Coverage of The Financial Crisis via CIPE Development Blog
Relevant lessons via CIPE Development Blog
Coruption: A View From the Inside via CIPE Development Blog
The Largest Drop via CIPE Development Blog
Georgia dropped almost sixty spots in the latest media freedom report by Reporters Without Borders - going down from the 66th to the 120th place in the rankings. This could be one the larger drops in one year that the index has seen.
The conflict with Russia is mentioned as a key reason for Georgia’s poor performance in the report. It certainly contributed to the fall with the dangers to journalists in conflicts, but restrictions placed on media in Georgia have not helped either and, perhaps, have been the driving force. For example, when anti-government demonstrations were sweeping the country last year, the president simply shut down the independent media.
Earlier this month, this NY Times article painted a bleak picture of media freedom on Georgia. An ombudsman...
If a Bank Fails and No One Reports it, Does it Still Fail? via CIPE Development Blog
As my colleague Alex Shkolnikov noted earlier, the Russian press has been relatively mum on the topic of the financial maelstrom enveloping Russian markets. Now news comes from the Financial Times that the first retail bank has experienced a run on deposits.
Globex, a mid-sized retail bank with assets of $4bn (€2.95bn, £2.32bn), is the first Russian bank to experience a run on deposits during the crisis. It lost 13 per cent of its deposits last month, according to Maxim Raskosnov, an analyst at Renaissance capital, and a further 15 per cent this month according to Emilya Alieva, Globex’s vice-president.
At least a dozen other Russian banks have reported a sharp rise in withdrawals and account closures.
Although Prime Minister Putin has directed his government to inject over $84...
Tales of Banking Horror from the Developing World via CIPE Development Blog
Just in time for Halloween this year I heard a special tale of financial horror from one of my close friends in Ukraine. Its been said that when the US economy gets the sniffles the developing world gets pneumonia - and Ukraine has one terrible case of the financial chills.
My friend, who has been saving and selling some property in eastern Ukraine is just about ready to purchase a beautiful new apartment on the outskirts of Kyiv. Well, this was the plan until two days ago when all of her bank accounts were frozen and she was given notification that her money would be unavailable “for a period of time.” This unassuming, but terrifying, message was given to depositors at the sixth largest bank in Ukraine, Prominvestbank (Quarterly earnings report in English). It...
Media Freedoms and Lack Thereof via CIPE Development Blog
I was in the Hague earlier this week, participating in an anti-corruption conference, and was able to follow the financial crisis by checking in whenever possible with CNN and BBC on TV and the Wall Street Journal and the International Herald Tribune - all that was easily available around me. It may not have been much, but enough. The coverage was certainly extensive, with much time and column space devoted to discussions on problems, solutions, finger-pointing, and other related issues.
One thing that was hard not to notice while in Europe is that the media there spent a considerable amount of time covering their own financial issues, just as in the US much focus is on domestic implications of the crisis as well.
A few days before that, however, I was watching a Russian...
Russia’s Medvedev (almost) Goes Web 2.0 via CIPE Development Blog
The president of Russia, Dimitry Medvedev, recently made history with the first presidential video-blog from behind the Kremlin’s mighty walls. (see it with English subtitles here). This appears to be a genuine attempt to engage Russia’s burgeoning web-culture on their own terms. However, as the Moscow Times notes, the blog is missing a key component of any blog - a section for comments.
It seems that the Kremlin view of the virtual world parallels real......
Rubbing Salt in Our Wounds? via CIPE Development Blog
The Moscow Times reported on Thursday that Russian PM Vladimir Putin lays the fault for the ongoing global financial crisis squarely at the feet of the US. Not particularly surprising. After all, plenty of people are doing the same - blaming the bankers who made risky loans, the borrowers who took out those loans, the financial sector for chopping up and selling the loans, regulators for dropping the ball. But Putin adds a new twist, arguing that the crisis undermines American ”claims to world leadership.”
Putin’s MO is usually to blame the West - it scores points with the domestic audience - and he seems to love any chance to rub a country’s nose in its troubles, as well as to make the not-so-subtle assertion that maybe it’s time for a...
Bridging the Gap via CIPE Development Blog
On September 24, one of CIPE Russian partners, Union of Business Associations OPORA, held a meeting in Moscow to discuss its program “Priorities for SME Development in Russia in 2008-2012.” SME representatives from 70 regions of Russia as well as several government representatives (among them Arkadi Dvorkovich, Kremlin Economic Advisor; Igor Artemiev, Head of the Federal Anti-Monopoly Service; and Russian Chief Medical Officer Gennady Onischenko) talked about the current SME situation and the government’s approach to SME development.
While the government officials seemed to focus more on long-term perspectives and 30,000-feet picture, OPORA President Sergey Borisov suggested to focus more on current issues such as bridging the gap between federal legislation and...
“The Transition Problem: The Unhampered State as an Obstacle to Democratic and Market Reforms” via CIPE Development Blog
Major systemic transformations in the post-Soviet states are over. Yet the outcome in most cases is not a full-fledged democratic market economy but rather an unsatisfactory compromise between socialism and free markets. Transition countries by and large focused their energies on creating a “social market economy” à la Western European welfare states. Thus, socialism as a system of completely centralized decision-making has been replaced by interventionism, a system with various degrees of state involvement in economic affairs. This “third way”-ism took the place of Marxism as an ideological pillar of the new post-communist world; however, it failed to produce a viable alternative to how the goal of greater social well-being can be accomplished.
In this Feature Service article,...
The Connection Between “Raiding” and Corruption via CIPE Development Blog
The Moscow Times covered a new report co-authored by the National Anticorruption Committee, the Phoenix Group and Transparency International Russia that exposes exactly how much, in dollar terms, it costs to “raid” a firm in Russia. Raiding is a practice whereby operators with connections to bureaucrats, state agencies or the security services can seize control of a company for a fraction of its value (or even for free), usually in order to sell off assets and acquire the company’s real estate.
This portion of the report (Russian only), available on the website of former State Duma deputy Vladimir Rizhkov, provides an interesting step-by-step look at how the raiding process works, and how government agencies are involved. It probably goes without saying...
Play it again Viktor via CIPE Development Blog
It seems that 7% year on year growth and increased integration into the world economy through WTO membership is not enough to keep the governing coalition of Ukraine held together. Today Yulia Tymoshenko announced that if the coalition is not reformed within 10 days Ukrainians would be heading back to the polls for the third time in as many years.
“But both [Tymoshenko and Yushchenko] – expected to spar for the presidential job in the 2010 election – have effectively served divorce papers on each other. Apparently, it’s a done deal this time, ending the governing coalition and parliamentary majority they created eight months ago.” (read the article here)
In the past year the coalition government has only passed the legislation necessary for WTO integration. It...
Don’t Let the Iron Curtain Fall via CIPE Development Blog
Small business can be a powerful force for change, but its potential to transform societies can be significantly undermined by political actions. This is the message the Russian business community is sending to the rest of the world.
The country’s recent actions in the Caucasus region generated a lot of criticism from nations near and far. While the world powers are mulling over a proper response, tensions are running high with discussions on sanctions and Russia announcing the withdrawal from some WTO agreements (for now at least).
The idea of the iron curtain going back down is on the minds of many. Not the old one, that used to separate communists from capitalists, but a new one defined by the struggle to identify real democratic values.
Recognizing the dangers of isolation...
Simple Steps to Make Investors Run via CIPE Development Blog
There are many guidelines on attracting investment. There are very few on doing the opposite. But if you are indeed willing to drive away investors from your own market, you can follow these simple steps:
Step 1: Undermine rule of law by selectively nationalizing companies of oligarchs through tax inspections and other financial levers (Yukos). Have your colleagues and trusted friends fill the vacancies in the private and state-owned companies made though these actions.
Step 2: Revoke contracts with major foreign firms over concerns about the environment, and then turn over the same projects to a domestic firm (Shell).
Step 3: Threaten joint ventures between international firms and domestic companies (TNK-BP). Raid the offices of the largest foreign portfolio investor in your country...
Georgia v. Russia – Everyone looses via CIPE Development Blog
In an increasingly globalized world when two countries pick a fight with one another the rest will suffer in some way. While I am not suggesting that pressures on supply chains and the oil market can ever be equated with the horrors of war, the fact remains that when two modern national economies pick a fight with one another the effects will be felt worldwide.
Georgia seems to be the more economically damaged of the two countries thus far. Its credit rating has recently been reduced from a B+ to a B by the ratings agency Standard and Poor’s (S&P) immediately after the start of the conflict. An economy that has been averaging 10 percent growth for the past few years also faces high inflation and a much smaller growth in GDP this year. Also, oil and gas companies that were...
The Difficulty of Ensuring Stability via CIPE Development Blog
Under President Putin, Special Aide and Deputy Chief of Staff of the Administration Vladislav Surkov was viewed as the Kremlin’s top “ideologist.” Now First Deputy Chief of Staff under President Medvedev, Surkov recently visited the annual summer retreat of the youth group Nashi (Ours). This Kremlin-backed project was designed to counter revolutions engineered from abroad during the 2007-2008 elections.
It’s unclear whether the Kremlin believed its own propaganda; most analysts found the idea of a tent city on Red Square laughably impossible. Perhaps Surkov, too, knew this all along, or perhaps, feedback between Russia’s government and its citizens is so distorted that revolution was considered a genuine threat. The truth is immaterial; whether the paranoia was real or staged,...
The Silly Season of Politics via CIPE Development Blog
Summer is the silly season of politics, in the world’s capitals the big fish are leaving town for their summer vacations and the vacuum of debate and dialogue gets filled with less serious issues, which none the less can become fodder for discussion in the media and at the summer resorts where the elites hang their hats. Moscow is not immune to the political silly season, Russians like long summer vacations, and it’s hard to get any work done in late July and August. Like Paris, the town empties out with ordinary folks headed to their dachas and the wealthy to the south of France.
So what are the topics of interest this silly season? In from the fringe of the debate comes a surprising contender, it appears that democracy, not the “sovereign” kind that Vladimir Putin and his...
The test of Mongolian democracy via CIPE Development Blog
Since 1990, Mongolia has been widely held as an example of a developing country that, despite the odds, managed to accomplish a peaceful transition to democracy after seven decades of communist one-party rule. But is Mongolia’s democratic transition complete? The recent unrest following an election dispute calls the progress made into question and warrants a closer look at the health of Mongolian democracy.
After the losing party’s accusations of electoral fraud – disputed by international election observers – scores of rioters (many intoxicated) attacked the headquarters of the winning party and the neighboring national art gallery. The ensuing mayhem resulted in five deaths, hundreds of arrests, and more than 1,000 priceless pieces of art destroyed or missing. But to many...
The Business of Raiding via CIPE Development Blog
In the 1990s, Russian companies would - at best - ignore calls for combating corruption; at worst - they would reward and facilitate it. They had their reasons - mainly that when the Soviet Union collapsed corruption became a way to get things done, to keep deals moving while state institutions lay in ruins. But as corruption settled in, it became more of a problem than a solution.
Enter the new hybrid of Russian corruption - corporate raiding. To simplify, it is a way for people with connections to state institutions to take ownership of companies for a fraction of their real price; or some times for free.
How the process works is explained wonderfully in this article by the Moscow Times. Importantly, the author notes how raiding continues to proliferate despite presidential...
Where oil wealth rises, democracy declines via CIPE Development Blog
Freedom House has just released the country reports from the latest edition of its annual Freedom in the World survey, as well as Nations in Transit report – a comprehensive annual study of reform in the former Communist states of Europe and Eurasia.
According to the findings, the year 2007 was marked by a notable setback for global freedom and one of the regions where it was most pronounced is former Soviet Union. One of the key findings of the Nations in Transit report is that as oil and natural gas revenues surge in Russia and Central Asia, democratic institutions are more and more in trouble. The erosion of democratic governance has occurred not just in electoral practices, but also in the areas of civil society, independent media, and judicial independence.
The reason for that... Controlling the Media? Tried it Before… via CIPE Development Blog
Belarus has been flying under the radar lately, but reforms are not standing still. Following a secret ballot, the parliament passed a new legislation in the first reading that will give the goverment greater control over media.
Civil society has several issues with the law as its been written up, but primarily it is that the law gives the government the right to shut down a media outlet after the first warning - one mistake and your are out!
Others have complained that the law would also apply to online media - and the Internet is the only place in Belarus where alternative voices are heard. The explanation is simple
However, Liliya Ananich, first deputy information minister, said in May that her ministry favored a registration requirement for online media outlets, as...
Just say ‘Nyet!’ - Corruption in Russia via CIPE Development Blog
In yesterday’s International Herald Tribune, Brook Horowitz (executive director of the Russian office of International Business Leaders Forum) penned a very interesting article - Just say ‘Nyet!’ - about Russia’s new President Dmitri Medvedev’s first decree as president to to create and chair an anti-corruption committee. It has caused quite a stir in a country that has been persitently dropping in Transparency International’s Corruption Perception Index. Horowitz notes:
Largely unnoticed, many Russian companies are beginning to do something about corruption even before new legislation is put into place. They are starting by getting their own houses in order. They are strengthening corporate governance by creating clearer separation of board...
Capitalist By Word - Populist By Deed – When will Ukraine’s Political Parties Stop Pandering? via CIPE Development Blog
In the snap parliamentary elections that were held last September in Ukraine Yulia Tymoshenko’s party (BYuT) surprised many Ukrainian experts with a large increase in votes over the previous election. In the run up to, and immediate aftermath of the elections her party held conferences and roundtables with the business community and investors assuring them that their investments were safe and improving the business climate was a top priority for the new “Orange” government. The first government led by Ms. Tymoshenko’s Bloc fell apart rapidly after her campaign of re-privatization that scared investors away and shook the confidence of Ukraine’s business community in their property rights. FDI into Ukraine plummeted and Ukrainian businesses stopped investing in new...
The Spirit of Democracy via CIPE Development Blog
A few weeks ago at the World Movement for Democracy, Larry Diamond, author of the Spirit of Democracy, sat down with our executive director John Sullivan to talk about his new book and “the struggle to build free societies around the world.” You can watch the interview on CIPE’s YouTube channel.
In part 1, Diamond talks about the meaning of democracy and whether it is for everyone or if it has cultural and other limitations. Is it for everyone? A hint - Diamond thinks that democracy is possible in China within a generation.
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In part 2, the discussion goes into the current state of democracy in Africa, including the recent crisis in Kenya and the ongoing conflict in Zimbabwe.
You need to a...
Investor’s Focus on the Ukrainian Market via CIPE Development Blog
On May 7th I attended an event sponsored by the U.S. – Ukraine Business Council here in Washington D.C. that featured an impressive gathering of legal professionals discussing the investment climate in Ukraine. Each presenter offered a slightly different take on the current situation in Ukraine, but they all seemed to agree on several key issues:
International investors continue to flood Ukraine with capital despite the risks. The continued high pace of investment is due to extremely high returns on investment.
Substantial reforms need to be implemented to improve the independence of the legal system and to the protect property rights of investors/owners.
Ukraine’s entry into the WTO should pressure the government to revisit some current legislation on investment.
The private...
Taking Advantage of High Oil Prices via CIPE Development Blog
With oil prices sky high and some predictions that they will continue to grow to as much as $200 over the next 6 months or more - one might think that oil producing countries are celebrating. Higher demand for resources - higher profits! Right?
Well, it seems like some can’t really keep up,
In the past, non-OPEC producers like Russia, Mexico and Norway have increased production to meet demand. But these nations have struggled to keep production at the levels of recent years. Norway’s production, for example, has decreased by twenty-five percent since two thousand one.
Russia, at one point the largest oil producer, has not been able to sustain its production levels and has seen its output decline over the past six months. One of the reasons behind this, according...
Beware of Snake via CIPE Development Blog
A corrupt bureaucrat can seem like a cozy business partner to entrepreneurs in developing countries. When an entrepreneur develops a corrupt relationship with a bureaucrat, that business can flourish as sharing profits with the bureaucrat result in a sudden onslaught of administrative pressures that eventually force the competing businesses out of the market.
As comfortable as this may seem to the entrepreneur that benefits from the relationship, eventually (s)he will realize that the unholy transaction was actually a bite of forbidden fruit and now a snake is sitting in his/her lap, studying the business’ weaknesses, waiting for the perfect moment to turn that “business partnership” into a means of extortion. Once the bureaucrat knows a business’ weaknesses, he/she wields all the...
Substance is Nothing, Image is Everything? via CIPE Development Blog
Image matters. In attracting investment, for example, economic and political fundamentals are important, but good image can do a great deal of service. It helps you capture the headlines and get ahead. It positively shapes people’s opinions about you. Alternatively, bad image can do some serious damage.
Image is something Russia has struggled with. Domestically, reforms are in full swing, people seem happiest since the dissolution of the Soviet Union, and support for the current government is unprecedented. In G7 countries, however, Russia often is a country of billionaires (2nd to the US according for Forbes) and democratic reversals - in other words, as the recent BBC poll has put it - Russia “causes concern.”
How do you reconcile the two such...