the sway of government policies and government orders he's definitely getting into very very difficult waters in there because if he sends at least forces trying to control them that will definitely create scenes of violence and those scenes of violence can turn very ugly and now with wars in the hot seat having pledged to make tackling climate a personal priority a promise will be held to by a politically divided population united by a desperate desire for peace of mind dancer cilia r.t. got out us. on the back and about a half an hour on the money is up next to stay with us to watch r.t. .

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hello and welcome to on the money where the business of russia is business. what will define russia as presidency of the g. twenty where the most important global economies work in unison to solve the world's most demanding economic challenges or it will be an exercise in kicking the can down the road with each country guarding national interests and why should be emerging market world really take notice of the g. seven. to discuss this and more i'm joined by chris weaver he's a senior partner with macro advisory we also have jacob now he is the chief economist with morgan stanley and we're also joined by moritz oh partner now lo he is the c.e.o.

of nestle russia and eurasia all right gentlemen let's start out with the can as we usually do with this program the condition of the russian economy chris where do we stand right now we are. standing still or we paddle in water or. standing still there will actually be a pick up in the economic indicators for the second half of this year we had a weak first half and you're looking across the board macro numbers. pick up in the second half because of the base effect of the weaker second half of last year but come next spring it will be fairly clear to the economy is stable but essentially moving sideways somewhere between two and a half maybe three percent growth that's not enough for an economy like russia all of the legislators the politicians are all well aware that russia needs more like five to five and a half percent so the whole discussion right now even though we've got a relatively good number compared to other countries is about how to boost up to the next level to five percent and sustain it so we're moving five sideways government makes a big. issue. i guess the merit of the fact is that we're stable but now that word

stagnation is beginning to creep in behind that stability doing well relative to others that's not good enough well look we do have a very resilient consumer in russia backed by a tight labor market that's going to keep growth ticking along above two percent now you know i think it's also some upside there because we've had tight monetary policy up till now we've had very tight fiscal policy if you look at if you look at the budget spending was running thirty percent growth rates in the first quarter of twenty twelve we had the election in the first hole for this year it was flat that means down six percent in real terms with through that tightening of fiscal policy so i think actually growth will surprise a little bit on the upside in the second half as a result of this easing of policy together with the resilient russian consumer and so considered considering the external environment again relative is is good but not good enough. if what we're doing in

russia compared to the rest of europe definitely see the difference in much more dynamic consumer spending the more debt in the west to europe but of course every day expectation in this country is to have growth and more consumer spending which we have seen slowing down lead in the last two years i would say and particularly in two thousand and thirty is the government have the right growth policy. it's hard to see what the policy is in the hole that is exactly what i'm asking the question because it seems quite muddled to me right and then there has been a lot of debate this year about what the policy should be but instead what we see is the government reverting back to kind of the the tried and trusted which is more spending be the budget and force more money going into pensions and into public sector workers and that money then of course being part of the consumer story but there is an ongoing debate about what the government should do in terms of policy changes specific to attract more and just give it if they need. type of policy

direction right now for our viewers here in maine what are the major factions pushing for the i think you did liberal reformers which was sent to be the finance minister economy ministry people like the former finance minister all pushing for more more liberal policies to attract more investment in particular and that means dealing with the perception of poor legal protections as well as red tape corruption but essentially attacking those sort of three big issues that investors constantly refer to as barriers to investing in russia to deal with those and to attract more investment into new industries and broaden the economy that way in his former finance minister pointed out these are hard choices right now the lead to short term difficulties but ultimately four years down the road is what you need to do today and he says the government of focusing too much on short term populism now we need to take the pain and therefore is going to pay the price later on the government side default has been just more spending in this debate which is now taking place about whether the fiscal rules should actually be abandoned whether or

not we should have more borrowing and the government should actually put more money the budget into the economy so in that sense it's a debate essentially boils down to whether we should have continued kind of state control in the strong state role in the economy or that we should actually take measures now that will lead to more entrepreneurial activity and that's essential if you do they have the courage. i think you know i think there's a sort of there's a glass half full part of the story i think that's the part of the story so here basically what we have it's putin committing to a balanced budget and inflation targeting and that was tested the commitment to those two pillars of stability was tested during the growth slowdown and i think it's very telling that they didn't increase spending and they didn't cut rates when inflation was high so they kind of passed that test i think that's the glass half full part of the story unfortunately there's a lot of glass half empty part to the story as well and that is we have a good strategy. improving the investment climate in order to attract more

investment it's just not getting implemented that's the problem we don't see enough progress on privatisation we don't see enough progress he would say they probably think that's the right environment to do that is the answer we get from we'll yes but you have i mean particularly when you've just won an election with a mandate for reform i think that you could take a couple of brave choices pension reform i think is one of the key ones. unfortunately looks like we're heading for pension reform went to finance the pensions we're going to cut the contribution to fund pensions rather than raise the pension age so unfortunately i think we're lacking political courage to take some tough decisions for long term growth for a corporation like yours what kind of growth strategy do you think that the government should be pursuing you know i mean we are in an environment which is also very competitive so it's not only. what the government or you but you didn't build it's type thing as well ok i mean you have the environment of the state

provides what we have seen in recently a reduction in inflation which. is very important for us also use important to have the ruble versus the other currencies because we. for business on the other hand i would say. been here for nearly twenty years we would be always supported by authorities when he comes to implementing our projects with factories or d.c.'s in the regions where we create employment so i would say i would like to spend opposed to word about the way how a company is being welcome and i think in general our piece of work i mean in the countries where. we have to do the business we have to create a growth for business in the categories where we i mean we expect the government to create the infrastructure and environment to compete properly and i would say. we have not seen any bigger they should be in the reason tie and actually we have a good relationship with. when it comes to our projects let's talk about good

relationships let's look at the global economy chris where does russia stand in the global economy right now and again when we're looking at something relative but you know what is russia worried about externally still we still have the eurozone i guess we're going to have to get used to that for a very long time and we have the growth in the emerging market world i mean where does russia stand in. things if you look at a snapshot of you said earlier the numbers from russia actually look relatively good compared to everybody else we should be close to three percent g.d.p. growth for the pick up and second half inflation falling should end the year around six percent to having been a seven the half in the spring you know close of the balance budgets a relatively stable currency so it looks like a good picture but we were saying earlier that for an economy that needs to be dynamic that needs to grow that's not enough russia needs to prove that so you know russia is very focused on. growth in the global economy because russia is very much put into that in terms of export volumes eighty percent of the value of

russia's exports are come out of these which are directly linked to demand and economic activity in places like china in the us etc so that kind of external factor is very important for russia's current account trade balance and economic environment and then the confidence factor again we see that time and time again if there is because we don't have that big pool of domestic investment we're very reliant russia one of its problems it's very reliant on external capital flows you know investors are they're worried about what's happening in the broader economy in the u.s. europe or china one of the first reactions is to draw from risk and to draw from places like russia and we don't have that compensating pool of money domestically we still have capital outflow in fact rather than let's talk about. jacob i mean this is something we've talked about ever since you know we've been looking at the russian economy with one going to twenty years and any improvement in that area whatsoever because points out that mean domestically there isn't a huge pool to draw from it look we've had capital inflows into russia. twice and

those. periods when foreigners got excited about the prospects for russian growth in the ninety's with the g. care market and then in the run up to the crisis only speculation i mean wouldn't you know i would beginning well certainly not stay the only two times you know russia's capital in front so it doesn't look like a big structural it's you and structural issues tend not to be solved by waving a wall passing a policy they require a consistent application over a period of time you need the carrots you know so including where you really can't be as like nestle to give a very good example of why you should come to russia we invest in since we came here more than one point two billion dollars over a period of sixteen seventeen years so we have been investing a lot that we continue to invest in these countries because we believe that this is a country where we can get growth and return on investment at the same time so i would say we are not concerned with these inflow of fall apart from the fact of

course of the influence of the. situation but i mean i would say we have all the all the while you're basing this country and i would say so far we cannot complain on their return. growth we said we have been investing will continue to invest in the future. i think it's absolutely the consumer sector of their growth and there is a very clear this being one of the fastest growing areas in the economy in the world and russia right now is the fifth biggest consumer market in the world and per capita within the emerging market world it's certainly the best the high spending power because not bringing money to russia is the problem you see time and time again we go back to the you know to the oil world again is this balancing the budget there's a lot of state money going around going to pensions and public sector workers such as you're feeling this but there's no broadening of the economy we're not seeing investment into manufacturing we're not seeing much less mature regions of agriculture into food production etc all of the things that you need to. staying

the expand the economy long term so to some extent could say absolutely right now people are in the streets buying you know consumer goods and expensive restaurants etc you get seventy two dollars in europe was it i think we're going to go to break after a break we'll continue our discussion on russia's presidency and the upcoming g. twenty summit state party. admission free credit patients three cents for charges free. range means free. free studio time free. old free broadcast splitting video for your media projects a free media oh god our teton tom. wealthy british style.

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welcome back to on the money where the business of russia is business i'm peter all about to mind we're talking about russia's presidency of the upcoming g. twenty summit but before we continue our discussion let's have a look at the state of russia's economy. the first ever g twenty finance and labor ministers meeting was recently held in moscow first and foremost russian the world's future prospects were discussed global economic conditions remain challenging. week is growth is too weak employment is too high and recovery is too fragile boosting growth in jobs is now

the short term priority for the global economy it was agreed by the g twenty ministers tackling unemployment was considered even more urgent than deficit reduction we yes budgetary consolidation reduction of deficit if you prefer is a priority in the really young term it's necessary to reduce debt as well economy that accumulated debt is an economy that becomes the core but the short term priority. is growth or job creation another topic on the agenda was greater tax transparency of multinational companies the secretary general of o.e.c.d. and held korea represented the organization's plan to close loopholes that allow corporations to avoid paying billions of dollars in taxes receipts to the government investment in social policies easing job creation will be among the highlights at the g. twenty leaders summit hosted by president vladimir putin in september the summit

will hopefully be marked by seeing russia dealing with accelerated growth issues the ministry of economic development anticipates the economy will be fueled by investment and so will expand more rapidly in the next two quarters according to russia's federal service. state statistics russia's economy grew by one point nine percent in the second quarter of the year this is an improvement from the one point six percent growth it posted in the first quarter but still well below the best case scenario of three percent despite the slowdown russia and other brics countries continue to drive the world economy in a recent survey the world bank revealed that russia has overtaken germany as the fifth largest economy in terms of purchasing power parity and russia's bric speer china is in second place nonetheless global economy impacts the emerging world and its prospects what's happened in the last five to ten years there's been a huge investment in new supply of energy the supply of commodities and what we

thought of the moment this is not china slowdown is the problem i think as europe collapses zero percent growth in europe and buying anything but not buying cars they're not driving around as much and as a consequence china's slowing yes but but europe's just stops and the same time there's been more supply of new energy coming out of the house of strong more oil more oil out of azerbaijan more oil out of iraq libya has turned back on again and also you have new iron ore mines new copper mines the rollin minions motors and all of this together with this more supply at the same time as demand is weakened because if europe i'm not supposed to hurt russia i think in the last year or two hopefully russia will play its cards well and it's presidency the g. twenty will bring results benefiting itself and the world economy please a lookin on the money r.t. . all right gentlemen let's talk about g. twenty chris what do you make of russia's presidency of the g. twenty because it this point we see so many contradictory. statements coming out of

the g twenty as as opposed to when we look at the staring we look at you know borrowing i mean how do you make sense of it because there's a german position collapsed of the americans one job. growth is the most important thing because toronto in two thousand and ten it was austerity austerity austerity now it's a mixed game yeah i think when it comes to g twenty and russia look at it in two parts one what russia hoped to get out of it and what it may end up with which i think is moving much less than was hoped for certainly a year ago russia was talking up much more optimistic li of using the g twenty is kind of a stage almost a launch pad for kind of a new investment environment in russia to start attracting a lot more investment in the country and to broaden out the growth drivers away from say purely consumer to more manufacturing and other sort of core investment and that really hasn't happened because instead russia hasn't delivered that sort of strong policy message to convince foreign investors that russia is now moving in

this new direction still over what should be the policy on the external side or look at the g twenty as a group i think it's becoming clear to the g twenty is almost breaking up into different vested interest groups the us so let me just ask it was a g. twenty a good idea for two thousand and eight two thousand and nine to up to two thousand and ten but maybe it's more diluted right now because we do have so many different national interests and so many countries are reacting differently to the global crisis and i think that's exactly it so many countries are looking reacting differently i think twenty eight was an excellent idea was necessary in two thousand and nine the london meeting in april two thousand and nine of course showed a great deal of unity and led some very decisive decisions to q.e. program setter which definitely pulled the world out of you know almost heading towards depression and of course for stock market investors it led to a two year bull markets so it was definitely very effective in two thousand and nine possibly two thousand and ten but in the last couple of years we have seen these divisions and even if you like last year the big discussion was on currency

and preventing currency war what does the japanese do first thing you know it's the yen in order to boost growth so anybody said too much and i said i think so i think you know now this whole discussion about currency that's. drifted into almost regional or national issues although i do see that there is some more coordination at this meeting there will be court nations meeting on the question of tax avoidance an offshore tax center is that something that seems to unite all countries it's kind of let's get on and let's get starbucks. but i think that's where it goes in terms of the you know the growth indicators or coordination and growth that we've been looking for that's falling well short us is no further into recovery europe seems to have stalled its discussions on till after the german elections china japan and the fall in the wrong route as well so i think and that's why it has been a failure that there are regional differences have been merged but one or two focal points which is tax avoidance the g twenty just to be going no i think it's too

negative for the assessment really because the importance of these international organizations is really that they're there in a crisis talking shops until you have a crisis where you agree some useful things but in term time of a crisis you really need something to think about the t twenty is it's much more legitimate than any other body the g seven obviously is leading d.m. economies and so it's not really complete where it's around the table the g twenty the leading economies of the world and it's proven that it can take decisions particularly in two thousand and eight no and so i think that it's actually a sign that we're getting back to business as normal you know the world economy is not falling off the falling off. into europe it's not collapsing we have slow growth stagnation in europe we have and the u.s. and the u.k. picking up we have economies that were doing very well until recently struggling

particularly in places like brazil and india as rising interest rates mean that their dependence on external finance causes them some problems i think actually normalizing. and the fact that the g twenty is a pretty orderly place that it should normalization. normalisation and other things going on with the normal things but still we think that we think that the global economy is going to move out of what we call twilight this stagnant level of growth that's not fast enough to reduce unemployment into what we call daylight which is the rate of growth that is launched up to start reducing unemployment around the world particularly as we've seen in the u.s. so we think that there are some signs of hope in green shoots as a. company representative i mean kind of reflecting i want to say here do you see when you look in your companies in this market emerging market still i mean do you see these kind of markets still in line with policymaking with the major g seven or

do you see as a company representative you you make a separation between the two i mean emerging market strategy as opposed to a merged marketing and traditional market because of the different situations that they have well it's countries got his own strategy it's not necessary related to emerging or it depends on. the situation in each market but i would say we have a couple policy as a nestle across the board and then. we have different country by country from emerging markets we expect a certain number of things but growth from other countries are different things and i would say for me the g twenty we have been participating to the preparation with between given our input i think the g twenty has to be there even if there is no war crisis actually they should make sure that there are no more crises of course each country is different again the different expectation different issues for

a corporation we have different different countries but i think. the. nation and to talk to each other probably the fact that the g twenty the also emerging market to make it more real even than. he said of g. eight so for us i would say. we want to get growth here is the country where we want to get growth in europe so our strategy ease leading towards growth investment growth innovation and that's what we expect from russia of course we know expecting the same thing from germany where they completely different and also the consumer behavior is totally different you know again within the confines of the g twenty i think what is interesting is that you have some of the emerging markets within the g twenty major connections are getting stronger and stronger because we more trade with among emerging market countries because they don't have the contagion they don't have to worry about that some toxic clean coming out of the united states or

the euro school or you see i mean this is kind of another trend that we're seeing yeah absolutely i think that sort of holds kind of bric platform which overseas now which i didn't say the word but it's moving much beyond its. being everybody recognizes but it's us you know much bigger and you know you look at like a knowledge and number of countries involved in it and you know i think that it's a good thing to countries sort of in that large emerging category are now discussing matters of common interest but here again i would say that we are seeing kind of like that them and us. a little bit of the currency emerging markets and central banks quietly and sometimes publicly complain about what the u.s. fed and what the e.c.b. are doing and say like hey you know this contagion to us and we've seen a great deal of volatility in asian. currencies in latin american currencies much less so in russia russia's been relatively you know a haven emerging are currencies but elsewhere it's been a great deal of volatility and they're pointing the finger to the fed they're

pointing to the e.c.b. saying you're doing what suits you without taking into account you know the effect on us and i think there's you know i would like to overstate it anyway but but you know you can definitely see that there is there are some kind of let's have a. eating amongst ourselves to see what our strategy is at the g twenty rather than being part of it so i don't that's it was right out of time gentlemen many thanks my guests and thanks to our viewers for watching us here on on the money see you next time and state of art.

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breaking news here on our t.v. fresh violence in egypt reportedly claims at least thirty one lives as pro muslim brotherhood demonstrators are said to have been targeted by snipers in cairo all fierce clashes erupt between supporters and opponents of the army in alexandria. the syrian national coalition at least to take part in peace talks as the group meets with the u.n. security council for the first time. and u.s. authorities break a cyber fraud scam board hundreds of millions of dollars believed to be the largest ever are now seeking decades in prison for the huggers.