economy and we're ending the year with actually agree with that compared to where we were the start of the year looking for three three and a half percent growth to think of the optimistic and now we're no ending the year according to the world bank's forecast maybe about one point three percent very disappointing compared to what had been expected and that is come as a result of a big drop in investment in which a lower level of consumption than we've seen in previous years ok gentlemen i don't know if you agree with a lot of me or vladimir putin agrees with you but let's listen what he had to say about the state of russia's economy. that and of course we are feeling the affects of the global economic crisis but let's be frank the main reasons for the slowdown in our economy are internal rather than external in nature in terms of the size of its g.d.p. rusher is doing well and counts among the world's five biggest economies but in key indicators such as labor productivity there's

a two to three fold gap between us and the developed economies we must work hard to close this gap. and that's a very different tone usually heard from the president when it comes to the economy is it does it match the situation i mean it's encouraging him to. put in put his finger on one of the big problems i mean a that they admit that you know it's our fault it's not just the global economy strategy or tone it where you date and the second thing that he identifies productivity increase mention the investments down and there's been a huge problem and really that going forward next year what happens to investments going to determine what happens in the year but underlying all of that is this fundamental problem of lack of reform badly run companies and the fact that russian productivity is so low and that's an investment those if they fix those two things

it will make an enormous difference. to the president's comments last week i think represented in a major shift in you know his attitudes towards the economy if we look back you know almost like the last twelve years for you know for a first part of it it didn't matter to gold prices going up would lead to consumption boom which of course would sustain a strong growth you can't me and then two thousand and nine ten eleven the government was much more inclined to emphasize domestic stability while warning about you know external contagion the rest of the world basically. it posed a risk so this is a very good but at the same time. they were ignoring what was going on it holistically because they were very focused on that and emphasizing strong balance sheet domestic stability so the president's comments last week you know this is the first time we've heard the president actually saying this is our problem to fix rather than you know suffering from contagion from from the west so that at least gives us the basis of optimism to as we come into two thousand and fourteen to recognize this is a serious problem something must be done and you know i don't think we are going to

see anything major in terms of initiatives up laughter the sochi olympics are out of the way but i think once that's done i really would hope that to see much greater focus on the economy and what and hopefully it will even better to solutions to pull it out of the slump. i think what we've seen before in the boom years we had lots of money and reforms were about you know privatizing the power sector or studying the financial sector reforms the so-called international financial center project and what putin was just talking about there is focusing on structural problems i mean things that have always been in the background but they weren't necessarily an issue before because everybody's wages was going up so fast and you know there was lots of money to do business and the slowdown has refocused russia on questions of efficiency productivity waste accountability and this is great for the course you know talking about it we have to cease and changes and that's not you know what you don't you don't get growth without pain too and i'm

not saying we have to be on the same magnitude of austerity in europe i think this is really what they want to avoid here because we've seen tightening of budgets here are at least in the state sector and with an eye on that you know finding some synergies finding more efficiencies we saw that in the week we saw that in the state media sector that we need to be linked to them in that the crackdown on corruption is gaining in momentum and it's getting more and more serious and that's part of the past it's the fact that you know the corruption was it was a huge drag on the economy and the kremlin is trying to do something about it. it's probably going to be a generation before you know they actually really get to the root of the problem but you know it's very encouraging to see than actually talking about the right things and already we've seen some results in russia is going up in the in the ease of doing business and is now the most it's the easiest place of all the brics the four big emerging markets to do business and the same with transparency international with the corruption perspective index of russia she improved in that

since overtaken kazakhstan and ukraine. is still a big problem so we're going in the right direction it's interesting because you know it takes feeling nervous to put it that way to really get your act together and start working on these reforms because we've all pointed out over the last twelve thirteen years you know money kept coming in so and we can you can put off things and this is what we've been talking about on this program for every since we started doing on the money is that you know because if there isn't enough push initiative you can delay you can think about you can we plan now those that window is closing or even close. to get a lot of people watching this program or probably say look we've heard this all before and i would strongly emphasize the fact that we are talking about it as economists and the liberal faction within government economy ministry formis finance minister khujand cetera have all been pushing this agenda for many years this is the very first time that the guy in charge has you know sort of signed on

to that and has recognized the problem that's a major difference and ben says of course we need to see how that. works out next year what changes it will it make and i think you know it's it's obviously it's a huge it's a huge problem within government it's all very well for the economy ministry ins of the so-called liberals and those who have been pushing this agenda for home for a long time. it's all very well for that group you know to to you know start talking about the need for more urgency in the form process you still have a huge you know vested interests bureaucracy. the state sector which is very powerful and they don't necessarily you know subscribe to this you know need for change so that's still the big problem you have this you know enormous part of the economy that really doesn't sign up to this at all the question is whether the guy in charge will now be able to beat heads together and make progress it's interesting because there's the the state sector is. a good part of putin's

political base as well and he's telling them you know now is the time you've been we've built up your organizations you've created your empires but they're not efficient and now when he has the power not to fund them ok so this is a carrot and stick approach if you think it's going to be very effective in which our time frame here because you know politicians are in power you know to give results you need to give results things in russia will seem to take four times longer than they should. because there's a huge inertia i think people sort of lose sight of the fact that the size of this country you know from half the globe and the million or nearly two million people in the bureaucracy and a large portion of those are left over from the old days and this is an inertia here i mean how do you supervise people when you sit in moscow because they're asleep the whole time that you're awake so it's administration by e-mail it's not particularly efficient whereas if you live in a stone you just walk out the door and everybody's you know two minutes down the road and so everything takes a long time timeframes in a way

a kind of nonsensical because you have to start it and it takes as long as it takes and it's going to take longer than most of the places because it's so big and the trick is to get on with it i mean you mentioned pain but then that's one of russia's advantages as well though we're feeling pain we're not feeling the same pain as everyone else it's hardly pain i think it's more frustration right now it's really i don't see it as a patient of possible pain because we in a relative sense this economy it's still growing let's remind our viewers it's still growing it is flat. now compared to what we've seen over the last decade he still has money in reserves and he still has very low debts and you know all the macro stuff is compared to everybody else is actually pretty good sort of using it more efficiently but of course to you the other factors that we need to take into account and i'm sure president putin the kremlin this taking into account is of course deep in your polls are showing that you know majority of people still you know approve of the president's approval rating remains above sixty percent

according to deliver other polls there's also a growing discontent with the results that are being achieved in government people are definitely looking at the slowdown in the economy in the opinion polls showed that there's a declining level of confidence which of course is also self-feeding it to slow down because if you don't have confidence in the future you're going to delay purchasing you're going to delay investment so there's that sort of combination coming into play right now as well and that adds to the sense of urgency and gives us more confidence or some confidence that next spring to start is it's going back to putin's words you think the private sector is taking this well because i mean of course we been talking about the state sector here but the private sector would really like to see a lot more efficiency in government as well yeah i think there are more predictability as well i mean part of the problem is that we've had several new things launched corruption drive one the closure of mid-sized banks is unsettled bank is and i think chris she touched on the key point there's confidence and it

seems to me i was a conference just the other day and one of the chief economist from spirit was saying there's no economic reason why people are not investing in everything they need to do it is there what's holding them back is you know these changes the slowdown and possibility of a crisis outside the possibility of a crisis banking crisis inside and there's a lack psychological there's a lack of confidence and then so everybody's holding back until there's a bit more certainty so hopefully the predictions for next year are right and there's an upswing and we do get three percent growth as predicted then it'll only short of that you know. money and plans of being held back and the thing could then start to snowball if it's not point we're going to go to a short break and after that break we'll continue our discussion on russia's economy state with our take.

i. don't understand your correctly that you don't believe that ad words snowden performed a public service may be in all of in the best interest of the united states but at least and be a best interest of humanitarian countries don't want to turn over their play book to the other side and that's essentially what's happened here it is true that it is heard a big debate about the role of our intelligence services in the united states i think that debate was coming anyway after nine eleven but i don't think we've had sort of anything in the interest of humanity served by this episode. we speak your language i mean some of the will or not of the. news programs and documentaries and spanish more matters to you. a little too much of anglos keep

these stories. here. in troy all to spanish. visit. to doxy wasn't like the easiest person to negotiate ways i mean many people who've met him or even those who knew him briefly all say that he wasn't completely sane what was he like when you were talking to him and negotiating with him about the lives of these people you know he was very he was very how can i say maybe on the drugs or medicines but he was listening maybe it wasn't the right place said the right words. deliberate george is on a epic journey to. one hundred and twenty three days. true

two hundred thirty. really fourteen. or sixteen. in a record setting trip down there. numbers. or really. welcome back to on the money with the business of russia is business i'm peter lavelle to remind you we're talking about russia's economy as the year two thousand and thirteen ends ok chris you know before we talked about talk about what we need to be done for foreign investors to come because on the tail end of what ben was saying first half of the program let's go back to this kind of ideology of the balance sheet because i think this is one of the things that is the biggest plus

that russia has because we had in the beginning in the middle of the year of two thousand and thirteen the government got spooked and we see we saw a major change we went from stimulus to a russian form of austerity and nothing like in the european union but the one thing that they have on their side is the balance sheet they have money in the bank and it can be spent and there are plenty of forces within this within the government who love to spend that money for a rainy day how do you think putin is going to play this. reserves that russia has been looking at the beginning of next year this is part of what we're talking about if he needs to be more efficiency in the else and needs to be more efficiency in the use of these resources and within the budget and it was encouraging to hear the president's referred to that last week acknowledging that there might now have to be changes within the budget so we you know there's an enormous amount of money spent in the budget on. the military for example that could certainly be stretched

out. over a longer time period there's a big chunk of the budget of still classified as you know secret whatever we don't even know what's what's in there so it's encouraging to hear him talk about more efficient use of the budgets but you know i wouldn't expect sort of any unleashing of massive amounts of spending we know also from the president that he's very cautious. you know emphasizing now the need for stimulus for growth but at the same time remaining very cautious about increasing spending about you know running the budget deficit too high so i think the whole approach will be done very carefully and over many years as ben said things do take a lot longer here even when you know we get this project or do you think that's the putin's greatest advantage and he's telling the government to get its act together and look for new ideas more efficiency because he's got money in his pocket ok we don't have to worry about printing money we don't have to worry about borrowing money we've got the money is this the signal that he's sending to the government right now absolutely i think it's a bit like we're not talking about sort of a major change in direction is more like cooking in

a way you have to get all the ingredients right and it's a question of getting all the small pieces that you're adding to the soup. in the right proportions and so that it tastes good in the same way that you know they're trying to make accountability a bit more. to make it stick a bit more by introducing international counting standards to banking for example at the same time that the tender process is going online and is being checked and the spending is going through the regional governments and they're being more and made more accountable in reporting and to taken all together this can produce enormous gains in russia simply because the puts and says you know the productivity is a third or a quarter of what it is. and so you don't actually have to do anything major you just have to do what you're doing but do it and do it right. what are foreign investors how are they looking at this with the entire year of two thousand and thirteen how did they look at russia and what do they want to hear and see for the next year i think again as we reset. at the start of the year there was

a lot more optimism about growth investments which is old you know been dissipated to much lower level and foreign investors you know generally i think have have been sidelined you know that there are first of all you're you know we've seen good growth in some of the developed economies particularly in the u.s. recovery in europe so foreign investors have been much more focused on those markets and to a large extent russia has been you know put to one side emerging markets have been disappointing areas for investors this year russia has been been part of that but investors are looking for is simply. from government they want to see the government actually doing something in the spring we you know this year has all been about you know emphasizing stability for sizing the strong balance sheet as you say we almost had a move towards stimulus in the spring it was soon as bernanke the us fed chairman mentioned tapering that one of the it completely or so you know we basically want to see no more product proactive approach from the government you know some fiscal

some monetary changes some budget changes and i think it really does come down to that confidence if there is more confidence that the government is now getting its act together and is taking a more proactive stance if we get that message and we see that happening i think you'll see the follow through from investors and hopefully from domestic investors as well as foreign investors as well use the analogy of cooking earlier what's the right recipe to get people interested in this market again. then russia's case is going to kind of i think i should go out and market it a bit more i mean terms of investment the equity investments been standing on the sidelines but the wrecked investors those particularly in return have been piling in and the because you still have growth you still have rising incomes and at the same time they're being pushed out of the home markets because they're everything's going backwards when the state is growth the states are growing but average incomes in america have been falling by thousand dollars a year for the last five years and so the middle class and the lower classes are

getting squeezed more of any investor who's already here is reinvesting every cent they make into expanding as fast as they can but there's still this invisible wall down the russian border and those who've crossed in a working here are quite happy and those who are outside still see it as some sort of you know wild east unregulated. and don't come but i think the message is coming out slowly but the government as chris said seems to have given up on the idea of attracting significant foreign investment as a solution and i don't think that's a very neat and hard about is repatriation of russian money coming back into this country here and it's quite firm about that even to the point where it will be penalties for example no state subsidies for companies to do keep their money broad i mean is that a carrot in a stick but is it too much of a stick money goes where it feels comfortable you know it always he's not saying anything that we haven't heard from developed economies we were all aware of course

of the big for within the g twenty would be in europe companies like amazon and google who are doing good business and in europe and they're paying very little tax so you know so this is a global trends it's not specific russia and it does make good economic sense in companies that are making money here should pay tax year i think that's just basic economics so no i don't think that you know should frighten any investors i don't think it is it's part of global trend but it is. you know ben mention the fact that the message more often than not doesn't you know it is not translated correctly there is a there is a disproportionate emphasis on the bad news from russia rather than the good news and people do hear it you know therefore they you know the headline bad news and they don't pay attention then to the reams of positive news behind it so that these to change and frankly that's just p.r. it's it's managing the message and russia does not do that well. selling a bad story about russia's cells that's a growth industry that has been ever since the end of the cold war. what are the

main things you think that will drive the russian economy next year what it would take a look at like oil prices. could be playing around with the budget now i mean the oil prices in the boom years rising oil fuel to love the growth but i think everyone agrees that that model is exhausted and because the oil prices remain around one hundred dollars which is four times what they were ten years ago and yet that doesn't seem to have any visible impacts are quite the opposite you know the close to deficit in the federal budget. this year the main driver is being consumption and that's what's been holding up but again as we come into the end of the year that's beginning to slow and i think the consensus is going forward next year the driver is going to switch to investment consumption to investment i think it actually has to go that way we need to see if there's a sustainable rise in investment but remember you know one such is done we start to focus on the world cup now the world cup is a much bigger deal in terms of

a bigger footprint across the country eleven or twelve cities would have to prepare for the world cup saw you know major events like that can be a good catalyst for investment in those regions because it covers you know the main part of russia's economy so inward investment you know the government is making talking at least. correctly about say using the national wealth fund for example as part of that catalyst their words they're looking more domestically in the game but we heard from president putin last week is you know this is a domestic problem we have to solve it so i think the first thing we need to see is the government making better use of its resources as you were saying earlier starting that process and then i think once we see that and the results are visible then i think that produces the confidence that brings in one money can be snow i was very interested in a speech from him to pick up on that point about the regions and we we have such you and i we're going to have to work but you know it's a vehicle these sports events for regional development and putin specifically cited

people to stood up in. in his speech he was a nineteenth century prime minister and his thing was decentralization and i think what they're planning is going to be a lot more focused investment on the regions and bringing those and there's been some very successful ones like who simply just. stand. there and someone like look at the industrial production has doubled and trebled incomes are going to five fold and so they're looking at that model and then through through the template of the world cup sport they can use that in trying to repeat the success in all of the regions thinking of successes how much do you think that the sochi games will because we talked about p.r. here this is a perfect opportunity to do to showcase the country here. changing perceptions about russia and seeing that it's a normal country holds normal you know global sporting events ma it's very modern russia certainly spent an enormous amount of money on the games you can they can change perceptions marginal i think that's

a much more important that russia seem to be dealing with you know so that the bigger issues that concern investors such as corruption sustaining that campaign against corruption bringing more corrupt officials to book you know making more progress on the world bank fees doing business rankings improving russia's ranking transparency international frankly these are the issues and you know right now you know we have to potentially negatives that people are talking a lot about again we talk about the disproportionate bad news where but you know a proposal to merge the supreme court with the arbitration court that has a lot of investors and business is worried as to what that might mean and there's also the proposal to give power to the you know to to the to the police or or to the. investigative. bodies in government to you know initiate tax investigations in their own right and again that brings back memories of the bad old days. of the housing anymore exactly so you know the there is it seems to be a case of one step forward and three or four sideways all the time so we need three

. such a description of russia last toward been. reform i thought was indicative of the frustration that i think the kremlin a feeling at the slow pace that all these reforms particularly in corruption. making and you know that there is seems to be a commitment to try to make a change but then they're sort of battling against themselves and it's not working very well and so putin is putting into the game will give them more power never more saying well that doesn't help so no gentleman thank you for being with us here in two thousand and thirteen and hopefully we'll see you in two thousand and fourteen many thanks to our guests and thanks to our viewers for watching us here on on the money see you next time and stay with the market.

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a day after his father was released from a russian prison the son of former oil tycoon mikhail khodorkovsky says the entire family has been reunited in the german capital. washington is told to rein in on a countable defense spending at the pentagon amounting to a trillion dollars since nine hundred ninety six. charges are thrown at egypt's embattled former morsy over a prison break in two thousand and eleven as the show of dissent on the streets is stifled by police. the first time in my life that the child is locked up in the military prison for having a ruler while the ongoing political witch hunt to egypt knows no bounds we bring you the story of a schoolboy thrown behind bars for sharing.