Rehashing the Crisis and Investing in People

February 4, 2011


On the second day of The Russia Forum 2011, guests and participants engaged in discussions of a wide range of complex and important issues facing the Russian and world communities. Economists, investors and businesspeople wonder about the fate of future privatizations in Russia and the outlook for the CIS banking sector, forecasts on infrastructure projects and prospects for venture investments, as well as the new realities of the telecommunications market, the real estate sector and the agro-industrial complex. Among top highlights from the day’s discussions were two speeches by world-renowned investor and philanthropist Michael Milken and economist Nouriel Roubini, who offered their interpretations of the post-crisis world.

The world business community today is seemingly split between optimists and pessimists, the first believing that Asian markets can tow along the developed economies, the second preoccupied with continued instability. The discussion session “Global Investment Outlook: Where is the Money & What Are the Risks” brought together people from both sides. Nassim Taleb, Distinguished Professor, New York University Polytechnic Institute, was rather skeptical about the U.S., arguing that the wall of debt there could end up playing a cruel joke. Furthermore, government pledges to reduce the budget deficit by lowering unemployment don’t withstand criticism, Mr Taleb says. Scott Minerd, CIO, Guggenheim Partners, also believes that a market correction in the U.S. is likely in the long-term. In addition, Mr Minerd cautions against major investments in the European Union for now, as well as investing in overheated emerging markets where a “rough landing” is likely. Warning about the riskiness of investing in China was Russell Napier, Strategist at CLSA. “China is controlling prices, even if inflation doesn’t exceed 5%. It is very difficult for investors to earn money in such a country. Given a tough policy like this, corporate profits in China could eventually fall to zero,” he asserted.

A series of discussions addressed current risks and opportunities for the Russian government and business, including the sessions “Russian Telecoms: Go Global or Stay Local?”, “Credit, FX and Rates: Pricing Challenges in a Changed Environment,” “Infrastructure: Needs, Plans and Beneficiaries?”, “Russian Real Estate Sector: Where Have We Been, Where Do We Go?” and others. Attending these discussions were numerous distinguished executives from leading Russian companies like Russian Railways, Aeroflot, Vimpelcom Ltd, Evraz Group, Sberbank, as well as representatives of major investment funds and prominent economists. A particularly enthusiastic response was noted at the session “Privatization: Charting the Way Forward.” In his remarks at the session, Arkady Dvorkovich, Aide to the Russian Federation President, said that the pace of privatization and how it unfolds will be up to the market weather. “We won’t hit the brakes. Several deals are already planned for this year,” he said. According to Boris Jordan, President, Chairman of the Board of Directors, Renaissance Insurance Group, governments must maximize asset values and foster higher market competition. He said, “The privatization process should be fully transparent. It is critically important to uphold the law and protect investors’ rights. Interest in Russian companies is high. I don’t see any problems with selling assets.”

In a much-anticipated and thought-provoking discussion, Michael Milken, Chairman of the Milken Institute, and Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business, offered their viewpoints on the growth outlook and transformation of the world economic balance. According to Mr Milken, we haven’t learned to draw lessons from the past: “We forgot that debts can be both passive and active. The more long-term a debt is, the more it presents flexibility for maneuvering. Interest rates are currently much lower than they were in, for example, the 1980s. There are enormous liquidity reserves in the world – the current accounts of the U.S. and Western European countries have approximately $3 trillion in cash. The same question is being asked everywhere in the world: “Where to invest money?” not “Where to get it?” He emphasized the importance of developing human capital, which given the appropriate conditions could contribute hundreds of trillions of dollars to the world economy. Yet this requires improving living standards and a greater focus on medicine and education.

In his turn, Nouriel Roubini urged investors to make plans with a view to the long-term. Apart from strengthening the debt burden and increasing the influence of emerging markets, the main challenge facing the world community today is the planet’s aging population. According to Mr Roubini, “Thanks to new technologies we can live longer and longer, but in terms of the financial and pension systems we can’t afford this. Crises are predictable, they happen again and again. But banks are going back to their former practices, so the likelihood of similar bubbles is also increasing.” The economist doubts whether the “G20” is actually in charge of the world. “From the G20 we’ve come to G0. No one has the deciding word, there are too many disagreements among leaders on practically all the fundamentally important points – monetary policy, food and energy security, climate change, etc. Coordinating the efforts of the G20 is considerably more difficult than the G8,” the economist said.