Not the final autumn

On the QE3

A new round of quantitative easing is vital for the American economy. On the other hand, Brazil has expressed its dissatisfaction with QE3 and, naturally, it has every right to be concerned about facing a major capital influx. It is entirely possible that other developing countries, including Russia, will react with some form of regulatory measures, and additional capital inflow taxes. However, the situation in Russia is different; Moscow simply does not have the same problems—rather than a capital inflow, we face capital flight. For Russia, the launch of the QE3 is fairly good news, against the backdrop of local fears of a new crisis and an oil price slump, both of which could be stemmed by quantitative easing.

But for the South American state, it is not all bad news, either. Previous rounds showed that QE’s fresh cash primarily tends to gravitate toward such promising markets as that of Brazil.

The positive effect of the QE3 is reinforced by the actions of the ECB and all the European economic policy measures, which suggest that the EU will avoid collapse. And this is good news for the rest of the world. So, in assessing the action taken by the US Federal Reserve, it is important to remember that if Greece leaves the Eurozone, this could trigger a domino effect. The Spanish financial system may crumble, and we would see a repeat of the Fall 2008.

On currencies

Brazil’s Minister of Finance is apprehensive about a possible sudden appreciation of the real, a fall in the value of the dollar, and weaker ability to compete on exports. This is true, but neither BRICS nor the USA are able to do anything about it. We should remember that in the end of the day foreign exchange rates are dictated by the market, and those who interfere in that process eventually pay the price. Many ministers consider that the market is insane, incorrect and irrational, but they may as well be complaining about the weather. The currency rates are what they are, and we need to approach them with more calm.

Can the BRICS countries increase the share of each others’ currencies in their reserves? Certainly, they can. This is a totally reasonable and constructive step. To be honest, this cannot be done quickly, because the currencies of the BRICS countries remain volatile to this day, given high inflation and the fact that exchange rates in these countries are not always dictated by the market. As soon as these problems are resolved, it will be the right thing to do for Russia’s reserves to diversify away from dollar and euro.

If the Eurozone manages to withstand this crisis, then it will re-emerge from the crisis stronger than before, and will then be a universal source of hope that other supranational organizations will be able to construct similar structures

I agree that Washington’s complaints about the yuan are justified, and it is clear that China always dislikes giving in to pressure. On the other hand, they themselves will be ready to resolve this issue, when the time comes. The key accusation is that Beijing is accumulating reserves, and by so doing is obtaining a lower exchange rate. But this accumulation is decreasing. The Chinese trade balance is not as large as it was, and I suspect that these accusations will evaporate of their own accord, because the local Communist Party, in its new five-year plan, has announced that the yuan will become an international currency. The task of internationalising China’s currency has been set, and this presupposes a market rate for the yuan, rather than a managed exchange rate – most likely, by 2015.

On global governance institutions

Throughout history, the Eurozone and the EU have been the most successful example of supranational integration. When we speak of the global governance institutions, it turns out that the European project is by far the most effective example of this kind. If the Eurozone manages to withstand this crisis, then it will re-emerge from the crisis stronger than before, and will then be a universal source of hope that other supranational organizations will be able to construct similar structures. But if this does not happen, those hopes will suffer a serious blow.

In principle, BRICS and other developing countries should be able to build their own supranational institutions. And, of course, they must participate in global structures, including the IMF, the WTO and the World Bank. This is already taking place, but it is the developed countries that continue to dominate these organizations, regardless of all the changes to existing quotas. I expect that the BRICS countries are likely to demand further expansion of their quotas.

Half a century ago quotas for Europe and the USA were disproportionately high. This was the case because they provided lending for other countries through international institutions—and wanted to control the way in which that money would be spent. Now everything is reversed: the Western countries have become debtors, and the BRICS are right asking for reforms that would make global governance truly representative. After all, the global institutions that take into consideration the voices of all stakeholders have a major advantage.

The appearance of parallel structures of this type is entirely realistic. But I hope that this will not take place, and that the global institutions will adequately take into consideration the interests of the BRIC countries.

On the collapse of Eurobonds

If this happens, it will be a disaster. The previous crisis is still fresh in our memory, and we have a scenario under which the entire banking system of, for example, Spain, could collapse. But I do not think that we will reach that point. In any case, the probability of this is very low. Both politicians and the ECB understand perfectly well what needs to be done to head off the worst-case scenario. But that scenario still remains on the table, and it would be indeed similar to the events of 2008.

However, the BRICS countries are not behaving like passive observers right now. They are getting involved in the situation even more proactively than the EU. For example, Russian financial institutions are purchasing bank assets in Europe, and Chinese companies are investing with much success in countries as far as Eastern and Southern Europe. This is a perfectly normal business approach, while low-priced assets offer an excellent opportunity for the BRICS countries. At the same time this is an opportunity for the European Union to attract funds, as there is no more money anywhere else in the world.

So the developing countries are extending a helping hand to the Old World. BRICS are recapitalising the IMF, which is helping Spain and Greece. But there is also a pure business interest. Because assets are inexpensive for Russian and Chinese investors, so, in many cases this is an issue of business prospects.

On the US elections

Whatever the outcome, we will not see a major difference as regards foreign policy; at the end of the day, foreign policy is by no means a core issue for either candidate. Both Obama and Romney are lifting the economy to the top of the agenda: which taxes will be increased, and where spending will be cut. The elections will, primarily, determine how the US economic policy will be structured. And this is very important, because the resulting economic arrangement may well be entirely different. Greater clarity would be exceedingly useful; one of the biggest problems at the moment in the USA is high uncertainty, which slows down business investment and growth.

Even the average man in the street is worried that he does not know what taxes to expect. As soon as there is clarity people will start spending more and investing again. In this sense, life will get better whoever wins.

It is hard to say which option is better for the Russian elite. In principle, Obama has spent a lot of efforts on establishing good relations with Moscow; he does not make anti-Putin statements, and everyone has got used to him as president. But I sincerely doubt that Romney will find it important to pick a fight with Russia when the time comes to move from campaign rhetoric to actual policy.

In general, the feeling that this autumn we will see a turning point in history is deceptive. In 2009 and 2010, we all expected a second wave of the crisis, and in 2011 we stopped waiting. Now it is déjà vu all over again. And yes, the situation is highly ambiguous, and the concerns people have are well justified. But if the crisis does not strike, next autumn you will be surprised to see that the same anxieties and questions remain. 

On the Sberbank SPO

This is an important event, which underscores Sberbank’s high value, and the reason for this value is the growing economy and the bank’s rapidly growing efficiency in doing business in this economy. Sberbank boasts a return on equity above 20% per annum. Such high returns are unthinkable in Europe and America. Yet in the BRICS countries, such yields are common.

So investors were not surprised by the terms of the deal. They know that if the bank is in such a fast-growing market, it cannot be cheap. Analysts predict further growth for the bank’s share price, but I cannot express my own opinion on the issue, as I am an insider.

On corporate governance

I represent minority shareholders on the board of Sberbank. I am also a board member and chair in several other companies. Corporate governance in each of these can be classified as normal, or even good. Although Sberbank itself is not perfect, I would say the organisation is, on the whole, dynamic and healthy. Corporate governance in this bank is good by the international standards. I cannot imagine Sberbank doing any kind of a “buy-back” at non-market prices, where it would redistribute value to some shareholders at the expense of others. That would seem to me to be impossible at Sberbank. On average, corporate governance in Russia is poor; there are certain horrifying examples, but this does not mean that there are no companies to be proud of.

On NES, the New Economic School

Certainly, there are significant problems with education both in Russia and the other BRICS countries. In Russia, these problems are far greater than they appear. We are even unaware of all the difficulties yet to be overcome. But, at the end of the day, no-one needs to be persuaded that high quality of education generates a major competitive advantage.

There is no doubt that the world is changing. But NES graduates will always be prepared for the change. NES is not producing graduates for any specific profession, but teaching useful concepts in economics and finance, and developing thinking and analytical skills. The ability to think independently is important in any situation. Our graduates are successful in the academia, in investment banking, and in the corporate sector. I think that the education that we offer is a great start for the dynamic and uncertain environment our graduates are facing.

The BRICS countries must acquire human capital and build a sustainable system for producing their own human capital at home. Certainly, the latter cannot be done overnight, so there is a huge need to bring in human capital from the West

Our school is very small, but it enjoys a disproportionately high level of influence across the entire Russian educational system. I remember very well how, twelve years ago, we started to hire faculty in the international market and told our colleagues from other Russian universities that this was the way to go—and they all laughed at us. Today, the other leading Russian universities and colleges hire on the international market, because they have no choice. Attracting people from other countries to work in Moscow and St. Petersburg has become a mainstream approach to improving the quality of education. A substantial share of credit for that goes to our school. Today, the fight against plagiarism has become a mainstream issue (certainly, this fight is yet to go from words to action). We have always expelled students for plagiarism, and were the first to admit students based on international examinations like GRE and TOEFL. At that point, it provoked laughter, too. So there is a whole list of simple things that were not comme il faut in Russia for one reason or another, and although they remain unacceptable for some, they have now become commonplace.

On human capital

The BRICS countries are suffering heavy losses in the fight for human capital. Russia has a substantial legacy in science and mathematics. But if we look at social sciences, it turns out that Russia and other developing countries are lagging far behind Europe, and especially the United States. Yet there are schools like NES in all of the BRICS countries. The most successful ones, without a doubt, are in China. Some of them are competitive internationally, and significantly outrank all Russian institutions including Moscow State University.

In economics, NES is either number 1 in emerging markets or number 2 (after Tsinghua University). That, by the way, is a university with a unique history. It is one hundred years old; during the Cultural revolution it was virtually destroyed, but was recently rebuilt in almost the same way I described: Chinese academics working in America started to come back to build a model university.

There is no doubt that the BRICS countries must acquire human capital and build a sustainable system for producing their own human capital at home. Certainly, the latter cannot be done overnight, so there is a huge need to bring in human capital from the West.

I would add that this viewpoint is accepted almost everywhere except Moscow. In Russia, there is too much misplaced pride, when people say that we have so much of human capital that we do not need to import it at all. Of course Russia is a great country, but there will always be others to learn from—both in the West and among our BRICS partners, and this includes learning how to learn.