Vnesheconombank Chairman Vladimir Dmitriev’s Interview to TV Channel Russia-24 (Davos, the World Economic Forum)

TV Channel Russia-24
INTERVIEW
28.01.2010, 13:34

HOST: Russia is already ready to scale down programs of providing the state’s support for the economy. Most private companies have started to repay their debts on credits on their own and resume production. Now foreign investors are again becoming increasingly interested in the Russia energy sector and infrastructure. Vnesheconombank Chairman Vladimir Dmitriev told our channel about it on the first day of the Forum in Davos and now we are offering you a full version of his interview.

CORR: I am pleased to see you again in Davos. My understanding is that this Forum is a post-crisis one again. What issues in your opinion should be discussed to make an exit out of the crisis more or less tangible?

Vladimir DMITRIEV: Another Forum in Davos but this time the main theme is not to tackle the crisis but exit the crisis and identify ways of the world economy and the world financial banking system development. A year ago when we met here the main theme was to find ways of responding to the crisis at its worst level. At present, there are some weak signs and they are not even reflecting a trend so far that the world economy, the world banking system has started to recover a bit but this is not a reason for excessive optimism. That is why it is very important for the Davos Forum to identify appropriate priorities and reach required consensuses. Traditionally well-known politicians and leading specialists in the economy, the world financial and banking system come to Davos. So, the issues discussed by the business elite and politicians during the whole year should be further dealt with at this Davos meeting and result in formulating proposals for exiting the crisis (the recession). And the new order in the business world, in the financial and banking system that was under discussion throughout the year should take on a concrete shape in Davos.

CORR: As far as I can see, there are representatives of different countries here and while some countries suffer economic slump and others face reduced economic growth, almost everywhere they stimulate economy through significant financial infusions. When do you think they will start scaling down these measures and how should they do it to make this process less painful and smoother?

Vladimir DMITRIEV: A lot will depend to what extent major banks and financial corporations will prove to be disciplined and responsive to the state’s measures for getting out of the crisis. I believe that President of the Central European Bank Trichet was quite right saying that leading international banks cannot help taking into account the fact that the world’s leading countries spent about 25 percent of their gross domestic product to rescue them. This was a significant contribution to the survival of the banking system. And now the world’s leading banks should grasp the need for taking adequate measures to get out of the crisis dynamically. I also share the opinion that high priority in the banking sector (and I can understand it pretty well because for us, for Vnesheconombank this is our core activity) should be given to financing the real economy rather than to taking a keen interest in banking derivatives, derivative products and in creating the so-called pyramids. I think that the call we have heard today at the opening of the Davos Forum: “Rethink, redesign, rebuild” is fully applicable to international financial institutions, to those regulators that are involved in formulating international regulations for banks. But this call is to the same extent addressed to banks themselves, major corporations that are supposed to pursue a more restraint, more reasonable policy aimed at enhancing the real economy.

CORR: What do you think are the ways of putting this call into effect? You’ve mentioned derivatives. There existed a really devilish system when they actually acted as traders and sellers of nothing. How do you feel about the American President’s initiative to reform the banking system, limit both the size of banks and the amount of financial instruments? By the way Wall Street bankers are not happy about the initiative and so they are going to debate on it extensively.

Vladimir DMITRIEV: I can understand Wall Street’s frame of mind. It did well for decades by inflating these pyramids, creating derivatives and selling almost nothing generating multi-million bonuses and in general was not adequately liable for the products it created.

CORR: As I can see it, we are getting back to a debate on whether we should have commercial or investment banks?

Vladimir Dmitriev:  These debates are as cyclic as economic development itself. Let’s take Japan for example. After the war they totally eliminated cartels and split companies in order to avoid creating giants that could monopolize the market. Now we can see the opposite. During this period we witnessed various approaches to vertically integrated banking and industrial structures etc. And in the current situation the calls made in Washington and by the way backed in Europe as a whole as well as Russia’s participation in international financial institutions, namely, the Group of Eight, the Group of Twenty make us introduce reasonable initiative and support all those measures that can be implemented on the Russian soil. In this respect, I believe that the Russian authorities’ actions are as adequate as anywhere else and they might have helped more effectively than anywhere else to prevent catastrophic consequences that could have followed without this adequate response to the situation. As for your question about when the state’s financial support will be scaled down, I can tell you about our Bank’s experience. I think that the measures taken by the government to support the stock market and diversify investments of the National Wealth Fund are successfully completed. We have gained valuable experience and the 175 billion rubles that were made available to Vnesheconombank with the accrued interest - 188 billion rubles in total, were returned to the National Wealth Fund. The amount of financial assistance provided by the state through Vnesheconombank to those companies that were not able to repay their debts to foreign creditors in 2008 was also reduced. Some of them repaid their debts in full and others obtained credits from commercial banks. We can say that this measure also proved to be successful in a very complicated situation.

CORR: As far as I can see in the times of crisis there is a great temptation to regulate the market and to prevent capital from moving across the borders. This is what the state can afford to do by law or in some other ways. These measures are very popular. Do you think that we should take these measures or they might prove harmful in the long run?

Vladimir DMITRIEV: In my opinion, limitations and strict control are not the main things, we should focus on developing rules of the game. I participated in a number of international forums and debates on how regulators and the state should act in order to prevent negative trends from penetrating into Russia on the one hand and on the other not to leave the path of economic liberalization and social democratization as a whole, reduce the state’s role as an owner and strengthen its functions as a regulator. In this respect I would like to say that I have no doubts that our authorities are pursuing this sort of policy designed to implement reforms, modernize the economy and develop well-defined rules of the game both for banks and for corporations.

CORR: Formulating such rules of the game here in Davos, what concrete proposals can Russia make? What about making proposals for raising investments for our country. In the times of crisis investors tend to run away. What can we do now to make them come back or at least decide against running away from Russia?

Vladimir DMITRIEV: I think that the more favorable conditions in the capital markets for the countries with developing economy make it appropriate and maybe necessary to step up efforts to raise foreign investments for the Russian economy. Even the composition of the team headed by Vice Premier and Finance Minister Alexei Kudrin where we can see not only employees from the Finance Ministry but also young specialists who established themselves as good businessmen as well as experts from the Ministry of Economic Development that worked abroad, representatives of Russian big business, heads of state-run banks, Russia’s state-run and private investment companies testifies to the fact that the Forum’s participants are interested not only in the Forum itself but also in helping to raise foreign investments for the Russian economy in the course of their meetings and discussions.

CORR: Do investors still view Russia as a member of the BRIC Group including four countries that offer some hope? As far as the West is concerned everything is clear: we know the way the economy is going to develop, the way it is functioning now but as for the BRIC countries they hope for some prospects. Is Russia still being viewed as a member of this Group, because there were skeptics that claimed that the BRICs turned into the BICs?

Vladimir DMITRIEV: I don’t feel like performing an abbreviation-decoding exercise, I would like to simply look at the reality. Rusal’s latest initial public offering showed that there were a number of investors interested in making investments in Russia including such large companies as Rusal and this is a sign of their trust in Russia. I think the most important thing is investors’ trust in the state. The state supported one of the largest Russian and international companies, one of the largest Russian corporate customers and this was not only financial assistance but the state’s socio-economic responsibility and this was the benchmark setting for one of the largest Russian borrowers. Our Bank’s participation approved by the Supervisory Board in Rusal’s initial public offering on the Hong Kong Stock Exchange when Vnesheconombank became one of the largest key, core investors in Rusal testifies to the fact that the state trusts its companies thus attracting foreign investors and demonstrating Russia’s investment appeal.

Funds created by Russian investment companies, Russian state-run and commercial banks, the fund that Vnesheconombank created with the participation of Macquarie Capital, Renaissance Capital, IFC, the EBRD, the Eurasian Development Bank, the Kazakhstan Sustainable Development Fund, the Infrastructure Development Fund was scheduled to accumulate about 1 billion dollars , with our current liabilities amounting to 550 million dollars with a potential for growth and attracting private investors, demonstrate our keen interest in investments in the Russian infrastructure – ports, roads, bridges, the energy sector, communal services infrastructure. All these sectors are of great interest for foreign investors because they have a good potential for growth.

CORR: This time you are giving such an optimistic picture. So, what sectors do you expect to grow in the new economic year?

Vladimir DMITRIEV: In this case, I rely on the expert’s opinions by the Economic Development Ministry, the Finance Ministry, our macroeconomists, without arguing with them because I am not a macroeconomist and I am not competent enough to discuss macroeconomic and economic growth issues. But being involved in this process, I have no grounds not to trust expert’s opinions by the Economic Development Ministry. And I have no doubts that prospects for growth of some assets and certain economic sectors are of interest for foreign investors.

CORR: And now my final question: will you have enough time to go skiing in Davos?

Vladimir DMITRIEV: I am afraid not. I have a very busy afternoon work schedule here. And the best time for skiing is afternoon. The Davos Forum offers a unique opportunity to work for the benefit of the Bank and of the state so I just can’t miss this chance. I can go skiing when I have free time in the future.

COR: Let’s hope that you will have it. Thank you very much.