Could Moscow become an international financial center ? By Kira Lukyanova. (Rus)
An ambitious task to make in Russia an international financial center set before leaders of the country resulted to ambiguities in assessments made both by local and foreign colleagues.
In this regard, seems like ironical responses are prevailing. In spite of this, a great number of various historical events happened in Russia at time when skeptics had been forced to stop speaking abashed by their previous views. How it will be a next time ? Are there any chances for Moscow ?
Formation and growth process within world economics involves a development of international labour distribution, internationalization of economical processes, concentration of financial capital what stipulated an appearance and development of such economic events as international financial centers. These centers vary by their sizes, territory covered, specialization and functions performed. Today, London, New York, Hong Kong, Frankfurt, Zurich, Tokyo, Singapore, Luxemburg, Panama, Mumbai, Warszawa and many other cities and territories are staying with greater or lesser degree as international financial centers. These centers may be global or regional (and even local centers), universal or specialized, based on local market or could be offshore, centers with rich history or new formed. Some of these financial centers are new enough, and their history happened before us, their creation was based both, on natural economic, geographical, mental and other preconditions and on will, energy and calculations provided by makers of such centers. As result of studying such variance in arrangement of international financial life, it may be selected the following few preconditions which are promoting a creation of international financial centers within one or another territory, such as
· corresponding country’s position within world economic system and healthy state of its currency
· existence of monetary and credit policy and a good developed stock exchange
· good (favourable) geographical position
· moderate and clear tax policy based on transparent legislative principles
· opened financial system aimed to ensure a free capital movement and an access to borrowed resources
· opened stock exchange infrastructure that makes possible an easy and cheap transfer of rights on securities and their acknowledgment
· existence of necessary system for financial instruments
· availability of trained and skilled labour force to serve an international financial center’s infrastructure
· firm political policy maintaining a high level of economic freedoms in the country
· proved by time and legal based guarantees to be granted for participants in their international financial relations
It is clearly seen, that one part of such preconditions (first of all economic and geographical), have been applied historically and shall be deemed like attributed for each period of life of one or another country. Other preconditions mainly depend on political will and organizational abilities of persons, tasks set before country, and its elite. But, even creation of so called ‘movable’ preconditions, like development of special institutions, instruments, staff training and education will require a long time and a great deal of organizational and material efforts. In spite of this, as could be seen from examples of new developing financial centers, there is nothing impossible in such task. Because of that, it is natural, that we address a question for us in Russia – Could Moscow become an international financial center?
Are there any chances for Moscow ?
What could be seen at first glance – of course, it is not a geographical but more a geopolitical position of Moscow as an historical center that had became later a center for Soviet block.
However, when Soviet imperia collapsed, the relationships between Russia and many former Soviet Republics or East Europe countries have gone wrong. Image of ‘imperia of evil’ eventually will be flying over our relations for long time and will be deleted continually by time and thanking for new beneficial relations that will not be burdened by old claims and offences. And previous economic, cultural and friendly relations between our countries have been destroyed in many ways, some due to economic inefficiency, and some as result of rough political actions. Greatly, it relates to East Europe and Pribaltic countries, and lesser it relates to former USSR countries (though there are some exclusions in both cases). But, besides of all said, there is a great potential with respect to economic relations, and Russian language that remained and united USSR territory, beneficial economic condition of Moscow (as an important link between Europe and Asia), similar mentality (due to the fact that many leaders of former USSR countries and enterprises in the territory of these countries have studied or worked in Moscow, Petersburg or other Russian cities). Such benefits shall not be required to make, they had already existed, and just have not been used in a good way till present.
It is needed to add, that Russia is an undisputed economic and financial leader within former USSR territory. In many major transactions, a Russian Ruble was and is a currency for settlements within CIS countries (more often, for natural persons moved across borders). All that jointly shall give a chance for Moscow to be a local international financial center within former USSR and partly in East Europe territory. How that chance will be taken shall depend only from our efforts. A long time Russia has not time to think about international financial center. At some moment, the main question was the country’s survival. Some solutions were made just to revive economics and build a new economic system instead of social system destroyed. Economic and political crisis periodically added some variance in trend of Russian life. Already 8-10 years ago, any talks about forming any international financial center in Moscow could be proposed only by dreamers. Today, we are ready to use benefits available for us. Global financial and economic crises that began, could prevent but speed up such processes. During crisis, many political and economic changes could occur faster due to the fact that some slow-developing processes may be speed up.
Other preconditions required to change Moscow into international financial center may be created by us. Thanks, that such preconditions shall be attributed to category of so called ‘movable’ preconditions which could be created by people’s efforts for acceptable period of time.
Therefore, it may be possible to make a conclusion that a Moscow has a chance. What it shall be supposed to do will be stated below.
Challenges and ambitions.
So, Russia has possibilities to turn itself into international financial center. But its successes in this area are lesser then moderate. Due to start delayed, and, in many matters, due to one’s own mistakes and unfinished tasks, many necessary reforms and reformations launched in 90th have not been completed in full, and some of these have not been taken at all. For example, people’s participation in investments into securities has not become a mass trend due to the fact that USSR’s exchange market had never existed and it is not easy task for people to accept a new culture in order to make investments on exchange markets. We have a good understanding of this, so we are ready for an effective, methodical work for this purpose. Plans to form an international financial center – shall be a good reason in order to reach a first-class financial infrastructure and working environment at stock exchange.
Difficulties concerning formation of the international financial market will clearly show a position with respect to foreign capital attraction to our country. A need in such attraction always was declared as an important target. Various programs will be taken that will be aimed to improve investment environment, a statutory-legal base will be updated for foreign investors’ activity, stimulating measures will be taken, a policy will be developed for attraction direct investors to regions. And such programs are at stage of implementation ! But results from them, till present, have not meet our expectations.
What’s the problem ? May be, it should be in something another, in more subtle matters, and may be far from any economic factors, such as political position, image of country and people, at last, may be it simply related to possibility for foreign businessmen to visit Russia in a quiet and comfortable way, stay at comfortable hotel, able to choose a known foods to eat, be understood at streets, hotels, restaurants.
The country accepted a conception aimed to form an international financial center at the Russian Federation. At that, formation of center will be deemed an end target. As marked before, implementation of this conception into life will allow to change in better way a work of financial and securities market, enforcement of relevant laws, putting tasks for financial infrastructure for further development. And the most important it will be a building of the Russia’s positive image. Making comfortable conditions for work of foreign businessmen, strengthening of relations and maintaining trust between Russian and world financial sectors.
Till present, a serious barrier that has been preventing a work of foreign businessmen in Russia and for our businessmen in Europe and USA, was a visa procedure and migration laws. In spite of many summons and good wishes concerning visa matters, no improvement has been seen. Within framework of the conception, an author of this article has prepared a draft, that greatly simplifying entrance, staying and working in Russia for foreign businessmen who are working in area of investments and finance. If financial and other specialists visiting Russia will have less administrative problems and barriers during various type of document executions, it shall improve an image of Russia, will increase a number of those who want to work here, it will speed up our stock exchange. It is desirable that Europe Union will make an actual movement towards destruction of various types of existing barriers and simplifying current visa procedures.
The conception shall also provide a full range of complex measures purposed for modernization and liberalization of the Russian stock exchange.
So, in the near future, amendments to laws will be approved and they will permit an entrance for foreign securities to Russian stock exchange. Draft of law concerning depository receipts is at stage of preparation. Approval of these drafts will open a route to Russian market for various types of foreign securities. Such situation, immensely, will help to return securities from Russian issuers which by any reasons had been issued abroad. It will result to increase in turnovers on the Russian market, increase in liquidity, will grant an additional variance. Principally, it was needed to do years ago. Our colleagues in Warszawa successfully provided solution on attraction of foreign securities to Warszawa’s stock exchange, including from East Europe countries and former USSR countries. The wheels of Russian state sometimes work too slowly or ineffectively and that fact should be admitted.
The most important law draft concerning insiders’ information and market management is at stage of its preparation and under active discussion. This is one more example showing a serious delay in laws comparing to market needs. But better to be late then never to be. Exchange market will not exist without struggle with insider and financial manipulations in Russia. A great role in draft law preparation will be played by relevant experience learned from Europe and USA. Draft law gives some concern from the part of mass media that afraid of main struck within Russia that could be directed not towards insiders and manipulators but towards sources that give information. Now, State Duma formed a work group which also include an author of this article. The group has a joint work among draft makers, representatives of relevant authorities and mass media together aimed to prepare a draft law in form acceptable for all parties.
One more example of undue delay – is a project to arrange an insurance system among stock exchange participants against unfaithful actions or mistakes from the part of brokers. In due time, arrangement of state insurance on banking deposits had plummeted deposit sums on private person banking accounts. It is possible that a similar insurance system will push the turnovers up on stock exchange market.
A draft law on infrastructural bonds will be deemed important for development of international market of debt securities, and I will take an active part in its preparation. There is a great market of infrastructure projects in Russia. Not small part of such projects economically justified and will be repaid in the event of due realization. Other part of such projects will require a partial or full state financing. In any event, implementation of these projects will require big volumes of borrowed finances. From one part, a task of draft law preparation aimed to make conditions for qualitative preparation of existing projects, from other part – to issue reliable, first-class debt securities covered by required guarantees (including state guarantees). In second half of the 19th century, the Russia suffered a boom of railroad construction that had never been before. This boom became possible thanking for private capital participation in this construction of railroads granting financing for such construction by issuance securities covered by private state guarantees. Today, a big country needs a mass updating and extension of infrastructure. It is a good time to use a previous experience again. And issuance of new and reliable debt instruments will provide an additional dynamics for stock exchange market.
Besides that, it will be wrong to believe, that we are speaking about Moscow only. Creation of international financial center will become such a project that will set a new level for country’s financial structure in whole. Within framework of this conception, it shall be supposed to create regional financial centers. A great development will be made for payment systems to be located at regions. In this regard, we have been too delayed if to compare to Europe and USA, so we have an example and a route to follow.
It is not possible to give a full description of all measures stipulated to develop conception within framework of this article. I think, that a level of our ambitions and claims will be clear enough based on already mentioned. Russia has to come a long way towards development level of international financial centers in other countries. We have already made the first steps towards this purpose. Now, the main task shall not be stopped and to continue a whole route envisioned.
March 10, 2009
Member of the State Duma, the faction «Just Russia». Member of Committee of the Duma for Economic Policy and Entrepreneurship. The leader of public movement in support of the family, motherhood and childhood «Ray of Hope», President of the charitable foundationof the same name.