Date: Sun, 21 Jul 2002 17:02:19 -0400 (EDT) From: Michael Pollak <mpollak at panix.com> Subject: Cheney, Russian mafia
[Ahh, death by a thousand innuendos. Wait, that's a bad thing.]
[So Chris Doss, out of curiousity, what's there to know about Tyumen and the Alfa group? And how did one distinguish a true mafia firm from a run of the mill tough oligarchical competitor in the 90s in Russia?]
---------------- I can't give any real details off the top of my head on Tyumen Oil. Co. or Alfa. I think TOC is in a small ownership scandal right now.
Presumably, the "real" mafia would be distinguished by specializing in hits, drug running, human trafficking and so forth. Beyond that, there's not much difference.
This is an interview with Pyotr Aven, head of Alfa.
Chris Doss The Russia Journal ----------------------------
This article was published in The Russia Journal ISSUE No.24 (117), DATE: 2001-06-22
---------------------------------------------------------------------------- ---- ‘Russia’s changing – but slowly’ Financier Pyotr Aven talks about reform and economic woes
By EKATERINA LARINA / The Russia Journal He coined the term "appointed millionaires" to describe the Yeltsin-era’s transfer of assets to a privileged few that included himself; and last year he advocated the use of totalitarian force to implement liberal reform as an answer to Russia’s problems.
But then, Pyotr Aven, president of Alfa-Group, has always had a nose for the direction the wind is blowing in Russia.
Alfa-Bank, the financial arm of Aven’s group, emerged virtually unscathed from the devastating August 1998 financial crisis, while Aven provided substantial backing to the seemingly hopeless Union of Right Forces (SPS), the party of Yeltsin-era reformers cobbled together before the 1999 elections that went on to top the liberal vote.
A former minister for foreign economic relations in the short-lived Yegor Gaidar administration, and an economist himself, Aven has also recently been a vocal supporter of presidential economic aide Andrei Illarionov, who has repeatedly criticized the government over the sluggish pace of reform.
Aven spoke to The Russia Journal’s Ekaterina Larina about the Russian economy, the prospects for reform and the future of his own Alfa-Group
RJ: Russia is experiencing relative stability at the moment, but while some observers see changes for the better, others say we’re heading toward a police state. What’s your view?
PA: I’m closer to those who say we’re changing for the better – only very slowly. I don’t think we’re heading toward a police state. I would like to see more serious reform go ahead; but slow though the process may be, the issues on the agenda are now being tackled. Look at pension reform – although they’re the result of compromise, decisions have been made that give us some hope of building an individual pension system.
The process is also underway in housing and utilities reform – a cornerstone of broader budget reform – and in judicial reform, where compromises will also no doubt arise, but which is moving in the right direction.
RJ: What compromises in pension reform are you talking about?
PA: Compromises concerning the amount to be paid into individual pension accounts, for example, and the fact that the State Pension Fund retains such a huge role.
RJ: You think it should all be private?
PA: Definitely. I think the amount of money going into the new system should be higher, and more active use should be made of private funds.
RJ: Where should that money be invested – in Russia or the West?
PA: The first draft of the law on this issue proposed that the state would decide where to invest the money. I don’t think this will happen in the end. If it were my decision, I’d bring in Western consultants to develop the system and draw up the rules for investment by private funds.
As for the West, you can set rules for how much of a portfolio you’re obliged to invest in Russia, up to 100 percent. There’s nothing terrible in this. In Chile, for example, where pension reform has been going on for 20 years, all money had to be invested in the country. The main thing is for private funds to be allowed to choose for themselves where to make long-term investments. It’s a more effective and market-oriented approach.
RJ: Is the gradual nature of reform inevitable, or is it the president’s choice of strategy?
PA: I think things could move faster in the economy. We’ve got 4 percent growth this year, and that’s not a good figure. All our economic competitors are growing far more rapidly. We were rejoicing at having 8 percent GDP growth last year and 10 or 11 percent industrial output growth; but look at Malaysia or South Korea, where industrial output growth was 35 percent in 1999, after the [1998 Asian financial] crisis. Four percent growth for a country with our level of development is not a good performance at all. We’re slipping all the time in the world economic hierarchy.
But, at the same time, I understand [President Vladimir] Putin’s arguments. The country is sick of constant upheavals and wants stability. Putin’s very high popularity ratings are to me a sign that people would rather have more stability, even if it means living less well, than plunge into what looks like another risky undertaking. This is logical in its way, but only history will tell which logic was the right one to follow.
RJ: But rather than supporting ordinary people, couldn’t this tactic just be about weaving a path between various influential groups and their interests?
PA: I don’t think so. Putin has a lot of room to maneuver now, and I think banking reform, for example, could go ahead easily. I don’t think it’s a problem that people try to get in the way. There’s always some kind of fight going on, but it’s a question of political style.
RJ: And what are your thoughts on banking reform?
PA: Nothing’s happening in the banking system, and I don’t see any reason for this state of affairs. I am for drastically reducing the number of banks and tightening requirements on them. We need to introduce Western accounting and reporting standards. I think the Central Bank should withdraw from commercial banks’ capital, or, at worst, relinquish or restrict its supervisory functions. Though, I would rather see it keep its supervisory functions. Then, we also need a law on Sberbank, which is undermining competition for everyone on the market.
RJ: What’s your view on guarantees for deposits?
PA: I support any system that would set equal conditions for everyone. In Poland, for example, they abolished guarantees altogether, and retail banking really took off. You could also take a number of banks that meet certain requirements and give the same guarantees as Sberbank. But until we have equal conditions for all, there won’t be any normal retail banking market in the country.
RJ: But is there really nothing happening in the banking sector?
PA: For something to happen, we’d first need a banking sector. We have very few real banks. A bank is an institution that is transparent, comprehensible and provides clear statistics. Only state banks, such as Vnesheconombank (VEB) and Vneshtorgbank (VTB), plus another five banks really merit the name. A bank with capital of $1 million isn’t a bank. This explains why we’ve got no inter-bank lending market. Only VTB and VEB lend money, and we ourselves don’t lend to anyone because we don’t think it wise and because there isn’t any supervision.
RJ: What can be done to develop lending?
PA: You can’t develop lending without having long-term liabilities. We don’t have long money, and so we can’t give loans. Most of the money in our banking system is in current and deposit accounts and we can’t lend it because it’s too risky. Pension reform is important, not just so that people will get better pensions, but also because it would bring the country much-needed long-term resources. This is why the banks are taking part in pension reform. We have good prospective borrowers but no long money, and we can’t get it from the West because the West isn’t giving us any money at the moment.
RJ: To what extent should banks’ capitalization be increased?
PA: I’m not talking about Western requirements, which can go into the billions of dollars. A figure of $50 million would be good for our country. Not overnight, but introduced gradually. Banks without money can’t develop; they can’t diversify their risks and are always unreliable.
We spent $83 million on IT last year. This will bring our technological development more in line with Western standards. But what can a bank with capital of $2 million to $3 million spend on modern technology?
RJ: Your bank has one of the best-developed regional networks. Would you say there are differences working in Moscow and in the regions?
PA: No, we work with the same kind of people everywhere. A factory director in Nizhny Novgorod is no different from one in Moscow.
RJ: Your clientele is mostly the middle class. Is the middle class growing at all?
PA: Yes, but very slowly. This is another problem with Sberbank. If you want to develop the middle class, you have to make sure that people can get loans and take out mortgages – areas where little has been done. We’re going to get more involved in this, however, and develop the retail side of our business.
RJ: But is this advantageous from a business point of view?
PA: Not in the short term; it’s advantageous for future capitalization. Banking isn’t our only business – we’re also in telecommunications, for example – and we hope that Russia will become a normal country and we’ll eventually be able to sell the bank. I’m not going to sit here all my life and give loans. We need to develop the retail side to make these plans possible. The experience of countries like Mexico, Poland and Hungary, where banks have been sold, shows that retail is a decisive factor in pushing the price up. This is why we’re willing to lose some money now in order to build future capitalization.
RJ: What will you do instead of banking?
PA: I’m interested in telecommunications now. Recently, we bought Golden Telecom and I spend five to six hours a day now on telecommunications. We’re investors, shareholders, not managers. We built a bank and now we want to see what else we can do. We’ve got investments in the oil sector, too. It’s not good to have all your investments in just one sector, and so we in Alfa- Group aren’t just thinking about the bank.
RJ: Do you still hold the view that shareholder capital in Russia is not transparent?
PA: Quite right. No one asks here who actually owns an asset. We’re in negotiations at the moment to buy a large company, but it’s clear to us that the man we’ve been dealing with isn’t the owner. So who is the owner? We don’t know. We’ll find out, but still, it’s not normal that you can buy something and not know who you’re buying from because everything is registered in the Bahamas or some other offshore location. It’s a problem for Russia. Shareholder capital should be transparent right up to the real owner.
RJ: But how can we make this happen?
PA: We need a law. These are new issues for us, but in the West, for example, you just can’t sell unless you’re totally transparent.
RJ: You’ve got partners in the West; are you transparent?
PA: We’re absolutely transparent.
RJ: But some companies here will never be completely transparent because not everyone participating in them is doing so legally.
PA: Then they won’t be able to do business abroad, work with Western partners. They won’t be able to compete or grow.
RJ: A company that’s both large and opaque is an aberration then, something like Gazprom?
PA: It’s a good example. It’s a real problem that the ownership structure there is still not fully clear.
RJ: It would be good to just bring all the details into the open.
PA: Yes, but complicated. You could end up discovering that the owners include Gazprom’s entire management. That’s what Boris Fyodorov suspects. He says there’s a company that owns a stake, which in fact belongs to the Gazprom management. But to see whether this is true or not, you’d have to dig back right to the beginning and see how everything developed. Until this happens here, everything will stay as it is now.