eight thirty am in moscow these iraqi had rights washington teams up with arab allies to pressure the syrian government into submission despite ongoing u.n. efforts to mediate a diplomatic solution a broad u.s. led coalition expected to provide more support to syrian rebels sunday. the u.s. also putting the squeeze on syria's ally iran pledging sanctions pledging to sanction countries that don't reduce imports of oil from the islamic state new measures come

into full force at the end of june. reliving the past starkey visits the only remaining soviet forced labor will agree log on and use the hour it counts of its former inmates converted to a museum and so if the side walk is of permanent historical might. next to no avail and guests talk business and economic show on the money coming. well. science technology innovation all the developments from around russia we've got the future covered. glowing welcome to on the money with the business of russia is business i'm peter lavelle being elected for

a third six year term as russian president vladimir putin returns to power in a very different country than only four years ago candidate who ran on a mostly populist platform can be elected politician deliver the goods and keep the economy growing as well as interest foreign investors. to discuss the economic and financial environment in russia if what i mean putin will face as he returns office i'm joined by. the chief economist at deutsche bank and given chicago he is the chief economist for russia and c.i.s. at renaissance capital we also have been heiress he is the editor in chief of business new europe as well as he is the chief strategist at oakridge but first let's have a look at how russia's new president may transform the country's economy. in four years time russia is expected to break into the ranks of the top five economies in the world with annual g.d.p. growth reaching up to seven percent however it's contingent on

a thriving and innovative business sector the demand putin who is set to return to the post of russia's president this may winning more than sixty three percent of the votes has vowed to make this vision of economic transformation areality the foundations of basic economic policy have their roots in the shop royson will or will prices that coincided with the demand putin's first presidential term however moves to stimulate private business and lessen the economy's dependence on commodities especially oil and gas became a challenge to intern thousand and four the current state of russian economy is the same as it used to be one year ago five years ago basically the garden is very dependent on oil. on commodities and their price. basically we don't see any significant developments in the transformation of the economy but words higher value added in the eight is since two thousand and four

those certain things have changed in the russian political landscape determination to implement reforms and reduce their budgets reliance on high oil prices is still there and did give it to overlook sectors of the economy can be developed and the economy diversified one negron threat to the country's fiscal. health commodity price volatility risk will be reduced greatly and such risks were clearly demonstrated in the wake of the two thousand and eight two thousand and nine local economic crisis as britain gave way to bed of as russian president russian industries primarily split between globally competitive commodity produces in two thousand and nine russia was the world's largest exporter of natural gas the second largest exporter of oil and the third largest exporter of steel in primary elim and other less competitive heavy industries that remains a pendant on the russian domestic market this reliance on commodity exports makes

russian ruble to boom and bust cycles that followed the highly volatile swings in global commodity prices on the back of shrinking gold demand for its prime money making exports is well the state credit markets the russian economy's growth prospects started to contract in two thousand and nine since then lending to russian banks and firms suspected cop and economic growth is back on the positive side but if you see from the point of view from cesar years g.d.p. declined or forty crossings contains presidencies of first world new g.d.p. you create forty percent to get you worried if you shoot a barrel or your balanced or positive you are bankruptcy maintaining that you know you are more positive cash quality was a good growth how about the country still face some folk turn challenges growth growth there was a prolonged recession in europe which could trigger a global slowdown and that could lead to another quality price bust if russia's

economy fails to reform the give it a six year term ahead of him and bulging state coffers thanks to a hundred and twenty five dollar or oil would have ample time to implement the reforms and they are going out on the line e r. ok gentlemen let's start hashing out the next six years in russia itself is going to be a walk in the park for the returning president because. it was look at it this way let's compare the last four years when putin was president and his next six what's the similarities what are the differences. yeah well clearly the biggest difference is the external environment i mean the last four years of putin's presidency centrally preceded the crisis in russia and were actually at times were quite favorable in terms of including the foreign investment poor inion to

usher in a major scale in two thousand and six two thousand and seven so that is probably one of the differences another one i think is that certainly the degree of political capital that putin used to have during his first two terms was very significant now it's still very significant but with lower and now the trend maybe not as one way and favorable all the time to putin so in this more difficult environment putin still has to have the courage to spend the political capital that he has to change the system because ultimately this system has to be changed even when you think about it i mean is it a walk in the park because you know we have a very different environment right now and we have to talk about politics as well on this program so what is the major challenge that has been explicitly to not be a walk in the park but i think that the single most important difference for me is

the incentives for now to divorce of certain forms versus the incentives if you might my care before that before the great recession before the great recession russia was a country that was running significant fiscal and kind of the consequence is this is changing right now and for needs from the most important not we can only consented for putin to deliver on some of that for us but it is to surprise us at all if the into the expectations which i think we all agree are not very high for ok can i go to you are we going to be pleasantly surprised over the next six years remains to be seen i mean this reminds me a lot of two thousand when putin first came in and funny enough we were back at the same. in position where we we really have no idea which way it's going to go and there's a lot of talk about reform and you know the political situation he's been quite quite tough with the opposition his and commentators looking at it i'm not sure having said that the strategy that they're throwing out the twenty twenty strategy has all the right things and it's i mean i think the key here is in the first

period of growth sort of finished with the crisis in two thousand and eight it was simply a question of state spending and that produced growth automatically catch up phase and russia's economy has matured to the point where that doesn't work where the state spending is actually detrimental the old model is broken and has to be replaced with a model where the state steps back and nurtures private business so that's a complete change in mentality mindset completely changed the system and we're waiting to see them deliver on that it's ok tom you know we've heard a lot about reform over the last twelve years ok is it incumbent upon the next administration to really follow through on a lot of those promises because i'm looking at corruption making it easier for businesses to get started more for our foreign investment friendly i mean is it incumbent upon an incoming president to be really serious about that now. well i think the mind's. changed rather putin mindset in two thousand and four

was very much that this is a demonstration which going from growth through state spending and about building up foreign exchanges are fun brushwood isolate itself from fluctuations in global commodity markets and i think what's changed quite markedly is that understood that that's no longer case and that for this is a government needs to do much more to encourage investment from abroad and in doing so to diversify the economy in which the reliance on the export of its resources and in that context you know i am quite encouraged by some of the rash that has come out of the putin administration either as a prime minister and its future president which should do something to encourage investment and i've been a number of policies which have been proposed to help that i mean the most notable has been transparent and set of companies and proving the relationship between free cash flow and dividend payments among state run companies i think that's a very positive step and i think you'll see you look at the financial services

framework in russia driven by the my side so that's yes merger that's something also that can help to drive investment and to catch more foreigners involved in rushing out to markets and i should be specially absolutes that however i would be slightly questioning i've rather not this government is serious about a real political opposition there's been some moves and we know them well suits who allow regional governors to be elected for example to lower the threshold to get into the duma and i think we need to wait a little bit longer because i'm still not so sure that this is an administration that wants to see a real debate. courtesan within the duma i think that some of the foreign investment community is looking at might be disappointed yourself and go you know i think the new administration is actually interested in debate because they actually reacted to the protests of december and right before the presidential election and i think they get it now ok and i think it's also important. when i drove your resume it put it actually does what he said is very very often ok he does have a core group of people he has to keep them happy he is

a politician after all he also has to attract foreign investment how does he balance yeah in my view clearly one of the barriers for putin to actively pursue the economic agenda was the electoral cycle and clearly this was something that put off some of the difficult decisions by a certain period of time and we'll probably have to wait for real more tangible reforms to happen for another probably two to three months at least and then of course another issue is significant state spending budget spending electoral promises that in the medium term do create. do create some problems that will necessitate additional sources of financing but in the end i think yes he does get it and while he may have accumulated some political capital through this additional spending in the end russia still has

a very strong sovereign balance sheet one of the lowest levels in the world and that does allow and i think to pursue quite active quite aggressive economic reform agenda that i think given some of the challengers in the medium term including in the first will feel will have to squarely focus on the efficiency of state spending and the efficiency of the whole apparatus so anti-corruption measures and that will guard will be absolutely crucial ok gentlemen we're going to go to a short break and after that break we'll continue our discussion on the new economic policy of russian sphere with r.t. .

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we want to present. something up. to. welcome back on the money on people about ok let's continue our discussion on the financial environment in this country after the presidential election ok ben you write before we want to break you want to jump in there we're talking about political reform and putin's agenda go right ahead yeah i think we're seeing skirting around an issue here at the core of what's going to happen next and that is this person actually believes in actually wants a free market a liberal open economy you know always he just going to carry on spending and have a talk or see it as a scene from the outside do you have an answer to that the idea that i'd like to go ahead. they do in so much as i think of the ninety eight crisis there was a never again moment how can we avoid that and the answer to that was the bill that was of it and then going into the two thousand and eight crisis they thought they

had plenty of money enough to weather a crisis i mean russia had six hundred billion dollars in hand and then suddenly by february of the year for two thousand and nine they realized that that wasn't enough money and that you couldn't have a cash that would save you an isolated she was tom said from the global economy and so this time around they realize now that a fundamental level they have to do it they have to do the reforms and build an open economy because there's no alternative if you go run the country and provide for people into a time no alternative i like that i like to kind of talk from them what do you think but i think there's. certainly been a growing awareness of the of the economic necessity for foreman because one way to do that is to provide investors with a low stable it's hard on the capital the bad virus and i think that's something that this administration over the years up to now have got really really wrong particularly by messing around with tariffs and tired very tired changes by

taxation in the oil gas sector by issues surrounding corruption by targeting specific industries and businesses but seeming randomness now that's something that they are absolutely have to tackle otherwise they'd be very few people who want to bring their money into russia but the very encouraging sort of area has been that the government seems to want to address this and. mentioned corruption they they seem to want to handle corruption we've talked i mentioned earlier this issue about dividends getting state owned companies to actually provide a returns for investors to make companies more efficient to make projects planning more efficient suddenly the rhetoric right now is very positive and i think it's tough and we know we will have to wait a little bit before we see any real changes but this issue about spending. political capital is very very important i think putin recognizes that he has a relatively short window post-election to make syria strange as we saw that in two thousand and five and the monetization of social benefits which is very unpopular

he has a window now he can spend his political capital and he can push through what should be some quite unpopular reforms and i think that could be very very positive for investors ok well when you think about that i tend to agree that i mean we have a window of opportunity right here capital was there irrespective of western mainstream media says putin is still very popular in this country did win the election year but there's a lot of high expectations right now and we saw again i don't want to forget about the protests that we saw in december a lot of high expectations all around sure i think that the euro the number of important speeches over the last couple of months three of them were on the economy i think it was one that was particularly important one and it was deliberate and pointed to that of december i think it got lost a little bit in the christmas spirit but in that particular speech which was talking about increasing the investments in diseconomies and i think sixteen really positive because for example if you take russia against the list of the big economies there is a very favorable demographic they now mix so the only way for us should offsets you

some favorable demographic that is to invest more but we have a higher rate of capital accumulation then the rest of the greek economy sours personally very encouraged that this message about her investment was delivered from such a high level for the very first time to something here because if you're going to start arguing i mean it's a very you know capital invest invest in the economy investing in people what about those slippery fingers that are always you know in the till and he keeps going back to corruption here ok it seems to me that's the make the make or break issue it is i completely agree it is the decisive moment in terms of tackling this issue it cannot be postponed further and actually one of the constraints on this system working as a did before going forward one of the major constraints of capital flight. the fact that we had eighty four billion dollars worth of net outflows during a period of high oil prices is clearly a constraint on the whole system continuing to churn as

a good before so i think that kind of an economic factor in the continuation of these capital flows since two thousand and ten is something that will force greater changes that need these changes really necessary and i think you know the improvement in the investment climate generally but especially tackling corruption tackling not just the macro level policies where russia has been quite good at in the past ten years but really the micro level of companies and really improving corporate governance that is the key issue right now this year ok tom it looks like you've read my article in the national interest i said it over the last there twelve years that we have the ruling political who's got the extensive growth under control now it's the intensive growth in it exactly what we just heard here are they up to it and they have to be to the market and tackling these very hard hard deep rooted issues. well i mean i've long argued that one of the issues in russia

is there is no federal body which oversees issues of corruption and that's a big problem it's a big problem in any country i think look into positive steps that we made recently tackling this one is that russia is not a party to the o.e.c.d. bribery convention which allows external oversight to make sure russia it is to certain parameters and the second is this creation of financial crimes unit units under under similar problems doesn't cause it's not enough in itself but he's you know he's come out already quite aggressively in a couple of months that this part of this organization has been running mentioned capital flight it's me looking more deeply into the source of the problem right and i think that is quite encouraging i think great they plan to get it they get the importance of climb down on corruption but it's a major major systemic problems existed in russia for countless centuries whether they can do this and needed me you know that's a very very difficult thing but i think they need to give investors more confidence they're serious about it and they're serious about companies getting the books and

all of them. were talking a lot about corruption and it seems to me that this issue is a little bit blown out of proportion and usually people look at the prospectus and congressional headline in the extreme ranks russia hundred fifty four out of hundred seventy eight country gets even more exciting than that because russia is a tree sandwiched between pup when you give me bank with a problem with that it's a personal exemption perception mix and disparate sectioning this could be influenced maybe get coverage of this country for example if you go to a conspiracy international also goes to individual countries and ask people and people themselves have you or a member of your family experienced corruption in the last year or so about twenty percent of russians is say yes this is not something to be proud of but i think given the level of income this is not out of proportion with the rest of the world so i think this is something that some people who i finally usually forget my most western countries have institutionalized corruption but that's a different topic going to go back to what. well if we were looking for one single

driver to do to enhance grow the economy what would you are you looking at it from a policy perspective from a policy perspective i would say investment wealth fixed investment wealth and infrastructure development as the driving force for that so we've seen episodes during push in second term when investment was the main driver of economic growth when it was driving significant product of early growth this is really i think in terms of all fathomable economic models for russia this is the driver that will take it to higher level in terms of the trajectory of russia's will so in order for investment to to improve significantly you clearly need those capital outflows to cease to be reversed and you need more of the i in order for of the i to come you probably also need better investment climate including for portfolio investment because previously the previous paradigm was we don't need portfolio investment we

need only of the year as a result we didn't get a lot of of the as well so this this kind of change this focus on improving the investment climate especially at the micro level i think is going to be critical for investment becoming the means like when you think about that then is that the right driver that you'd be looking at i think is the key is getting people confidence about coming here and in that sense it's really. a public fight against corruption would do a lot for us as image and reassure people many investors who don't even look at russia i mean people are worried about fitz and those kind of people don't even start to think about coming here because the image is so poor and making a dent in the corruption publicly i think would actually have a knock on effects i mean the things that the us that was talking about if the person would follow on from there naturally i should say i'm talking to transparency international serves them in the head of the office here. she's

actually very upbeat in so much as she thinks the kremlin's that the cat out of the bag with the public discussion of corruption and they have to do something about it i mean it's become public there's no going back on that and we're seeing the beginnings of some institutionalized. it's true size nation of anti corruption in the form of you know the utility companies now are not allowed to do contracts with kind of parties where they don't know who beneficial owner is and stuff like that that we need to see more of the time when what are you what's the driver you're looking at what's the driver that putin should be giving you the most attention to over the next six years or maybe the first six months of his presidency. well might see a drive on full time liberalization simply for the master class crisis and i think that's something that could help to reduce our subsidies that the government pays to to the consumer and in doing so would reduce the budgets reliance on your price that could have a knock on effects of reducing some of the volatility in the acting market and one

of the big issues for investors is that we actually market is a very hard to beat at play on your price very very good stuff. i'd also like to see more progress on pension fund reform i'd like to see a more natural buyer of russian actions which is more which is locally based i'm currently on the sudden sense of russian pension fund money is invested in the actual market and that's clearly that's clearly not enough i get i think no more balance that i think the government is gets this missing some very positive steps but we'll have to wait and see but there's the fact is that our senior person but if you do who do you want to see as prime minister you describe the person i think the name you give me the most difficult question. i think that somebody that i think it's important first person to work in units we could see obviously because this is something that will help the country go in the same in the same direction in terms of names i would like to lead to mention any names but again we need

a unique solution maybe the next area will discuss names i want to thank my guests today for joining me here on the program and thanks to our viewers for watching on the money see you next time and stay argue.

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good. more news today violence is once again flared up. these are the images the world has been seeing from the streets of chatter that. china operations are all day.