Russia between Davos and Davos: an island of stability turns into the epicentre of a financial storm.
Alexander Chudodeyev
A year ago Russian Deputy Prime Minister and Minister of Finance Alexei Kudrin, addressing the Davos Economic Forum, said that Russia was an island of stability in the ocean of the world crisis. This year, considering that the crisis is raging in Russia as well, the marine metaphor had to be tweaked a little bit.
First, the delegation to the forum was led by the captain himself, Prime Minister Vladimir Putin. Second, in his keynote speech the latter described the world crisis as a "perfect storm" that had caught Russia in its epicentre along with other countries. The main question that everybody wanted answered was whether the world would be able to survive the raging elements and stay afloat and what the losses would be.
In Hollywood's "The Perfect Storm" the ship's captain, chasing fast money and driven by the ideals of the seafarer's honour, ends up dying along with his crew when his ship sinks. Vladimir Putin made a case for a different approach: economic policy must be flexible. There should be limits to government interference in the economy and only effective businesses should stay afloat. As a result, the Russian economy should emerge strengthened from the "perfect storm" and the rouble, which is currently in a period of devaluation, still has a chance to become a regional reserve currency. Still, some observers in Davos, after hearing the "captain's" report, expressed doubts about the strength of our "ship".
No panic on board
One salient feature of the latest Davos Forum was the total absence of anti-globalists. It was as if the opponents of a global economy had decided that at the time of the world crisis everybody was miserable enough and chose not to distract the world elite from devising a new economic model to replace the discredited old one. Class battles are fought now in the streets of world capitals whereas in bourgeois Davos politics was hardly touched upon. In other words, the conversation got down to brass tacks.
Vladimir Putin set the tone of the discussion, avoiding the topics some expected him to raise.
As one of the members of the Russian delegation said, the organisers of the World Economic Forum have a tradition of sending out a questionnaire to all the participants six months prior to the forum. Each participant is asked to select their candidate from the long list of contenders for the role of keynote speaker. This time the absolute majority voted for Vladimir Putin, apparently on account of his reputation for not pulling his punches and having a sharp tongue. Everyone wanted concrete answers to the acute issues generated by the crisis. By and large Vladimir Putin lived up to expectations, except that he did not make any anti-Western statements.
"Many had expected Putin to deliver another Munich-style speech, but it did not happen. This is not the time for staging shows, Vladimir Putin seemed to remind those present in his speech. The time has come to cool down and start acting together," Deputy Minister of Economic Development Stanislav Voskresensky said.
In the opinion of First Deputy Premier Igor Shuvalov, Putin's Davos speech struck a patently liberal tone: "Yes, we know who is to blame for the current crisis, but that is beside the point. It is important to pool our efforts; all the global players should act together rather than rock the boat."
Another important point, according to Igor Shuvalov, was that on this occasion Vladimir Putin did not criticise the U.S., and the fact that "he wished success to the new Barack Obama administration is a positive signal". Moscow's decision not to deploy Iskander missiles in the Kaliningrad Region, announced shortly after the Prime Minister's Davos speech, is additional proof that Russia wants to extend a hand to the new U.S. Administration. Incidentally, many Western observers noted the final passage in Putin's speech, devoted to disarmament. They quoted his words to the effect that "reasonable restraint in military spending - along with the strengthening of global stability and security - is sure to bring about massive economic dividends".
In general, the crisis prompted the world players to unite in the face of a common danger.
All sails up
True, some Western observers interpreted the Russian Prime Minister's words about the need to discuss the configuration of the world currency system and the failure of the existing financial model as a result of poor regulation as an indirect jab at Washington and its leading role in the world economy.
However, Putin's speeches in Davos invariably ended the same way: by inviting Western investors to come to Russia.
For example, the managing director of the auditing company Ernst & Young, James Turley, when asked by Itogi how he saw Russia as an investment destination, said that in spite of administrative barriers, "positive things outweigh everything else in doing business in Russia".
By the way, the crisis could, oddly enough, make our country more attractive for investments simply because government interference in the economy is diminishing due to objective reasons: "the perfect storm" dictates austerity.
Russian Presidential aide Arkady Dvorkovich singled out that part of Putin's speech in which he urges the need "to resist the temptation of simple solutions to complicated issues". "It is all too easy to give money to somebody, transfer everything into government assets, and sit back complacently. However, all these simple measures do not work. There are complicated solutions that cannot be implemented in a day, but they alone can turn the situation around," he told our correspondent.
Igor Shuvalov also warned against the government playing an excessive role in the country's economy and against a "nanny state" syndrome. "We are in daily contact with the companies," the First Deputy Premier told Itogi. "Some managers apparently have been led to believe that the state will come to the rescue in any case. We are not planning anything of the kind. We can help only those who have a concrete programme of coping with the crisis. I would urge the managers who pin their hopes on the government to look at themselves and perhaps even use their own savings to solve the problems."
There is a reason that Russian businessmen behave as they do. Government officials admit that the crisis hit Russia harder than other major countries. Everything shrank dramatically: exports, budget revenues, corporate profits, and the wages of ordinary citizens. Igor Shuvalov, addressing the State Duma last week, admitted that the crisis in Russia will last three years and that 2009 will be the most difficult year.
Such mirthless prospects probably account for the over-liberal tone of Vladimir Putin's speech in Davos: the state should not go too far in meddling with the economy - this despite the fact that so far the reverse has been the case. For now the markets, used to budgetary and "reserve" injections, are uninspired by the Prime Minister's message. Nor have they been inspired by the Russian officials' assurances about the commitment to turning Moscow into an international financial centre and the rouble into a regional reserve currency. Immediately after Putin's Davos speech, the rouble collapsed and is continuing to fall. Nobody can predict how low it will fall.
All hands on deck
At the end of the day, Russia's position in the world depends entirely on how the country copes with the effects of the world economic crisis. Let us face it, so far there is little grounds for optimism. The country has some gold and currency reserves, but are they adequate to pull us through the "perfect storm"? The head of Sberbank, German Gref, has warned against "kindling passions" and "scaring people": "If this is the rate of the rouble - be it 35 or 36 roubles to the dollar - this reflects the real situation. But everything is within the limits planned by the Central Bank. In any case, expectations of a dramatic devaluation are behind us. Simply put, investors want to meet the profit target and gain on currency play. In any case I see nothing scary in what has happened."
That view was challenged in Davos by the managing director of the Troika Dialog investment company, Andrei Sharonov, former Deputy Minister of Economic Development. First, he said, one should not read too much into Vladimir Putin's speech to the forum. "I have not heard any new proposals. Yes, it was sincere and friendly, but fairly traditional," Andrei Sharonov said. In his opinion, the government's measures are absolutely correct. The problem is that these are short-term measures implemented in manual-control mode.
The crisis has revealed fundamental problems in the economy, and not only the Russian economy. In our country it has highlighted the fact that institutional reforms have not been carried through. In fact, the business community and the government have been caught by surprise and are merely reacting to external factors. For instance, the rouble has to bottom out for the economy to get clear signals - but how deep the bottom is depends only marginally on the actions of the government.
The main outcome of the Davos Forum was that the great and good of the world, from whatever country, have nothing to counter the "perfect storm". An island of stability has yet to appear on the horizon.
Davos-Moscow
