:00:16. > :00:20.that. Now, it is time for hard.. Does Russia deserves its status as
:00:20. > :00:26.one of the newly powerful global economy is, alongside Brazil, India
:00:26. > :00:30.and China? One respected economists said that Russia is more sick than
:00:30. > :00:38.brick and it is unclear whether Vladimir Putin will provide the
:00:39. > :00:48.boost that the Russian economy needs. My guest is the head of
:00:49. > :01:14.
:01:14. > :01:18.Russia's second biggest bank. Andrey Kostin, welcome to HARDtalk.
:01:18. > :01:22.Let me start with that memorable quotation. It is a leading
:01:22. > :01:24.economist. He said Russia is more sick than BRIC. And he said that
:01:24. > :01:34.Russia does not deserve to be classified with China, India and
:01:34. > :01:39.
:01:39. > :01:43.Brazil. Do you agree with that? at all. He has the right to have
:01:43. > :01:53.his own opinion. But Russia is showing strong growth. It is
:01:53. > :02:03.growing higher than the other countries. It also provides very
:02:03. > :02:06.
:02:06. > :02:09.good macroeconomic data. We are expecting growth of 45% of GDP. We
:02:09. > :02:18.have decreased inflation in 2008. Up till now, it is 4%. Russia has
:02:18. > :02:22.one of the best situations with debt. It is going quite well. You
:02:22. > :02:29.have given me a lot of data and there is no doubt that Russia is
:02:29. > :02:33.still growing. But why is it that confidence from the outside, in the
:02:33. > :02:36.future of the Russian economy, seems to be so lacking? In the last
:02:36. > :02:39.year, more than $80 billion of investment was pulled away, back
:02:39. > :02:44.from Russia, and in the first quarter of this year, the figures
:02:44. > :02:54.were even worse. Why are outside investors running scared of Russia?
:02:54. > :02:54.
:02:54. > :02:59.Russia is still very vulnerable from external factors. For example,
:02:59. > :03:03.the stock market is very dependent on foreign investment. This
:03:03. > :03:13.probably explains the volatility of the markets. You would accept there
:03:13. > :03:13.
:03:13. > :03:18.is a lack of confidence from outsiders. I think it is overrated.
:03:18. > :03:28.Russia represents quite a good case for investment and development.
:03:28. > :03:29.
:03:29. > :03:32.Investment in Russia is growing. I think from think from the
:03:32. > :03:39.new breed, you mentioned Mr Putin's tenure, it represents political
:03:39. > :03:42.stability as well as a good economic environment. It is
:03:42. > :03:47.interesting that you see it in a positive light, that Vladimir Putin
:03:47. > :03:51.has another six years in power. If you look at the Russian economy,
:03:51. > :03:55.it is based on two things, it is based on Vladimir Putin and his
:03:55. > :03:59.approach to economic management, and the price of oil. Both those
:03:59. > :04:09.factors, as seen from the outside, leave Russia very vulnerable. It is
:04:09. > :04:13.
:04:13. > :04:16.true to a certain extent. But it is also based on good economic policy.
:04:16. > :04:20.If you look at the situation in Europe, Russia has a surplus budget,
:04:20. > :04:23.and this year, even though the oil price is weaker, we have had a 1.5%
:04:23. > :04:26.budget deficit. If you look at Europe, not only Greece or Spain,
:04:26. > :04:29.but Germany and the US, it is quite a different economic policy. But
:04:29. > :04:31.none of those countries are quite as reliant on oil. If oil
:04:32. > :04:38.consistently dips below $100 a barrel, the Russian economy is
:04:38. > :04:45.going to be in terrible difficulty. If you ask me what the major
:04:45. > :04:48.challenge is, it definitely is a need for structural reform. That is
:04:48. > :04:53.what Russia needs and what it is planning to do, with particular
:04:53. > :05:03.focus on innovation. We will talk a lot about that. We will see how
:05:03. > :05:10.
:05:10. > :05:12.serious Putin's commitments to reform are. You are sounding upbeat.
:05:12. > :05:14.I wonder why somebody from Renaissance Capital, another
:05:14. > :05:18.important financial institution in Moscow, he said that halfway
:05:18. > :05:28.through Putin's term, the economy will hit a wall. Russia will be
:05:28. > :05:29.
:05:29. > :05:36.forced to borrow. I think the Russian government understands
:05:36. > :05:45.quite well the problem with the economy. You accept the analysis,
:05:45. > :05:48.particularly if the oil price continues on the trend. We went
:05:48. > :05:53.through the first crisis quite successfully, although we lost a
:05:53. > :05:55.lot of GDP growth, we remained stable. Our financial sector
:05:55. > :06:05.remained stable, and basic macroeconomic data remained quite
:06:05. > :06:07.
:06:07. > :06:17.stable. I think that Russia is quite prepared for the new wave if
:06:17. > :06:20.
:06:20. > :06:23.it happens. Having said this, of course we will be vulnerable unless
:06:23. > :06:33.we structure our economy and that is high on the agenda for any
:06:33. > :06:34.
:06:34. > :06:37.leader. It is high on my agenda for this conversation. But one more
:06:37. > :06:44.point before we get to the internal argument for reform. There is
:06:44. > :06:47.another external factor. It is the fall-out from the euro crisis. No
:06:47. > :06:52.doubt that Russia has Europe as a major trading partner and a source
:06:52. > :07:02.of investment. You yourself in your bank has often looked for major
:07:02. > :07:08.
:07:08. > :07:11.investment in Europe. The fact is right now, it is difficult to
:07:11. > :07:14.imagine you finding fresh new sources of venture capital in
:07:14. > :07:17.Europe, because the credit markets are tightening. The answer is yes.
:07:17. > :07:20.The major problem which might be for Russia is the general recession,
:07:20. > :07:23.the recession in Europe. We are not so much exposed to the problem in
:07:23. > :07:26.the financial sector, but if the commodity prices move down because
:07:26. > :07:29.of the recession, then we will be in trouble. For us, it is very
:07:29. > :07:32.important that Europe goes for growth, it is as important for
:07:32. > :07:36.America and China to continue to grow. We are part of the global
:07:36. > :07:46.economy. You are looking pretty cheerful, but there is not very
:07:46. > :07:49.much ground to be cheerful, heading up a big Russian bank at the moment.
:07:49. > :07:52.If you look around the world, things do not look good. How are
:07:52. > :07:55.you going to deal with not just a slowdown, but something much worse
:07:55. > :08:05.than that in Europe, and a persistent lack of growth in North
:08:05. > :08:08.
:08:08. > :08:18.America as well? We are living through a very optimistic and good
:08:18. > :08:29.
:08:29. > :08:31.period from 2005-2007. Then we had a very sharp crisis in 2008. But I
:08:31. > :08:35.think we expect quite a long and protracted period of uncertainty,
:08:35. > :08:37.but we just have to accept it. Maybe low oil prices are good for
:08:37. > :08:41.Russia because it will make the government think more about
:08:41. > :08:51.restructuring the economy, so I do not see the departure of Greece or
:08:51. > :09:01.
:09:01. > :09:05.even other problems as the end of the world. We have to accept this,
:09:05. > :09:07.and we have to change our mind in order to focus on different things,
:09:07. > :09:11.to become more conservative maybe, to become less ambitious, but still
:09:11. > :09:13.work very hard in order to protect the company and to develop further.
:09:13. > :09:16.When you are briefing your colleagues and shareholders about
:09:16. > :09:19.the situation in Europe, do you tell them that they should plan,
:09:19. > :09:22.Russia's banking system should plan for the break-up of the euro? Do
:09:22. > :09:32.you believe that Greece, maybe even a few other peripheral states, will
:09:32. > :09:42.
:09:42. > :09:45.have to leave the eurozone? It still has to be seen. I understand
:09:45. > :09:48.how it is difficult for politicians to make decisions that they have
:09:48. > :09:52.already made. I am asking whether you plan for it. At the moment, our
:09:52. > :09:55.basic scenario is that Greece will stay as part of the European Union,
:09:55. > :09:58.but there will not only be a problem with Greece, there will be
:09:58. > :10:08.a chain reaction, there may be a problem with Spain, Portugal, other
:10:08. > :10:10.
:10:10. > :10:12.European countries. So there is no easy solution. It brings us to what
:10:12. > :10:16.we have already alluded to. reform situation in Russia. It
:10:16. > :10:19.struck me as amazing, that you, a man who has for some time made the
:10:19. > :10:22.case for significant fundamental reform in your country, should in
:10:22. > :10:32.the recent election campaign, come out as such a loyal and strong
:10:32. > :10:34.
:10:34. > :10:37.supporter of Putin, describing him as the father of the nation. You
:10:37. > :10:40.said he has had a liberal economic policy. That is just not true.
:10:40. > :10:50.Russia has the most liberal current regime. Investors can come and live
:10:50. > :10:54.
:10:54. > :10:59.in Russia without any restrictions. Mr Putin was always listening to
:10:59. > :11:04.what was called the liberal economic part of the government.
:11:04. > :11:07.They were advising him. I think our economic policy is liberal. You
:11:07. > :11:09.think it is a economically liberal to have the most extraordinary
:11:09. > :11:13.centralised, state-managed economy, riddled with corruption as well, an
:11:13. > :11:23.economy where the state owns 75% of your own bank, more than half of
:11:23. > :11:23.
:11:23. > :11:33.the other biggest bank, and it dominates the energy sector.
:11:33. > :11:38.
:11:38. > :11:41.state is the only hugely important actor in the Russian economy. If
:11:41. > :11:44.you look at the bank, you mention the restructuring reforms, if you
:11:44. > :11:48.look at my situation, where I became a chairman ten years ago, in
:11:48. > :11:51.that time, we not only grew by 45%, sorry, 45 times, and we also had an
:11:52. > :11:54.IPO in London. But you are 75% owned by the Russian state. It is
:11:54. > :11:58.most unclear whether they are going to divest themselves... 10%, we
:11:58. > :12:01.sold shares for $3 billion. But it is not easy today to sell shares.
:12:01. > :12:04.Why in that case, in May, did Putin issue a decree cancelling the
:12:04. > :12:14.planned privatisations that were going to be a key symbol in the
:12:14. > :12:38.
:12:38. > :12:48.energy sector? He cancelled the privatisations of a few giant
:12:48. > :13:08.
:13:08. > :13:11.He cancelled the privatisations of a few giant energy companies. I
:13:11. > :13:13.spoke to Mr Putin myself about privatisation and I found he
:13:13. > :13:23.considered that private investors probably would be better managers
:13:23. > :13:30.
:13:30. > :13:40.than the state ones. Why did he roll it all back? Everything should
:13:40. > :13:41.
:13:42. > :13:45.be done properly. I was working in London in Margaret Thatcher's time.
:13:45. > :13:48.It took a long time to make major privatisations. We are a country of
:13:48. > :13:58.extremes in Russia. One day, the economy is all public and then we
:13:58. > :14:04.
:14:04. > :14:06.are going to sell everything at once. But we are not asking for the
:14:06. > :14:09.world. Realistically, Vladimir Putin has been in power for 12
:14:09. > :14:12.years. Eight as president, four as prime minister. He has had every
:14:12. > :14:15.opportunity to prove himself to be the economic liberal that you claim
:14:15. > :14:18.he is. He has consistently refused in practical terms to show that he
:14:18. > :14:22.really does want to deregulate, to privatise and change the Russian
:14:22. > :14:32.economy. Why do you believe he wants to do it now? He had a number
:14:32. > :14:37.
:14:37. > :14:39.of tests in Russia since he came to power. One of the major tests was
:14:39. > :14:42.to change the Russian economy, which was not only economic but
:14:42. > :14:45.society dominated by oligarchs. He managed to separate the economic
:14:45. > :14:48.power from the political. You may not call them oligarchs any more
:14:48. > :14:53.but the people who dominate the economy now are friends of Mr Putin
:14:53. > :15:01.from way back, people who have KGB associations. This is not an open
:15:01. > :15:05.economy. In my life, never has Mr Putin called me and asked me to
:15:05. > :15:12.help one of his friends. I can assure you. There is nothing wrong
:15:12. > :15:16.with having friends who are doing business. Why has he appointed a
:15:16. > :15:19.former KGB colleague to be the head of energy - the man who has
:15:19. > :15:29.essentially put his thumb on top of the privatisations and says they
:15:29. > :15:29.
:15:29. > :15:34.will not happen? Because he was, for some time, chairman of the
:15:34. > :15:40.supervising board of directors because he is experienced. He was
:15:40. > :15:43.deputy prime minister for many years. But he does not believe in
:15:43. > :15:49.economic... Even you would say he is not an economic liberal. He is
:15:49. > :15:52.not. But he is not defining the economic policy. He is defining the
:15:52. > :15:58.policy of one corporation and he will be quite a good manager for
:15:58. > :16:01.that. One banker, and I am guessing it was not you, anonymously told
:16:01. > :16:03.the Financial Times the other day that privatisation was going to be
:16:03. > :16:13.the litmus test of the new government in its reform programme
:16:13. > :16:13.
:16:13. > :16:16.and it looks like it has been muted. If you asked me about whether
:16:16. > :16:23.everybody in Russian government in Russia wants privatisation, the
:16:23. > :16:26.answer is probably no. Or if everybody understands the
:16:26. > :16:29.difference. But I am sure the trend in Russia for the next five years
:16:29. > :16:39.will be massive privatisation of the big companies, not only the
:16:39. > :16:45.small. Small companies, even the energy sector, will be privatised.
:16:45. > :16:47.When? When will you be the boss of a fully privatised bank? It depends
:16:47. > :16:52.on the market completely. There are no other political restrictions.
:16:52. > :16:55.The government said 100% it can be sold. It is now the management team,
:16:55. > :17:01.together with the government team, to see whether the market can eat
:17:01. > :17:04.so many shares. Talking about eating things in the economy, what
:17:04. > :17:07.really eats stuff in the Russian economy is corruption, of course.
:17:07. > :17:10.Leaving aside privatisation, maybe more important is to clean up the
:17:10. > :17:17.stable when it comes to all the corruption we see from top to
:17:17. > :17:20.bottom in the Russian economy. The newly appointed ombudsmen for
:17:20. > :17:23.business rights in Russia says that in the last decade, let's not
:17:23. > :17:33.forget that it's Mr Putin's decade, Russia has locked up nearly 3
:17:33. > :17:34.
:17:34. > :17:41.million entrepreneurs. What do you make of that? I am seeing life from
:17:41. > :17:44.the other side. Meaning, you are not in prison? No, a businessman
:17:44. > :17:54.who is borrowing money from the bank and then cheating and making
:17:54. > :17:56.frauds. Nearly 3 million entrepreneurs, you believe they
:17:56. > :18:03.cheated? No, there is a problem with economic crimes in the
:18:03. > :18:11.criminal court. This process will be continued and the Ombudsman is
:18:11. > :18:18.very important. He is well known as a person who protects the rights of
:18:18. > :18:21.particular small and medium-sized businesses. But we will see whether
:18:21. > :18:24.he is allowed to deliver a clean-up of the business and legal systems.
:18:24. > :18:27.For example, I believe, only a matter of months ago, a senior
:18:27. > :18:37.judge resigned and has since said, "Many innocent people are locked up
:18:37. > :18:38.
:18:38. > :18:43.in our system". He says judges come under enormous pressure from the
:18:43. > :18:46.state security apparatus and from prosecutors. Would you not accept,
:18:46. > :18:49.as a man at the top of Russian business, a figurehead in the
:18:49. > :18:56.Russian economy, that this is a massive problem for Russia actually
:18:56. > :18:59.improving its economic performance and combativeness? On the one hand,
:19:00. > :19:07.I agree. There should be more liberal criminal courts for
:19:07. > :19:10.economic crime. But we have a different situation. I have seen
:19:10. > :19:18.seven criminal cases raised against the former chairman of the Bank of
:19:18. > :19:25.Moscow, now living a multi-billion dollar lifestyle in London. $5
:19:25. > :19:29.billion disappeared from the bank. We still cannot find that. But
:19:29. > :19:38.liberalisation of the economic court is very much on the agenda. I
:19:38. > :19:46.personally am on the conservative side. The criminal cases should be
:19:46. > :19:50.punished. Maybe not so severe but still there should be some
:19:50. > :19:54.punishment for criminal cases, as all around the world. I just want
:19:54. > :19:56.your thoughts on one other aspect of this. I am sure you would agree
:19:56. > :20:03.that the case of Mikhail Khodorkovsky was important in
:20:03. > :20:08.Russia. It sent a signal. I was fascinated when I had one of the
:20:08. > :20:14.biggest Russian billionaire's on HARDtalk recently. He said he
:20:14. > :20:20.thought Mikhail Khodorkovsky was punished too much. Do you agree?
:20:20. > :20:23.is a difficult question. It is a pretty simple question. Are you
:20:23. > :20:32.happy to see him serving a second six-year, I believe, sentence on
:20:32. > :20:39.top of his first? Probably enough is enough, yes. Should he be
:20:39. > :20:44.released? You can never forget the Godfather Book which says that
:20:44. > :20:52.behind every great fortune is a crime. I'm not sure whether it was
:20:52. > :20:56.right or wrong. But enough is enough? I think it will be useful
:20:56. > :21:01.for the President to release him. Now? Probably now, yes. Have you
:21:01. > :21:04.told him personally? No. It is important. As we discussed, you
:21:04. > :21:12.want to give a sign that Russia is changing and bring back foreign
:21:12. > :21:18.investment to Russia, it would be an important symbol. Each country
:21:18. > :21:22.has to deal with this issue. It was a criminal case. When you talk
:21:22. > :21:27.about Britain, you say the courts are independent from the government.
:21:27. > :21:33.Your government officials will never say, yes, we will try that.
:21:33. > :21:38.It is a court decision. We are not intervening. Mr Putin probably says
:21:38. > :21:42.the same. A quick final thought on Vladimir Putin. You wrote back in
:21:42. > :21:44.February that you wanted him to declare that he would only run for
:21:44. > :21:50.this current six-year presidency, that he should not run for another
:21:50. > :21:58.term afterwards, as he is allowed to do. Do you still believe he must
:21:58. > :22:02.make this his last term? That is not exactly what I was writing. I
:22:02. > :22:05.wrote that Mr Putin has a special ease in his pocket, that he can
:22:05. > :22:15.declare that he will only stay for six years if he wants to strengthen
:22:15. > :22:16.
:22:16. > :22:20.his position. What do you think? As one of the most important economic
:22:20. > :22:25.figures, would it be better if the said he would only serve this term?
:22:26. > :22:29.Not at all. Only life will show us. If Mr Putin, in his third term,
:22:29. > :22:39.managed to give a country new drive, then he would have a good chance to
:22:39. > :22:40.
:22:40. > :22:42.stay for another term. A final thought, and this takes us to
:22:42. > :22:47.foreign affairs. You have spoken out against America's efforts to
:22:47. > :22:50.impose financial isolation on Iran. Do you think it is good, given what
:22:50. > :23:00.we have discussed about the state of the Russian economy, for Russia
:23:00. > :23:00.
:23:00. > :23:05.to be seen internationally to be on the side of Ahmadinejad? We are not
:23:05. > :23:10.talking about taking sides. When the American Congress adopted the
:23:11. > :23:16.legislation at the end of last year, we had to obey, for example. We
:23:16. > :23:19.stopped all relationship with any Iranian banks. Even the companies
:23:19. > :23:26.in Russia who were selling figs from Iran to Russia, we stopped
:23:26. > :23:30.services. Even though it had nothing to do with high politics.
:23:30. > :23:35.And you bitterly resent that? resenting the Russian government as
:23:35. > :23:38.well. That one government uses its currency, a major settlement
:23:38. > :23:40.currency in the world, but that doesn't really coincide with the
:23:40. > :23:50.World Bank Charter and that it imposes these restrictions for
:23:50. > :23:53.
:23:53. > :23:56.political reasons, using the financial instruments. Because
:23:56. > :24:04.tomorrow, there will be another country, then the third one, the
:24:04. > :24:06.fourth. All such measures, like sanctions, should be adopted based
:24:06. > :24:14.on the international efforts and decisions, like the United Nations,