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Yuri Soloviev: “The new cabinet is much more proactive, liberal and younger”

 
22.05.2012

HOST: Welcome back, you are watching The Pulse, so, VTB Capital is banging the drum for Russian business this week, it’s holding its annual Russia Calling! investor forum in London. The investment bank rang the opening bell on the LSE this morning; Yuri Soloviev is the Chairman of the Board of VTB Capital and joins us now. Yuri, thank you very much indeed for stopping by. Look, we’ve just been listening to Christine Lagard talking about the UK economy, and the focus is kind of what happens next with the Eurozone and the impact it’s going to have in Britain.

YURI SOLOVIEV: Russia, as you know, expands over a little bit of the European territory and a little bit of the Asian territory, and whatever the crisis strikes, whether it’s in Asia or Europe, we are always affected. Leaving aside our own idiosyncratic problems, every time something goes around the globe, we are fully integrated as an economy, so Russia is suffering. The main impact is going through the trade ties, so basically, if the trade is reduced, the financial flows are reduced; the capital raising opportunities are becoming less and much more difficult to get. And these are the main, sort of, conduits for the negative impact on the Russian economy. However, if you look at what the Russian economy did last year, it performed the best out of G8 economies of the world, because it produced 4,6% growth, its inflation rapidly coming down to below 4% on the rolling basis. So, generally speaking, Russia is doing relatively well, if you look at the banking sector specifically, Russia did 25% growth year on year last year, which is a spectacular result. And this year we are looking at, probably, at the growth rates of between 15 and 20% for the banking sector growth, which is extremely healthy, and hopefully sustainable in the medium to longer term.

HOST: You are here to drum up business for Russia, some would argue you see a bit of capital flight this year, the RTS is down fairly sharply, the rouble has been coming under pressure. What’s behind that? Is it concern about politics, is it concern about the oil price, is it just people having to bring their money home because they need the money at home, what’s going on? And is it too strong to call it capital flight?

YURI SOLOVIEV: I think it is a combination of many different things, some of them are purely technical, the way the Russian economy accounts for the capital flight, some of them are driven by the repatriation of global banking institutions and global funds managers out of Russia. Russia represents a high beater economy, every time the markets are doing very well, it usually outperforms, every time the markets are doing fairly badly, obviously, Russia outperforms on the down side. So, generally speaking, I think it’s a bit of everything, Russia just passed its election cycle, which, you know, sometimes puts pressure on general economic environment and is pretty constructive with the capital flight, which I think we will see relatively sharp.

HOST: Do you think privatization, the program, is going to carry on at the current pace, or are we going to see a slowing down of that program? How is it going to work?

YURI SOLOVIEV: If you allow me to disagree, actually, I think that the new cabinet is much more proactive, liberal and maybe younger, and it combines both the experience of the more mature politicians and young reformers. And from my perspective we will see a relatively aggressive program announced in the near future. One of the steps would be to have this wide privatization campaign to go ahead. It’s really not by the budget considerations in the first place, but by the willingness and desire of the Russian government to reduce its stake and its influence within the economy, improve the corporate governance and increase the property rights protection, and generally speaking, give a big boost to the Russian economy.

HOST: Just finally, which represents the bigger threat to Russian economy right now, the slowdown in Europe or the slowdown in China?

YURI SOLOVIEV: That’s a little bit of a technical issue, the European zone is the biggest trading partner, so generally speaking, I think the direct impact will come through the European zone. However, China plays a very important and a big role for the global economy, so not directly, the Chinese slowdown, if it happens, would also influence the Russian economy pretty strongly.

HOST: It’s all about the oil price, isn’t it? Commodity prices?

YURI SOLOVIEV: Not just the oil price, commodity prices, general capital flows and so on and so forth, of course. But the Russian government made it a very strong priority to diversify the sources of the internal growth, and what we will see, I hope, a completely new push and a much stronger push to the technological development of the country; new type of infrastructure development, longer-term sources of capital, better private property protections. I think, Russia needs to address the investment climate concern, which a lot of investors have.

HOST: And if you were to give marks out of 10 for the Kremlin on how much progress is being made so far, how many marks would you give?

YURI SOLOVIEV: There are various zones, which could be marked…

HOST: But overall, marks out of 10?

YURI SOLOVIEV: Look at the budget, for instance. Russia boasts one of the best balance sheets globally, which was resulted in the Russian ministry of finance borrowing at credibly long-term duration and at very small interest rates. If you look at the monetary policy, again, the inflation is coming down, Russia is managing its floated currency very well. I think, it accumulated the third largest reserves in the world, so out of 10, I would probably give both the Central Bank, which is not part of the government, but still, and the Ministry of Finance, I would probably give between 9 and 10. Whereas, if you look at some other ministries and the progress that we as a country made in privatization so far, and so on and so forth, that is probably going to be much lower.

HOST: I won’t ask you for a specific number. Yuri, thank you very much indeed, great to have you on the set. Yuri Soloviev, the Chairman of the Board of VTB Capital, thank you very much indeed. 


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