can you live from the russian capital with you twenty four hours a day top stories now this serious as all attempts to else the regime of failed the opposition still seems to be waiting for foreign aid the us led friends of syria meeting for a second time aimed to pile pressure on president assad. beijing level's criticism of washington over it sanctions against countries that keep lying or oil from iran the u.s. wants to start to iran of income an attempt to make it abandon its nuclear program

. and ukrainian land will shoot for profits ahead of football's european championships with hotel and flap prices soaring is feared some fans might be forced to kick their trip into touch. when next is promised big bucks and endless business opportunities pretty lavelle and the best financial minds test the water for russia's economic future. well thanks so much technology innovation all the list of elements around russia we've got the future covered. to. lead glowing welcome to on the money with the business of russia is business i'm here all about

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 but where are they mostly populist platform can be elected politician deliver the goods and keep the economy growing as well as the interest of foreign investors. to discuss the economic and financial environment in russia but what i mean putin will face as he turns office i'm joined by it is likely to vote he is 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 come monday he is the chief strategist and a critic 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 but annual g.d.p.

growth reaching up to seven percent however that's contingent on the thriving and innovative business sector that's emerged in who is set to return to the post of russia's president this may winning more than sixty three percent of the votes has valves to make this vision of economic transformation areality the foundations of this economic policy have their roots in the shop royson will try. he says that coincided with the dimmer 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 in two thousand and four the current state of russian economy is the same as it used to be one year ago five years ago basically economies 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

certain things have changed in the russian political landscape determination to implement reforms and reduce the budgets reliance on high oil prices is still there and if you go to overlooked sectors of the economy can be developed and the economy diversified one making threats to the country's fiscal health commodity price all the tilted risk will be reduced greatly and such risks were clearly demonstrated in the wake of the two thousand and eight two thousand and nine lobel economic crisis is 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 ilin them and other less competitive heavy industries that remain dependent on the russian domestic market this reliance

on commodity exports makes russia the ruble to boom and bust cycles that followed the highly volatile swings in global commodity prices on the back of shrinking world demand for its prime moneymaking exploits as well as state and global credit markets the russian economy's growth prospects started to contract in two thousand and nine since then lending to russian banks and firms. picked up and economic growth is back on the positive side if you see from the point of view. g.d.p. decrease or forty per cent. presidencies are first when you reach forty percent ok you were. no your balanced or positive you're bankruptcy ninety. degrees a good however the country still face some short term challenges most notable is a prolonged recession which could trigger

a global slowdown and that could lead to another commodity price pressures economists say. but given the six. hundred and twenty five dollars oil. ample time to implement the reforms and on the money. 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. this way let's compare the last four years when putin was president and his next six what's the similarities one of the differences. yeah well clearly the biggest difference is the external environment i mean the last four years of the presidency centrally preceded the crisis in russia and were actually times were quite favorable in terms of including a foreign investment poor into russia on

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 lower and now the trend maybe not as a 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 in this program so what is the major challenge the point has next and certainly to not be a walk in the park but i think that the single most important difference for me is

the incentives to put in might here for now to deliverance of certain forms versus the incentives that you might might have had before the before the great recession before the great recession russia was a country that was having significant fiscal and current income surpluses and this is changing right now and for me despite the most important economic incentive for putin to deliver on some of that force or at least to surprise us at all if 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 funnily enough we were back in the so. 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 but then you know the political situation and he's been quite quite tough with the opposition and commentators looking at it i'm not sure having said that though the strategy that they're drawing up with 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 that sort of finished with the crisis in two thousand and eight it was simply a question of state spending and that produced growth what's the magic shop face and russia's economy has matured to the point where that doesn't work with 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 it's a complete change in mentality mindset and complete change 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 the incoming president to be really serious about that now. well i think the mindset has definitely changed rather putin mindset in two thousand and

four is very much that this is an illustration which it from growth through state spending and about building up foreign exchange reserve fund russian isolate itself from fluctuations in global commodity markets and i think what's changed quite markedly is that understood that that's no longer the case and that for this is a government needs to do much more to encourage investment from abroad and in doing so since i first find the economy and reduce the reliance on the export of of its resources and in that context you know i am quite encouraged by some of the rhetoric that has come out of the putin administration either as a prime minister and future president which should do something to encourage investment and there have been a number of policies which have been proposed to help that i mean the most notable has been transparent and stable companies and improving the relationship between free cash flow and diligent payments among state run companies i think that's a great positive step and i think you'll see you look at the financial services

framework in russia secure and by the mice that yes merger that's something also that can help to drive inward investment and to catch more foreigners involved in russian acting markets and that should be special that's not a good stat however i would be slightly questioning i'd rather not this government is serious about a real political liberalization that's been son moves and we know them well suits who allow regional governors to be elected for example lower the threshold scans the duma but 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. pluralism within the duma i think that suddenly the foreign investment community is looking at might be disappointed it is not angry 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. one out of our viewers is that they put in actually does what he says 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. creates. problems that will necessitate that this will 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 with fear we'll 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 russia stay pretty.

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

reserve fund 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 two thousand and nine they realized that that wasn't enough money and that you couldn't have the cash that would save you and isolate you as tom said from the global economy and so this time around they realize now at a fundamental level that 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 the people one term ok tom no alternative i like that i like that kind of talk from them what do you think but i think there's there's certainly been a growing awareness of the economic necessity for reform and because one way to do you got is to provide investors with a long term stable return on the capital but then vast and i think that's something that this administration over the years up to now have got really really wrong to keep my messing around with tariffs tired very tired changes by taxation in your

gas sector by issues surrounding corruption by targeting specific industries and businesses with 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 part of the very encouraging sort of area has been that the government seems to want to address this and. mentioned corruption they seem to want to get a handle on corruption you've talked so it mentioned earlier this issue about dividends getting state run companies trying to provide a response for investors to make companies more efficient make budgets planning more efficient suddenly the rhetoric right now is very positive and i think it's tough and we you 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 serious changes 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 this political capital and he can push through what should be some quite unpopular reforms and i think that could be very very close to for investors look at what you think about that i tend to agree that i mean we have a window of opportunity right here capital is there irrespective what western mainstream media says putin is still very popular in this country good when the election year but there's a lot of high expectations right now and we saw again i don't want to get about the protests that we saw in december a lot of high expectations all around sure i think that we can do at a 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 it was deliberate on twentieth of december i think it got lost a little bit in the christmas spirit within that particular speech which was talking about increasing the investment in this economy and i think sixteen really positive because for example if you take russia against the rest of the big economies there is very favorable demographic they now mix so the only way for the

offsets. demographic dynamics east to invest more or to cave at the rate of capital accumulation then the rest of the bric economies i was personally very encouraged that this message about her investment was delivered from such a high level for the very first time to something that here we didn't really get it's not likely i mean it's a very you know couple of years invested in the economy investing in people what about those slippery fingers are always you know in the till and he keeps going back to corruption here ok it seems to me that's the make make or break issue it is 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 the before going forward one of the major constraints is capital. 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 outflows 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 that lean corruption tackling not just the macro level policies what 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 term it looks like you read my article in the national interest as i sit over the last twelve years that the ruling political has got the extensive growth under control now it's the intensive growth in the that's exactly what we just heard here are they up to it are they up to the 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 image overseas issues of corruption and that's a big problem is a big problem in any country i think have been through positive steps that we made recently tackling this one is that russia is not a party to the o.e.c.d. unsee bribery convention which allows external oversight to make sure russia edges to certain parameters and the second is the creation of a financial crimes unit you know it's under. arms as of course 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 that this organization is being run in mentioning capital flight it's been looking more deeply into the sources of capital flight and i think that is quite encouraging i think great great trying to get it back at the importance of tracking down and corruption but it's a major major systemic problems existed in russia for countless centuries whether they can deal with this immediately 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 a books in order. and what about corruption and it seems to me that this issue is a little bit blown out of proportion usually people look at the transparency international headline in the extra each ranks russia hundred fifty four out of hundred seventy eight countries it gets even more exciting than that because russia is a tree sandwiched between papua new guinea and did you start with a problem with that it's a but so exception perception makes and disparate sectioning as could being full of great media 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 not a member of your family experienced corruption the last year or so while trying to present a russian says say yes this is not something to be proud of but i think that given the level of income this is not out of proportion with the rest of the world so i think this is something that sometimes who i finally usually forget i most western countries have institutionalized corruption but that's

a different topic it is legal back to you what. well if we were looking for one single driver to do to enhance grow the economy what would you would be looking at from a policy perspective from a policy perspective i would say investment growth fixed investment growth and infrastructure development as the driving force for that so we've seen episodes during which in second term when investment was the main driver of economic growth when it was driving significant productivity growth this is really i think in terms of all fathomable economic models for russia this is the driver that will take it to a higher level in terms of the trajectory of russia's will so in order for investment to improve significantly you clearly need those capital outflows to cease to be reversed and you need more of the i in order for f.b.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 i as a result we didn't get a lot 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 coming to what we think about durban is not the right driver that you'd be looking at i think it's 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 that we've got a lot of investors who don't even look at russia i mean people who were fits and those kind of people they 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 i was talking about and portfolio investment would follow on from there naturally and i should say i'm talking to

transparency international most of them in the head of the office here. she's actually very upbeat in so much as she thinks the kremlin's that came 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 two sides ation 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 the beneficial owner is and stuff like that that we need to see more of comedy but what about 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 i'd like to see a dr on the fold reservation ticket for the mustard gas prices and i think that is something that could help reduce out the subsidies that the government pays to to the consumer and doing so would reduce the budget's reliance on your price that could have

a knock on effect that's 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 a player 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 seven cents of of russian pension fund money is invested in the actual market and that's clearly that's clearly not enough again i think back to your bad side i think the government is in get gets this right we're seeing some very positive steps but you have to wait and see but those are the factors that are quite senior put in place if you're given who do you want to see as prime minister you describe a person i think the name you give me the most difficult question but. i think that somebody that i did support the first person to work in unity with obviously because this is something that will help the country go in the same in the same

direction in terms of lives i would like to make to mention any names but again we need a uniquely when we. 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 hard. to.

something to view what is happening on the streets now is the eve of after quite a few very wild fights of the power however i totally disagree i don't even think the party began. we are still waiting for the actual resolution to happen.