his office claims a network of gay spies was set up to seduce certain politicians in order to surveil them and blackmail them the gay spies would tempt men in the government into going back to their apartments which were filled with hidden cameras and microphones to record information and create a not safe for work video to be used to put pressure on these officials this is truly one of the most unique and kind of gross weapons of political intrigue i've ever heard of i mean how many men in georgia politics could possibly fall into the spy trap you know if he actually did implement this scheme and it actually worked than machiavelli and von bismarck could have a thing or two to learn from president saakashvili but that's just my opinion.

if you're away from. the business of russia business. the country is open for business indeed russia's economy is growing in the envy of many but what about energy is there a story beyond oil exports. to discuss russia's economy i'm joined by martin quinn he's managing partner at frontier. editor in chief of business new europe and. fletcher head of global asset allocation renaissance asset managers all right gentlemen let's start

out with your marker my favorite segment here i want an up or down long short however you want to describe it the following topics oil prices stay roughly where they are israel doesn't have a mandate. around. for oil prices happening in. the middle east conflict. decreased. china. china soft landing seems to have happened. growth still seven percent or so i don't complain that some some percent some in the lower forms and restructured to do this various bones in them which they need to do is but again in the short term they seem to be tackling all those problems bullish. trying to growth accelerating my future and doing really well courses reforms but it's on the what's

on the way here is old. still tons of issues to work through kicking the can down the road kicking the can down the road as in other two years i think and so we come back to the crisis we have to do with what we should have dealt with last year and i think the worst the world's going to pull yours on a problem slightly slightly better so political stability in the european union. i think cameron forgot what representative democracy is all about. it doesn't change this is compromise if the compromise don't take radical actions so that's stable to the nature of the european union and i think nothing can so i think you see in increasing social unrest i think six million unemployed in spain is no good i think they start to potentially unravel there are serious issues that need to be addressed ok other serious issues fiscal cliff in the us. been kicked down the road going to see another fight at the end of march and. no decisive. and this

deals and so is death by a thousand cuts but the void a crash simon completely agree to crush will be avoided kicked down the road fiscal spending mentioned now i think how do we address that more than fiscal ok japan. neutral in japan no you know. i mean they're still grappling with the issues that been grappling of the last two decades and have to continue to grapple with the grappling i've got to me i think the grappling might be might be slightly over i think the two percent inflation target obviously i'm not inflation since that level since the ninety's but you know i stimulate and i think that. be. positive ok it's closer to home political stability in russia as long as putin stays healthy find. the opposition is fragmented and lost. and unless they unite which seems very unlikely things would just stay pretty much as they are absolutely agree i mean the

fragmentation it's horrendous to watch ok and then as already mentioned here. yeah . i mean in the in the latest israeli elections bibi just doesn't have a mandate to go tough on them i think it's going to stay quiet in the near term. i think it's one of those and he could run out of control but really i think it's impossible to say which i think this year yeah i think they're probably hoping it'll be a rising from within sanctions will hopefully by too little harder but you know that's been missed calculating around for a long time last one gentleman global growth the biggest macro we can get them in and look we're just we're just hoping to stay on the plus side plus through. the i.m.f. downgraded for the world but i think that's not the global figure should look at is reason the figures and then we'll see the emerging markets moving and it's absolutely agree i mean i'm after i'm great to about three point two i mean that's still robust growth ok i think overall it was optimistic here before we continue

our discussion let's take a look at some predictions made by pricewaterhouse coopers. east seven this is a way experts now speak about the emerging economies and even though today the synonym is developing economies they're rising quickly and of a grossly shape in the global economy the recent report by pricewaterhouse coopers the woden twenty fifty is still in the other example of the inevitable royce of this new players it would into their report well witnessed in paradigm shift a crucial change in the global economic order the emerge. economies are focused to push the u.s. japan germany the u.k. france italy and canada down delete the will is early as twenty seventeen the collective g.d.p. grew over take that of the crises to jus seven and that would be the crucial year for the east south and china might leave the u.s.

behind of the world's largest economy so by twenty fifty china the u.s. and india would be largest economies and by a long shot at the same time mexico and indonesia could belong to then u.k. and france respectively and turkey is larger than it really russia could overtake germany well before twenty twenty becoming the largest economy in europe so russia brazil china indonesia mexico and turkey are the most promising in these times of significant changes that are traditional on the money artsy. ok those were some very interesting predictions but let's bring it closer to home and i started out the program with double spend. the prime minister dmitri medvedev is trying to sell the investment case for russia how good of a job is he doing i thought he did a pretty poor job and i mean the point of this crime is taking the show on the road

and they want to invest they need investment in a way that they haven't done before and it was pitch wrong i mean the picture the wrong way say it the wrong way he was very convincing i mean russia has all these legacy image problems and investors need a lot of convincing and they really need to take it out there and say you know it's going to be different this time you know we've made a lot of changes but reforms in increasing transparency. and really he just came off with the same old story is always you know we have a big market and we go to war materials and you should come and invest in what you're saying when i got here he's not selling the investment case very well yeah i think i think the government's the wrong salesman i think what what international investors would like to see is government get out of the way of bet i'd like to see successful russian entrepreneurs who built real businesses in russia in the last fifteen twenty years. be out front doing the sales pitch i'd like to say. from

mike meet there instead of instead of medvedev he's a lot more credible some is very interesting point yeah absolutely i mean one of the things he said is that you know it was the straw poll. needs to do an eighty percent of the audience said you know tackle corruption where is he to run and said actually we just need to make a state companies more efficient i actually think that the fundamental thing he's. backtracking from the state i know we've got the asset sales to show but then he speaks celebrated you know some very successful companies in russia that their leaders need to be up front and pushing the message forward not and i think you should have gone to davos and represented russia because you explain the russia case very straightforward. really you are very open to talking about the problems in the mistakes that have been made in the past and what needs to be done i mean if you could look at the single most important message that russia could send to davos what would that be or russia's huge potential but we're at a key points in the development in the early stages of transition the state should be pushing business and investing because it's the only one with the resources but

we've reached a point now where high oil prices make no difference to growth and the game is change the state needs to step back and give it give the head to the private sector and that's more about nurturing the economy rather than pushing it. seems with madrid strips devils they haven't quite got that message and that's the problem nevertheless you see foreign investors particularly coming in in their droves because they're making very good money particularly in contrast with what's going on in western europe and that's the story they should be taking in as you know what we're talking about what the equity investors are looking at but the government's message and this was the wrong one in that sense but there is a reform agenda going on right now i mean i think ben last time you were on the program i mean russia is good they take one and they really work it and then they go to the next one in the next one it's a slow process but they do clean things up one after another is being done fast enough. look i mean everything in russia it's always two steps forward one step

back. the reforms i've been most impressed with the last two or so years the financial markets infrastructure i think they've done a great job pushing through you know the merger of the two exchanges creating a central depositary for the first time which is you know like like w t o ascension something that has been talked about for fifteen twenty years and finally has gotten done they probably haven't gotten quite the credit they deserve on the financial why do you think the reason is because it doesn't hit the average consumer and the average russian doesn't understand that or is it you know i think i think it's a combination of. probably probably the domestic front. market is so skeptical about their own about their own market. they just there's just. a. real seabed of skepticism there and i always add skepticism because this is russia people are always skeptical about everything all the time i mean

absolutely i mean i agree very much quinn i think one of the major things that they have done i mean the movement of the exchange profit but they've gone back home pension reform i mean one of the fundamental things that the russian market needs is long term capital and the proposals with the pension reform are to extract huge huge amounts of capital the pension assets that will come back into the market it's just wrong but stepping back a little bit i mean i agree entirely with quinn i mean all the reforms that happened here have been in the financial sector in so much as the effective reforms and they're they've made enormous progress but what's missing is the other side of the equation the industrial stuff the manufacturing and they've made very little progress i mean the twenty two robots ok ben hold out thought we're going to return to that after our short break and after our show break we will continue our discussion on russia's economy stay arty.

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feel. welcome back to on the money i remind you we're discussing russia's economy before we went to the break you were talking about the other side of the equation go ahead finish out yeah the government is lost form program and sort of the graft plan to the reforms they had in two thousand and twenty two road maps which are touching on all these problem areas and things to do with construction permits and taxes ministration and you know the real nitty gritty of the stuff that they need to do. you could say in a way that we're actually now at a second phase in russia's developments in a very much started with persons. no gration may and they have this new plan and they're beginning to to work it out of these twenty two plans and the seven have

actually been in orange and this is the crucial year where we get to see how effective they are going to be because the plan is to roll these ideas and make them work and you know the first couple of months they did six months last year you know they had customs reforms the customs service just ignored it entirely so they're going to have to knock heads together and try and make the you know the changes that they want to make it's going to be long slow going it's going to be listening to events and you know russia isn't a monolithic place that everybody in western media thinks it is yeah you know absolutely i mean you know anybody who lives here knows that the changes you see you know in one year and rush hour are you know similar to the changes you see and you know ten fifteen years and a western european or north american economy ok i mean look it's not all gloom you know i mean i think we're in the past we're talking about the changes it's better bank and russian railways' well that's much change there is a plan and they're trying to do something about i mean that's the key element the

thing is we need to see the plan move forward in the plan we've put the prime many times and now it's you know. you know you know gratian last may let's see some concrete action affects the multitude of people who live here not just the minority let's change gears here because again there's the debate about oil prices in the russian government's budget here what's changed this time around we talked about a little bit earlier they've introduced from the see if it's cool before they used to guess what the price was going to be next year and then you'd have their fingers crossed yes and they usually guess below what they thought it was going to be and then leave themselves a chunk of money which they could spend discretion what's changed now is a bit more sort of planning and so much is going to take the average of the previous five years so the good times this is accumulated to the reserve fund and in bad times you can draw on that and the idea is to smooth out the revenues so you can actually plan long and do things like in structure investment so. in that sense the being and they've always been very on the fiscal side very prudent even tight

a lot of people are going to say as well i mean i got burned very badly in the one nine hundred ninety s. i was there and then during the ninety eight crash and then we had the great financial contraction of two thousand and two thousand and nine then when the russians have been pretty fanatical about having money in the bank on a rainy day yeah absolutely and you know i think one of the interesting debates that's just emerged sort of in the last week. in an interview with bloomberg is the fight now it's becoming increasingly public between the government and the central bank over rates possible with on on russian television yesterday you know basically screaming we've got to cut rates we need growth rates now right now eight percent it's only nine percent eight point two five and with inflation at six percent that's what's really really interest rates whereas in western europe and the u.s. obviously is negative interest rates so i thought the argument was between liberals and conservatives or you guys are telling me the argument made that the battlefield is different i think there are many battlefields i think i think the interest rate

is woman's going to grow i mean really really really interest rates is stifling business it is something that you know it's not just the huge multinationals but there are small businesses down the street and if you're buying a house in the movie traits here all four substantially higher than they are of anyone well you know a lot about that he has exactly but you know we had been better of saying trying to convince people that this economy isn't over determined by oil prices and oil exports i mean how is that being dealt with because he was saying that take a look at food exports look at technology and things like this this is also driving the economy and consumption you divide it up i mean oil accounts for about fourteen percent of g.d.p. whereas retail accounts for over fifty so in that sense please repeat that because you know you don't come across that retail is so much more important it's far as g.d.p. right you know manufacturing wealth in the country be. government revenues i mean oil and gas accounts for around forty percent i mean they're still very heavily

dependent however you know slowly slowly the rest of the economy the real economy is developing and it's moving west or away. from from the dependence on oil and gas but it's still very significant i mean it will prices beautiful to tend to us tomorrow there would be chaos and the game is always been to try and move it away but it's not like it was you know ten years ago where all the governments money came from oil and gas but that's that's the issue facing us is what we're talking about with these reforms is what to do about the rest and the trouble is the ruble is relatively high because of this oil and gas and so they can't really exports anything because it's too expensive. yeah no i mean i pull the agreement band i think. i think it's it's a catch twenty two for the policymakers to some degree but that's why they're focusing on high tech i mean that's the one area where they can produce products where they can compete internationally but things like cars or you know basic things like containers steel products they can compete against the chinese for

example because the labor cost is interesting i mean when i was growing up you know very small child i can remember my parents and their friends were joke about all this was made in japan it's junk ok and then about fifteen years later always made in china it must be just junk and now we don't say that about china anymore and we certainly don't say that about japan russia doesn't make a lot of things that people want but it exports i mean is high tech a possibility and real possibility skeptical in contrast to ben i think i don't think governments innovate technology particularly well they can only can be an incubator i think there's an argument to incubate it but that's now by offering incentives for silicon valley companies to move him to take advantage of the very highly skilled people there are and i think that the incubation argument needs he needs an industry around it needs. so it needs local russian companies to of evolved themselves that will feed off the incubates and i don't think that exists

so the high tech on i don't exist i mean the greatest hackers in the world come from russia apparently mcgarty in a few other places i just i can't see it really taking off i think for food i think i mean the. world's largest geographic landmass i just it's called black i mean there's significant possibility and food investment is going to be a theme that's going to play out in five ten years time and russia that is if we had john rogers on the program and he thinks that the future for exports as you know it's a one way back to some and i think russia's best. for investment going forward is agriculture and i'm also skeptical about the ability to capitalize they have enormous intellectual capital here i mean remains the best educated country in europe i think. but capitalizing on that is going to be very difficult and. because the governments in the way or just not the way you do things i mean explain well what they've done is they've it's up to the same more of the same plan that israel introduced about twenty years ago and israel has been very successful in producing

a sort of you know sort of somebody in middle east and takes twenty is however what they've done is thrown a lot of money and spoke of a but if you. spoke of there is this huge bureaucratic nightmare and i don't see lots of young russian clever young russians going there and hanging and writing programs of developing products it's just like we have to do technology works we do we just throw lots of money at this state and thing doesn't work out too well that way yeah i'm interested just going back to agriculture you know if we agree that that's you know huge potential growth area what's the government doing to ensure that the role for the game for investors and there are cultural sector are clear and are going to be the same in five years and fifteen years i mean you know the answer to that question well i actually have a couple of american friends that have been involved in the recall. here and they started with a number of years ago and everything you just said was true it may still apply but

now the profit it's just beginning to flow in and we all know what agriculture you have to invest early in a lot you get your profit at the other end and it's beginning to pay off their farmers but they live in the united states they're running their farms from the united states and farms are here in russia so that is working. i just want to say i mean the quiz question that i mentioned before about the state pushing in the early stages and nurturing in the later stages this is exactly what they need to do to support this sector is nothing in so much as the state shouldn't be involved so you don't know you just leave it alone but you know the contracts mean something and russia did school extremely well in the world bank on contracting foresman and allow people to raise money and you know back that was security or whatever they need to do in order to function and let the whole thing develop on his own by the private sector i think i think ben's right and not in russia itself has

a historical example in the not too distant past of getting it right by ignoring that sector and not doing anything which is telecoms you know the growth in mobile telephony could be any idea what you could make the argument just because that was from nothing i mean they started from absolutely nothing then when they went assets to take the morning assets to trade you invented you created. and the government just didn't. wasn't particularly involved they didn't regulate it closely they didn't have a play on. the companies that grew faster than government regulation in the sector did great you know i think protectionism is something that you know the government doesn't want to get too involved with center of agricultural potential. american beef being. imports which were almost out of time gentlemen really quickly what's the most important external shock russia has to. worry about this year simon first . to be europe i mean europe europe not getting it right and still stumbling is

still a major issue for the world and i'd expect from that and say it's the fear of the year of blowing up that's actually what caused all the time is last year because nothing happened but we had this france in crisis so we had all of the the repercussions. yeah i mean it's europe and it's all of their export markets i mean you know russia still are still a big net net exporter and they need markets for their products all right we've run out of time gentlemen fascinating discussion i want to thank my guests here in the studio and thank our viewers for watching us here on the money so you next time and stay with r.t. . choose

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