New Year - new troubles
January, 2011
Catch up and leave behind USA
The European Union countries are preparing for catch up and acquire after Americans more efficient system of control of financial markets. After one and half years of disputes, Euro parliament ratified in January a mechanism that will provide banking and financial branch with stability and predictability. Within its frame, from January 2011 will appear three super national control authorities of estimation of system risks in European Union. Commissary of domestic market affairs Michele Barneu noted “We can prevent crisis, if we work for advance. I’m convinced, that the preventive measure for financial market health will cost cheaper than its reproduction. That’s why we are trying to create a branchy system of custody of branch.” Although crisis found out, that the EU countries have to follow the unique economic-financial policy, Great Britain, for example, whose ratio is 80 per cent of European financial services is opposed to any kind of reform. European Union authorities with the support of the all-powerful economics of mainland Europe don’t perceive financial branch’s complains to the excessive pressure and cruelty of regulators and remind that just the absence of adequate supervision lead to this deep crisis.
How much the New Year’s celebrations cost in Russia?
As it known, New Year’s holidays are harmful not only for liver, but for money bag. All kind of expenses devastate one pocket, but fill another one. As experts assure, government loses a lot more, because long-drawn celebrations put a stop to manufacture and reduce the budget revenue. As a result we have hundred billion of lost rubles. At the end of December of 2010 Kazakhstan expressed an appeal to stop Russian celebrations. The State Duma of Russian Federation, decided in 2004 that is better to have holidays in January rather than in May. As auditors estimate, losses of Russian budget because of so continuous winter holidays constitute more than 144 billion rubles. Economic losses – 840 billion rubles. Effective price of winter holidays – it is loss of 420 billion rubles from GDP and 72 billion rubles from federal budget (without regard of some “over”- days because of compensation of days off, that don’t coincide with holidays). 72 billion rubles – it is a counterpart of all expenses for culture in federal budget for 2011. Auditors are firm that with the sane approach will be sufficient 5 days for celebration of New Year and Christmas. Generally, losses during the winter holidays confirm the irregularity of “new-year hellbender”. Russia, according to the level of living (GDP per capita at parity of purchasing power) is on 51 places and can’t allow such deep celebration of the beginning of New Year.
N. Azarov predicts Ukrainian GDP growth at the end of 2010
Ukrainian prime-minister Nicolay Azarov predicts GDP growth more than 4 per cent at the end of 2010. It was announced during the opening of a meeting of Government.
“We planned in 2010 GDP growth about 3,7 per cent. In practice, we’ll end the year with the significantly higher rate – more than 4 per cent” – as prime- minister said.
Moreover, Azarov predicts inflation rates in 2010 less than 9 per cent, although originally was predicted 13, 1%.
Let me remind you, that at the end of 2010 a lot of economists and bankers predicted inflation rates on Ukraine “a bit more tan 9 %”.
At the end of preceding year, the World Bank improved the forecast of GDP growth of Ukraine to 4,3% in 2010. The World bank also brought down the forecast of inflation rates in Ukraine to 9,8% in 2010. The Treasury Minister, Fedor Yaroschenko, predicted GDP growth to 4,5%.
Estonia launched territorial claims on the setback of its euro
Russian ombudsman of Estonia addressed a notification to the Russian ambassador, where mentioned, that the described on the euro coins Estonian map doesn’t correspond to its modern lineaments. This fact was also confirmed by the bureau of public relations of Bank of Estonia. Particularly, the member of bureau Vyliar Ryask noted that on the setback of abovementioned coins is painted an “artistic interpretation of the painter of the Estonian borders”. Euro coins were painted by Lembit Lukhmus.
“For some reason, this artistic interpretation of Lukhmus deals with the politically problem regions – Pechora and Zanarovye. In 2005 Riygikogu (the Estonian Parliament) adopted the law about ratification of Estonian-Russian boundary treaty and a treaty about a distinction of maritime space of the Narv and Finland Gulfs. This treaty establish a border as it is defined nowadays, instead of “artistic interpretation of the painter”.
Russia creeps into the debt dead-set
“Having this volume of expenses such as pension, defense, for development, - we couldn’t obtain deficit-free budget to the 2015” – said the deputy minister of Economic Development Andrey Klepach in January. “We have either to raise at 2,5 per cent the tax rate, or cut social, defense, development expenses. We either crawl in the debt economy, or have to change our taxation system dramatically”. This official declaration about economic dead-set from mouth of the leading Russian bureaucrats – it is very sad result of the 2010.
Let me remind you, that the head of Russian Government called the acquiring of deficit-free budget in 2015 as the strategic mission for Russian Government. But now, to all approach, Russian bureaucrats aren’t afraid of recognizing the impossibility of such mission. Actually, within the frames of choice between “raising the taxes” or “cutting the expenses” there is no any reasonable decision. The cutting of social expenses is threatening by social irregularity, while the raising of taxes at 2,5 per cent of GDP can force the economy into catatonia.
And it is hardly will be saving the measure of accumulation of the National Wealth Fund. As the head of Department of Treasury, Alexey Kudrin, said, this fund is to be raised more than 60 per cent of GDP. But he didn’t mentioned when and at what expense this Department will withdraw from Russian economy half of GDP, but he added that in spring of 2011 will make a suggestion about “the reinforcement of NWF by additional sources”. A lot of specialist believe, that having such resources, like Russia has, such as mineral resources, fresh water, wood, territory and access to sea, it’s very irrationally to be outsider in rank of highlights.
…and became the “disappointment of the year”
We can easily name the expiring year as the year of the “reconstruction of global economy”. According to some economic indicators, the world came back to it’s pre-crisis state, at that, the countries of South-East Asia and Latin America achieved maximum success. In the middle of the year the process of reconstruction slowed down because of the aggravation of debt problems in Europe. This fact leads to serious commotion in financial markets. However, this problem, like the previous, was solved by the financial authorities of USA with the approved method – by flooding markets with money. New portion of infusion wasn’t without trace: there is matter for count for growth acceleration of world economy at the end of IV quarter.
Approximately, the world economy growth in 2010 was 4,5%-5% versus the last year’s fall at 0,6%. The situation in Russia is sad.
Russia is still remaining between economic outsiders, while its partners of BRIC recouped almost all sustained during the crisis losses. Russia is showing good results in such indicators as external debt, the rate of unemployment, this is contributed by the favorable conjuncture of mineral markets. However, these indicators didn’t allow Russia to achieve the pre-crisis results.
But the main problem is that the crisis leads to the total breakdown in such important sphere as investment generation. These result for Russia look tragically. In rating of global competitive ability Russia came down from 43 places (2007) to 51. In another rating – Doing business, that defines the comfort of business dealing; Russia falls to 7 positions lower, and takes 123rd place from the 183 possible. In the rating of perception of corruption, the country rolled away, and takes 154th place, near Tadzhikistan, Papua New Guinea, Congo and Cambodia. And there’s no any perspective of avoiding this situation, despite of the launched campaign of corruption therapy.
The recession of speed of economic recuperation causes special concern.
At the end of 2009 Russian economy had the 7 per cent growth that was realized by means of external demand and renewal of supplies. However, at the beginning of 2010, the rate of growth descended twice because of the collapse in the investment sphere. The maximum fall took place in May-July, when the world economy was going through the shock in the debt markets of Europe. In III quarter drought and fires took away 0,5-1% of GDP.
Inflation splash and the falling of purchasing activity became the indirect consequences. It’s also very pessimistic the capital outflow from the private sector, in 2010 is was about 25 billion dollars. It is notable, that the capital escaped from the country, in spite of the improving conjuncture of the world mineral markets.
In such a way, the main result of 2010 is a phased fading of the recuperation impulse in Russian economy. We only shall imagine how it will stamp on its condition in 2011. I’d like to believe, that by that time will arise some ideas, possible to inspirit new forces to the headily declining impulse.
According to the two past decades, the number of oligarchs in Russia arose from 8 in 200 to 53 in 2007! By the “Forbs” opinion, their welfare arose from 12,4 billion $ to 282 billion $! The investigations of the Institute of social and economic problem of Russian Academy of Sciences, 85% of all savings, 57% of cash income, 92% of prime cost income account for 15% of Russian population. More than 50% of national Russian welfare is in hands of small group of oligarchs (about 1500 persons that is 0,001% of all the Russian population). 85 % of population, per se, all Russia, don’t have any benefit from the fortune that was given by God, as in oil, gas, wood, gold and other resources that have to belong to the Russian people by definition. In the Stalin’s epoch, national welfare belonged to the Russian people, and all the income was used in their behalf. Earlier people paid for some services little sums of money, because the Government assumed all expenses, but nowadays people is obliged to pay vast sums of money for housing services and communication services, transport, culture, nutrition, education, etc. In spite of the free-of-charge health services are constitutionally confirmed, more than a half of population pay for it, and the expenses are almost budget-funded.
In phase opposition to the world’s progress
According to Ease of doing business Index, Singapore occupies the 1st position, Hong Kong – the 3rd , the USA – the 4th, Estonia – the 24th and Russia – 123rd . According to Freedom House Index, Russia is on 175th place in the world after Congo, but before Gambia. In 2009 Russia was no longer in the list of 10 biggest economies of the world, being left behind by Brazil, Spain and Canada.
Earlier it was quite a difficulty to transfer money. Now it is remarkably easy. Bank systems all over the world transfer from place to place 2 trillion dollars per day now. This money flows where the best place is.
How much money is leaking from Russia? According to the Central Bank data, following the results of 10 months of 2010, 21 billion dollars showed a clean pair of heels to Russia. Moreover for the first 9 months, the country lost 6.7 billion dollars and for October – 14.3 billion. But the CB figures don’t reflect the real processes. For example, for 9 months of 2010 foreign assets of Russian companies increased on 40 billion dollars. And it was called “investment” and “assets cost increase” and not “money runaway”. Specialists computed that corruption in Russia is about 50 % of GDP that is 20 trillion rubles and that half of the stolen money – that is 25 % of GDP – moves to the West. The Russians move as well. For the 10 years of perestroika and reforms, from 1989 to 1999, more than 1 million people left Russia. A part of this emigration was postponed – those left that had wanted to move to the country of their predecessors. First of all they were Germans and then Jews. From 1992 to 1998 about 600 thousand people left for Germany and 450 thousand of them were ethnic Germans. From 1990 to 1997 about 215 thousand people moved to Israel (paradoxically the statistics show that German emigration was as a minimum two times bigger than Jewish). At the beginning of 2000s the range of emigration began to decrease. After 2003 it began to rise again. Since 2004 till 2008 440 thousand people left Russia. The character of migration has also changed dramatically. In 90s Germany was the first country to migrate (4 times more often than the USA) then came Israel. Now the first triplet is the following: the USA, Germany, and Canada. The real percent of emigration is very hard to figure out, because no one leaves the country forever: people just live and work in another country being still Russian citizens. In 2010, according to sociologists, 40-50 thousand graduates left the country. In august 2010, 73% of pollees said to sociologist that they would like to move away from Russia.
China has allowed foreign investments in Yuan
China has allowed to its companies to make foreign investments in Yuan, informed the Central Bank of the country this January. According to the new rules, published on the site of the People’s Bank of China, national companies will be able to use Yuan in the whole world to create new companies, and also for amalgamation and mergers.
The scale of the program, which is called experimental, will be limited, but one shouldn’t underestimate the enthusiasm of Chinese investors, economists say.
“Investment abroad in the context of administration process will be more suitable for corporations, thinks Donmin Se, OCBC Bank. – I think that importers of the capital will be satisfied receiving Yuan. It will also help to enlarge the store of Yuan abroad”.
Progress in the sphere of investments in Yuan is taking place in the forefront of the same experiment launched in the north-western province of Xinjiang in the end of the previous year. What is more in 2009 it was decided to allow importers and exporters to make payments in Yuan.
Making of trade calculations in Yuan, which was also set up as an experimental program, has become more expanded. At the moment, the calculations on about 5% of Chinese trade operations are made in Yuan, and stores of Yuan abroad, especially in Hong Kong, have increased significantly as a result.
Concerning the scale, the program of investment in Yuan has no smaller potential. Last year China imported goods totaling 1.4 trillion dollars and its direct investments abroad amounted to 47.6 billion. According to Ministry of Commerce data, the main receivers of Chinese investments were Hong Kong, Cayman Islands, and Australia.
“It is a positive step towards Yuan world status improvement, Asian market specialists say.- but we must keep a sensible view of Yuan. It is still too far to become a world reserve currency. On the whole, it is still strictly controlled.
China Central Bank declared that its investment program is aimed to motivate national companies to work abroad and to expand the use of Yuan in international trade and investments.
Foreign companies, receiving Yuan, will have few opportunities to use it. They will be able to buy Chinese goods, place money on low-profit bank accounts, invest in small quantities of assets, expressed in Yuan or convert it into other currencies, predominantly via China Central Bank.
But it’s not necessarily that it would be a serious barrier to realize the program. “Foreign companies will be glad to make this decision, because now Yuan is the safest currency in the world, say Asian specialists. – Central Bank has introduced the rules in right time.”
In January during the visit of the leader of People’s Republic of China in the USA the idea of introducing Yuan as one of the world reserve currency has been discussed with the president of the USA.
Azarov promised still not to touch Cyprus offshores
Ukraine won’t unilaterally denounce the Double Tax Treaty with Cyprus. This was declared by Nikolay Azarov in January. “Our government will not go by the way of unilateral actions”, he said, answering the question on whether Ukraine will denounce the corresponding treaty with Cyprus. “We are not going to communicate with either Cyprus or other countries speaking the language of ultimatums, he said”. The prime-minister also underlined that in the world there are more than 50 offshore zones and “this artificial attention arresting towards only one country distracts our attention from the whole offshore problem”. Azarov remarked that the government will search other opportunities to solve this problem.
Inflation in 2011 in Russia may exceed 9%
Inflation in 2011 in Russia may exceed 9%, but it will doubtfully be more than 10 %, says president – coachman of Sberbank German Gref. Next year inflation may reach two-figure index. “It is quite possible, though I think that the government will do everything to keep it within one-figure index. We are planning that it will not exceed 10%, but there is a big chance that it will exceed 9%, remarked Gref. Russian government and the Bank of Russia determined the task to lower the inflation rate in 2011 till 6-7%, in 2012 till 5-6%, in 2013 – till 4.5-5.5%. The head of Sberbank reminded that the clients of the bank are large enterprises and companies as well as private individuals. “If to speak about how we are changing, what way we are drifting, where we see our extra market, then firstly it is of course small and medium business”, added Gref. According to him in 2011 and 2012 the bank will strengthen this direction. The share of past-due indebtedness in Sberbank’s portfolio is about 6%. In 2010 the level of past-due indebtedness has slightly increased, and the peak point of reservation was passed by the bank in September. “I think than the next year the volume of past-due indebtedness will be decreasing significantly and the amount of reserves will increase a little in relation to the fact that next year we plan a big volume of outgiving”, remarked Gref.
He did not exclude the increase of credit rates in the 1st quarter of 2011 in the setting of inflation rate. According to Gref, in the setting of inflation rate, increase of credit rates, deposit rates will also increase.
Economists: one more crisis like this and Latvia will cease to exist
Latvia chose wrong methods to overcome the crisis, which led to deepening of demographic and social problems.
“The present crisis is the worse that could have happened to us for the past 20 years. Such a deep crisis with such a big unemployment – is a tremendous evil for Latvia. One more crisis like this and Latvia will cease to exist”, said Yanis Oshleys, economist.
Latvia tried to overcome the crisis the way Ireland is doing now, but it is a failure. They should have carried out devaluation, though it is quite a painful measure, but unemployment in the country would have been lower, said the expert to the newspaper.
Oshleys thinks that the course toward slow economic growth – at 2-3% a year, with which the country will reach the level of 2007 in 2017 – is absolutely wrong. Latvia should grow at the rate of 7-9% a year, if we hope to catch up with the Europe within a reasonable time at all”, the economist is assured.
His colleague, economist Daynis Stikuts thinks that in the present situation in Latvia there is a great risk of forming “a society of two speeds”, where the difference between the population stratum will be determined by having or not having a job.
Those who have a job will improve their living conditions step by step, when for unemployed the situation won’t improve even at the stage of the economy’s recovery. Thus in the society social inequality will develop, forecast the economist about the tendencies of economy’s development in 2012.
According to the economist, it is sad that this time the government has not used an opportunity to assume, as the International Monetary Fund says, “high quality structured measures”, which would contribute to busyness and reduction of the grey sector. We will hope that next year the government will use the improving of economic situation to finish the launched structural reforms, and not to play for time”, said Stikuts.
According to him, unemployment will stay at quite a high rate – at the average of 17%. We also can not exclude the growth of illegal employment, because the rise of minimum-wage and labor taxes made by the government do not favour the reduction of “grey” economy.
MIDLAND CONSULT
