stand inflationary pressures they have not been strong enough to to hold back on the spending of oil revenues so to have balanced economic development and so on so i think the experiences that russia has had real life practical experiences over the last one or even two decades clearly show the kinds of issues that needs to be grappled with if russia's going to realize its growth potential when russia started building capitalism twenty years ago we were a country that was ready to learn and if from the americans from the europeans well today it seems that we're more in the mood to give advice than to learn do you agree and don't you think that it's a bit early to start giving advice maybe. maybe the russian bankers she needs to do

what everybody kind of country but i think clearly if you look at what is happening in the world economy there is a very fundamental shift towards emerging markets including russia and this is a shift in in terms of relative economic weight and it's a shift that is also reflected gradually in the governance of international economic institutions such as the one i represent the international monetary fund very now a reform underway to increase the way to increase the vaults of emerging countries countries that are becoming more important such as russia so. odd that the head of the i.m.f. and russia. will be back shortly to great so stay with us we'll continue in no time.

wealthy british style. markets why not. find out what's really happening to the global economy with max culture there are no holds barred look at the global financial headlines kaiser report.

welcome back to spotlight our love and just one of them a guest on the show today is mr ard pair of black the head of the i.m.f. in russia we're talking about the situation in this country in. an hour under the conditions are very the world facing a new financial crisis or a recession at least which is which is obvious as we say well do you think that the russian government will not wish to keep balanced budget which they have always said as low under the circumstances when they are increasing the government spending is in the end we see that in the military is there for one right now this is obviously one of the key economic policy challenges facing russia at this point is to anchor a fiscal policy firmly and to make sure that it does not change too much in the

short run in the response to the oil price swings to that to that effect we have recommended that the government sets targets not for the overall deficit as you mention but for the deficit excluding oil revenue the underlying deficit what we refer to as the normal deficit and why is that this is because when you look at the oral deficit whether you achieve your target or not it will depend on the oil price so fiscal policy budget policy becomes an unstable factor in the economy what you want is to have it meter turn target very you use oil revenue over time in a way that is consistent with stable development of the economy and which leaves room enough room for private investment also to come in and drive the growth over time in a balanced manner so this is clearly a key challenge for russia like in all countries will you achieve this or not it's a matter of political will and i think this is what we see all around the world or analysis suggest that at a technical level it's quite doable to reduce the deficit in. an adequate way

currently the deficit is creating all revenue is about eleven percent of g.d.p. the government's own target which currently suspended is for four point seven percent which our research suggests is a good target we have looked at ways of moving towards to four point seven percent over the next few years to reach it by two thousand and fifteen and or analysis suggests that at a technical level this is quite doable but the issue is of course you need to address certain difficult political issues in order to accomplish this what industries are mostly exposed to to troubles during the recession well we don't really look at that indices and so we look at we look at the overall economy i think when when you look at russia clearly the energy sector itself is the first sort of entry point if you want of changes in prices and so on. the

second factor the second channel when when when there is what they tell it in the global economy that investors reduce their risk appetite and so on is the financial sector so it's the capital flows i think those broadly those are the main to entry pons points if you want of of any disturbances in the global economy well back in two thousand and eight two thousand and nine there was even a sane expression like a company or a business which is too big to fall and the government tried to help them out bail them out because because they were worried now should go as do that should they try to bail out these big business is all rather let the phone well it's not quite as easy as that obviously i mean i think in english they're also you want to do that it's not easy it's not easy to do it. in the sense that in russia obviously there are still as a legacy of the soviet so it economic system a number of cities that rely very much on the few enterprises suits. probably

leavening only so well it's in a way both because clearly when you have that kind of situation with them on the boards and so on it becomes a much more difficult social problem at the same time as it's an economic problem clearly a crisis in many countries have been opportunities to to change and to start the necessary restructuring of the economists and clearly their response to the crisis in russia was focused very much on avoiding too much change in the short run so probably a better approach had been to to find ways to respond to the crisis that would put you on the part of the restructuring you need again not to pretend that this is easy it has it has real social and political issues involved but if russia is going to realize its growth potential clearly this needs to be a restructuring of the economy and this has to be part of that process last russia

had enormous stability fund and. it's happened to be in many almost enough to save it in there and to help it to help it live through that through the hard times now there is russia still to have an adequate reserve fund or will it have to borrow money. well in the sense that the budget will be more or less balanced i think there's no immediate need to borrow under the current circumstances. but you're right to say that there is surf fun played a very important role in facilitating the response to the crisis when it happened in two thousand and three thousand and nine and it proved of course the vista of spend or the saving of reserves into that fund. i think today russia has less room if a crisis spread to hit russia has less room on the budget side to respond than it had in two thousand and eight because the reserve fund is small there. and of

course also the normal deficit as i mentioned. it is much larger partly because of the response to the crisis so there's less room on the budget side on the other hand there are some positive signs that will make you think that russia on the other hand are is better placed to respond one is that the rouble is more flexible as i mentioned already that you like this the shock absorber if there is a spillover from abroad second his international reserves have been built up again third is that banks and corporates seem to have repaired their balance sheets so they're less exposed to foreign exchange billeted than they were in two thousand and eight. so overall and of course i should say that. responding to the crisis in two thousand and nine the government showed that it and the central bank showed that they are able to manage a crisis they did a good job in responding to the crisis of putting this all together. we think that that russia will be able to manage an intensification of the international

volatility now having said that of course the fact that the russian economy did contract but almost eight percent in two thousand and nine again the largest in the g twenty is a reminder that there are some fundamental underlying problems that need to be there do you think investors will still be interested in bringing their money into the share a say in two thousand and twelve well i don't want to make projections year by year but i think the fundamental issue to keep in mind is that what will happen over the medium term will be a function of the economic policies that the new government will put in place and we have done some analysis on alternative policy scenarios we have studied the implications of a continuation of large fiscal deficits high inflation and saw in many ways in line with the current policy of plants. under these assumptions you will see the russian economy growing so slowly over time perhaps growth going down to three and

a half to four percent over the medium term and the economy remaining. under versified and vulnerable to two shocks in international community and capital markets if if you have more ambitious reduction in the reliance on oil in the budget more ambitious reduction in inflation you will get investment you will get more productivity and you will get higher growth and there's no reason why the russian economy could not grow by as much as six percent over the medium term but this is a matter of the policies that will be person well i know i am of doesn't like predictions but you do like to give recommendations well you mention these this analysis you made well based on this analysis what are your recommendations for the russian government when this autumn and maybe winter well. we have actually taken a look because this is now a political transition phase in russia we have taken a look at the medium term policy priorities i think the starting point is that we all agree on the objectives over time which is to have an economy that realized

this is growth potential and as we said reduces its reliance on the oil and commodities becomes more diversified and modern so we agree on the starting point. and we have looked at the policy priorities from that point of view but what needs to be done for areas one is that on the budget policy side you need to as i said already reduce the normal deficit reduce the reliance on oil and to firmly anchor this in the medium term framework second on the inflation of monetary policy you need to bring inflation down and create again at this low and stable level be think three to five percent is reasonable over the medium term and encouraging lead that's the way the central bank is aiming. third the financial system needs to be developed further so that russians can save in rubles and this saving can be channeled to productive investment so a stable financial system is key and finally and forth you need to improve the

business environment the investment environment the. excessive bureaucracy. the problems in the court system and of course accede to the w.t. told to the world trade organization you mentioned. trying to make russian save in rubles but the i.m.f. is very slow news planning to expand the number of currencies used to determine this special drawing rights is that right so could the russian ruble become one of those currencies this wouldn't inspire russians to say war right but i think in the broader question is not so much whether the ruble should be included in the s.t.r. basket of your question or not but more a question of could the ruble become a reserve currency or could moscow become an international financial center and we know that the government has set itself this as a goal and we think it's a good goal. if you look at countries that do have reserve currencies around the

world if you look at financial centers there are certain characteristics one is that the currency is convertible fully. and that is the case for the rule book another is that these countries have a track record of low and stable inflation macroeconomic stability here as a whole new dimension to is some way to go to for russia but obviously it's debate you want to go and thirdly these countries have developed financial systems sophisticated financial systems. many instruments would be right they'll be investment opportunities again of course russia has a right to go but it's the right way to go so we think this is a good plan and it's certainly something russia should be aiming for thank you thank you very much for being with us and just a reminder that my guest on the show mr that a bit at the head of the i.m.f. in russia and that's it for now from our spotlight with more from coming.

in and outside russia until then stay in our team and take a thank you thanks. as

russians pick for parliament who are the main contenders in the race for duma seats party leader still game you don't know was known as a strong supporter of bloody mir putin plus speaker of the federation council current campaign slogan for russia without swindlers and thieves priorities a welfare state free education and health care progressive tax fair russia is praised for calls to return to electing instead of appointing governors and senators criticized for almost populist sloganeering against the power structures he was part of abroad for opposing russia's accession to the w t a.