The Gaidar Forum – 2016: Expert Discussions with Participation of Employees of the Gaidar Institute
Within the frameworks of the VII Gaidar Forum – 2016 Russia and the World: Looking into the Future held on 13-15 January 2016, employees of the Gaidar Institute held a number of panel and expert discussions at which the issues of economic growth, food security, foreign trade, monetary policy and other were discussed.
So, an expert discussion dedicated to the Place of Russia in the Food Production World Map was held. The moderator of the discussion was Natalia Shagaida, Director of the Center for Agrofood Policy, RANEPA and Head of the Agrarian Policy Department of the Gaidar Institute.
Until recently, Russia used to be the place on the world map where a huge flow of import foods streamed to. Now, import substitution has become a priority in development of the Russian agriculture. At the same time, even such a priority requires selection of a strategy. What line of development should be taken? Will Russia turn into the country where imports are limited? Or for the sake of import substitution should exports be supported as products which are competitive on foreign markets may also replace import foods on the domestic market? The above issues were in the focus of the discussion.
Participants in the discussion were Sergei Levin, Deputy Minister of Agriculture of the Russian Federation, Jonathan Grethel, Agriculture Minister-Counselor, US Embassy, Moscow; Philipp de Jong, Agricultural Counselor, Head of the Department of Economic Affairs, Agriculture and Innovations, Netherland Embassy, Russia; Andrei Sizov, Managing Director, SovEcon Analytical Center.
Sergei Levin touched upon the state of food security and amendments which the Ministry of Agriculture introduced into the RF Food Security Doctrine for achievement of new goals of development of the agriculture. The review of state support measures which were developed to ensure import substitution showed that they were primarily aimed at stimulating output growth in products which were in short supply in Russia.
It was customary in Russia to consider growth in import volumes as a rather negative process. At the same time, the analysis of export-import operations across different countries shows that Russia imports far less (about $40bn before 2014) than many developed countries. Jonathan Grethel spoke about the way how a country importing $112bn worth of food can be independent. In particular, he pointed out that less expensive import foods contributed to strengthening of food security, that is, economic barriers for households’ access to food were reduced. At the same time, more expensive, but higher quality products of American farmers (for example, beef) are exported to other countries. Actually, import products complement domestic production, though they are, certainly, competitors. To protect farmers’ income, the government finances income support programs and programs of promotion of goods to overseas markets; the food aid program accounts for about 80% of that support.
Among countries where import food products account for a larger portion of the cost unit of products consumed by households the Netherlands is rated the first (1.14 against 0.16 in Russia). In the Netherlands, $2.700 worth of food and primary agricultural products is imported against only $274 worth of such products in Russia. It is to be noted that in the Netherlands there are no debates on the need to reduce imports. Philipp de Jong explained why it happens and why Dutch farmers find that situation comfortable.
Аndrei Sizov touched upon the factors which hindered development of Russian exports. Using the statistical data, he showed that efforts to limit exports normally resulted in negative and long-term consequences for the agricultural industry. Also, Mr. A. Sizov proved statistically that changes in domestic grain prices caused, for example, by a price surge on global markets correlated weakly with changes in food prices. So, the government’s efforts to regulate exports (bans, duties and non-tariff methods) do not stimulate development of the agriculture and reduce revenues of agricultural producers.
As an idea within the frameworks of the import substitution trend, it was proposed to strengthen the government support to flax production. Mr. Starikov highlighted that line of business in his report. He pointed out that due to appreciation of prices on cotton that issue would inevitably be on the agenda. Flax has exclusive properties, outcompetes cotton and is on high demand both in production of linen and clothes and munitions (different types of gunpowder). Renewal of flax production will permit to utilize abandoned land plots of the non-black earth region and help agricultural producers increase their revenues.
So, for import substitution closing of markets affects the purchasing power of consumers if domestically produced products are not competitive. To protect domestic producers, it is necessary to diversify the range of export products and support processing in order to develop new products which foreign produces do not make at all or produce with substandard quality.
Pavel Trunin, Leading Researcher of the Center for Research of Problems of Central Banks, RANEPA was the moderator of the expert discussion: Inflation Targeting in Crisis Conditions. Within the frameworks of the discussion, the following issues were discussed: the specifics of the inflation targeting regime in current macroeconomic conditions in Russia, prospects of the exchange rate policy of the Central Bank of Russia, levels of real and quoted interest rates in Russia, external conditions of the monetary policy of the Central Bank of Russia and the long-term strategy of the monetary policy of the Central Bank of Russia.
Participants in the expert discussion were Igor Dmitriev, Director of the Monetary Policy Department of the Central Bank of Russia, Maxim Petronevich, Deputy Head of the Center for Economic Forecasting of the Gazprombank (AO), Vladimir Kolychev, Director of the Department of Strategic Planning of the Ministry of Finance of the Russian Federation, Oleg Solntsev, Head of Research of the Monetary Policy, Banking Sector and Financial Markets of the Center for Macroeconomic Analysis and Short-Term Forecasting, Evsey Gurvich, Head of the Economic Expert Group and Pyotr Grishin, Head of Macro Research of the VTB Capital.
In his report, Igor Dmitiev described the main principles of implementation of the Russian Central Bank’s monetary policy which included the need to reduce the inflation rate to 4% in the mid-term prospect and maintaining it at that level, a floating exchange rate regime, management of the economy by means of interest rates, an approach to decision-making as regards the monetary policy on the basis of forward forecasts and active communications between the Central Bank of Russia and economic agents. Maintaining of continuity of the monetary policy in current unstable conditions is particularly important. The current situation requires a flexible and prompt response on the part of the Central Bank of Russia, but the core of the monetary policy should remain unchanged. I. Dmitriev pointed out that the inflation target of 4% by 2017 was a realistic one, however, the policy aimed at reducing the inflation rate should be carried out with the economic situation and the level of financial stability taken into account.
According to Vladimir Kolychev, changes in the level and pattern of prices are a natural mechanism of adjustment of the economy to external shocks. Inflationary shocks sometimes result in unwinding of the inflation spiral due to economic policy faults. V. Kolychev stressed that a structural primary deficit of the budget due to the effect of negative external shocks was a typical situation for the Russian economy. In the mid-term prospect, a sustained primary deficit would result either in an unstable trajectory of the state debt and loss of control over the inflation rate or explosive growth in interest rates. However, factors which reduce the likelihood of unwinding the inflation spiral include a restrained approach to indexation of budget expenditures and carrying out of a tariff policy. The representative of the Ministry of Finance pointed out that the burden of achievement of a sustainably low inflation rate over a period of 3-5 years rests not only on the Central Bank of Russia, but the Government, as well.
Representatives of the expert community actively discussed the effect of high exchange rate volatility on the Russian economy. Evsey Gurvich stressed that high exchange rate volatility was a serious obstacle to economic growth due to higher risks, uncertainty and reduction of investment demand and business activities. According to the expert, in such a situation it is necessary to use a flexible inflation targeting regime which permits to smooth over exchange rate fluctuations fr om the mid-term justified level. According to the expert, obstacles on the way to a low inflation rate in the mid-term prospect include coexistence of the inflation rate of demand and the inflation rate of costs in Russian conditions and a shortage of options with the Central Bank of Russia to deal with inflationary expectations which are primarily of a self-adaptive nature.
In his report, Oleg Solntsev presented the outputs of research in the effect of exchange rate dynamics on financial results of different sectors of the economy. The expert pointed to existence of sectors with a sustained uncovered deficit of savings, including infrastructure industries and investment goods-producing industries. Amid high volatility of the exchange rate, it is necessary to develop mechanisms which compensate deficits through development institutions and on the basis of development of the market of term foreign exchange instruments.
As guidelines for upgrading approaches to communications of the Central Bank of Russia, Pyotr Grishin suggested that forecasts published by the regulator should be accompanied by key interest rate benchmarks. According to the expert, the above measure would permit to reduce uncertainty in the banking sector and increase availability of bank loans in a situation of a rather low level of the banking sector’s long-term liabilities.
According to Maxim Petronevich, a high share of exports in GDP is the only factor behind high dependence of the ruble exchange rate on oil prices changes. A substantial depreciation of the ruble late in 2014 and early in 2015 can be explained among other things by a high extent of openness of the Russian capital market as compared to that of other oil-producing countries and foreign economic limitations imposed on the country. According to the expert, in the current situation the Russian economy became more closed and less vulnerable to global market turbulence. In 2016, volumes of repayment of the foreign private debt are much lower than in 2015 and that factor is behind expectations of smoother ruble exchange rate dynamics.
The Russian Central Bank’s switchover to the inflation targeting regime and reasonably tough monetary policy in current conditions are quite justified. However, efficiency of the above regime depends not only on the Central Bank of Russia, but also on the economic policy as a whole, including restructuring of natural monopolies and the labor market and a fiscal policy vector.
Presentations to reports
On the first day of the morning session, the presentation of the rating – Innovative Business in Russian Regions – compiled by the RANEPA with participation of the Association of Innovative Russian Regions (AIRR) was held.
Presentation of the rating >>>
The session was opened by Rustam Minnikhanov, President of the Republic of Tatarstan. He pointed out that a reliable and effective rating would be developed with direct participation of regions and expressed optimism about the prospect of that work.
Ivan Bortnik, Chairman of the Supervisory Board of the Foundation for Assistance to Small Innovative Enterprises in Science and Technology said on behalf of innovators that the rating would be of a high practical importance as it showed where it was profitable to run an innovative business and reflected the real situation in regions and actual outputs of innovative activities.
Pavel Kadochnikov, Vice Rector of the Russian Foreign Trade Academy spoke about the concept of the rating. He highlighted the main trends identified in development of the rating and told about plans for the future – the first working version of the rating is to be announced in spring 2016. Also, P. Kadochnikov spoke about the ratings’ advantages as compared to the existing ratings of regions. According to him, the goal of the rating is to identify conditions and results of development of innovative (high-tech) business in Russian regions.
The rating’s target audience includes federal executive authorities, executive authorities of constituent entities of the Russian Federation and high-tech and science-intensive business, such as investors, entrepreneurs and researchers. The Innovative Business in Russian Regions rating is focused on companies of high-tech sectors of the economy as they engage in cutting edge research, make a huge contribution to the Russian economy, promote import substitution and ensure national security. The advantage of the rating consists in utilization of quantitative indicators calculated on the basis of reliable statistical data (the Rosstat). In future, work on selection of indicators to be used and adjustment of methods will be continued. The representative of the Ministry of Economic Development of the Russian Federation presented his ideas on the way how the rating should be upgraded and expressed readiness for cooperation, having supported the idea of development by the RANEPA of a practically-focused and reliable rating. Governors who then took the floor supported the RANEPA’s initiative, too, and expressed readiness to participate in development of the rating. Vera Adayeva, Head of the Special Projects Center of the Department of Partnership Network Development, Agency for Strategic Initiatives, put forward a few proposals as regards rating methods and expressed readiness for cooperation if regions agreed to provide data required for the rating. In his report, Slava Khodko, Managing Director, AIRR, suggested that all the main ratings which currently evaluated regions and their innovative development should be integrated. On the basis of the results of the discussion, it was declared that there were good chances for the rating to become a working instrument for federal and regional executive authorities and be of great use for high-tech companies. Participants agreed to continue cooperation within the frameworks of further discussions at the Gaidar Forum and closer networking in future.
The panel discussion: Inequality and Economic Growth was co-chaired by Carol S. Leonard, Director of the Center for Russian Studies, RANEPA and Ivan Lyubimov, Senior Researcher of the Department of Economic Growth Studies. Participants in the discussion were Branko Milanovic, Professor of the City University of New York, Lead Economist, World Bank (1991–2013 гг.); Jack Goldstone, Professor of the George Mason University; Maria Kazakova, Deputy Head of the International Department for Fiscal Sustainability Studies, Gaidar Institute; Zhou Xiang, Researcher, Princeton University; Anna Lukyanova, Senior Researcher of the Center for labor Market Studies, Higher School of Economics; Natalia Zubarevich, Regional Program Director, Independent Institute for Social Development Studies; Avner Offer, Professor of the Oxford University; Lilia Ovcharova, Director of the Independent Institute for Social Development Studies; Thomas Remington, Professor of the Emory University.
Participants discussed the following issues: what are implications of current shifts in the dynamics of income and wealth distribution globally; how have significant shifts in income groups of Russia and China introduced new dynamics of distribution of incomes within those countries and what is the impact of shifts in the distribution of wealth globally on the standard of living and welfare?
The discussion was opened by Avner Offer who delivered the report: The Money, Real Property and Inequality. In his report, professor of the Oxford University touched upon the factors behind in-country inequality. Referring to the book – Capital in the Twenty-First Century -- by Tom Piketty, А. Offer draws a conclusion that growth in real-estate prices provoked growth in debt obligations. As a result, in the 2000-2014 period growth rates of countries’ debt obligations exceeded global GDP growth rates.
Jack Goldstone drew participants’ attention to sociopolitical implications of inequality of households’ incomes within a country. If in the past few decades a downward trend of income inequality between countries became explicit, income inequality within countries, on the contrary, increased. Inequality between countries can be explained by rapid economic growth in a number of developing countries, such as Brazil, China, Turkey, Indonesia and India. As a result of that process, the world will be better balanced, but J. Goldstone believes that in the near future those countries will claim the status of world powers and seek domination on the global scale, thus creating some sociopolitical risks. To prevent fast-growing developing countries from gaining global domination, different economic, political and military alliances are being established and expanded.
In his turn, Branko Milanovich pointed out that a trend of in-country inequality returns the world to the 1920s when the socialist movement was gaining momentum and such a situation may bring about a new way of political instability in the world.
Lilia Ovcharova touched upon the issue of efficiency of inequality for economic growth. She believes that it is important to mobilize positive vectors of inequality. According to L. Ovcharova, inequalities in education, labor remuneration and between regions are powerful channels for growth as they motivate both economic entities and individuals to increase their welfare. L. Ovcharova says that the middle class constitutes potential for growth.
Xiang Zhou told about his research in inequality problems in China. He pointed out that with the start of economic reforms in China inequality within the country increased despite high growth rates of the Chinese economy.
In her report, Natalia Zubarevich told about correlation between the rent, state policy of redistribution and inequality. Referring to the experience of Russia, Kazakhstan and Ukraine, the expert comes to a conclusion that a rent permits to equalize incomes both of regions and individuals. N. Zubarevich reminded about the 2000s when Russia was actively redistributing the rent through subsidies to regions and social transfers. However, amid falling prices on energy commodities there will be fewer resources for redistribution and such a situation cannot but lead to inequality growth.
Professor Thomas Frederic Remington touched upon the impact of financial centralization on the level of distribution and inequality on the basis of examples of Russia and China.
Maria Kazakova presented the outputs of research carried out by experts of the Gaidar Institute in correlation between growth rates and income inequality. Researchers tried to evaluate correlation between inequality and economic growth through such channels as financial market irregularities, birth rate, social tensions, crime rate, human capital and other. However, as a result of evaluation none of the channels was found significant. Probably, there is correlation between income inequality and economic growth, but none of the proposed mechanisms can explain that correlation (or they measure it inaccurately), M. Kazakova says.
As regards Russia, the main channels for promotion of growth rates through reduction of inequality are investments in education and healthcare, the reporter sums up.
The discussion was completed by Anna Lukianova who drew attention to the impact of the share of the informal sector of the economy on inequality. According to A. Lukianova, as labor remuneration in the informal sector is not high the factor behind a high rate of inequality can be a large share of the informal sector in the economy. Also, a large informal sector may implicitly reduce economic growth rates by virtue of low labor efficiency.
Presentations to reports:
Within the frameworks of the discussion: Russia and the World: Prospects for Trade and Economic Cooperation, experts discussed prospects for further integration processes in the post-Soviet space and Russia’s participation in other integration processes.
Participants in the discussion were as follows: Alexei Portansky, Professor of the Department of World Economy and Politics, Higher School of Economics and Leading Researcher of the Institute of World Economy and International Relations, Russian Academy of Sciences; David Tarr, Economist and Consultant, World Bank; Andrei Lapin, Deputy Director of the Department of Macroeconomic Policy, Eurasian Economic Commission; Natalia Volchkova, Professor of New Economic School (NES), Director of Applied Research of the Center for for Economic and Financial research and Development; Gulnara Khaidarshina, Deputy Head of Macro Research Department, JSC Gazprombank; Alexander Orlov, Topic Editor for Economic Block, Gazeta.ru.
Alexander Knobel, Director of the Center for International Trade Research, RANEPA and Head of the International Trade Department of the Gaidar Institute was the moderator of the discussion. Also, Alexander Knobel delivered the report: The Main Challenges of the Russian Foreign Economic Policy. 
In his report, A. Knobel spoke about potential macroeconomic effects of integration. According to him, a large share of goods is produced not within a single country, but within global chains covering several countries. So, protection of economic interests in such conditions requires protectionist measures to be taken in respect of the existing chains, rather than within national borders.
Multilateral agreements ensure a certain level of liberalization of the global trade and set the limits of admissible protectionism.
More and more countries speed up development of trade and economic cooperation through mechanisms of bilateral and preferential trade alliance agreements (PTA): at present there are over 300 such agreements and almost all the countries are parties to some or other PTA.
For Russia, the most important trade and economic alliances which set the global economic rules are the TPP, the ЕС and the TTIP (Transatlantic Trade and Investment Partnership between the EU and the US). Professor Alexei Portansky spoke about the specifics of tariff liberalization in the 20th century and negotiating efforts to establish trade and economic alliances beyond the WTO-TPP and TTIP. According to A. Portansky, mega-regional trade agreements (MRTA) should be of a complementary nature to the WTO. MRTA exclude most developing countries which account for a larger share in the WTO. Such important WTO-members as China, India and Brazil are not parties to MRTA.
It seems the US position is in complete contrast to that of India and many other developing countries which believe that long-term negotiations should be completed before new issues are discussed.
So, at present the WTO remains the best venue wh ere OECD countries can negotiate access to the market and trade rules with newly-emerging economies. There is a hope that the WTO will not be ousted by MRTA.
It is to be noted that TPP (and, probably, TTIP in the near future) are objective realities of the present-day global economy and trade that cannot be ignored. MRTA such as TPP and TTIP will surpass RTA/PTA as regards their share in global trade.
At the same time, thought the central role of the WTO is expected to be significant it is unlikely to remain unchanged. Natalia Volchkova touched upon the effect of integration processes within the Eurasian Economic Union (EEU) on export efficiency of third countries. N. Volchkova pointed out that amid falling prices on energy commodities Russia and Kazakhstan experience great problems related to diversification of export potential as in the EEU there was a shortage of competitive industrial goods. Professor of the NES mentioned a number of upcoming industries with a high diversification potential, that is, the iron-and-steel industry, the chemical industry, the engineering and the electronics industry. The immediate objective is to render support to those industries. In her report, Gulnara Khaidarshina touched upon the effect of slowdown of economic growth rates of China on trade relations with Russia. G. Khaidarshina noted that trade between Russia and China was asymmetric by virtue of prevalence of commodity goods in the trade basket. David Tarr was rather pessimistic about efficiency of the Customs Union and tried to identify problems the EEU may encounter in future. D. Tarr stressed that trade tariffs of the Customs Union were more burdensome for member-states than tariffs developed within the EEU. D. Tarr said that efficiency of the EEU would depend on member-states’ advantages. Аndrei Lipin delivered the report: The EEU: Prospects for Economic Cooperation. The expert pointed out that in January-October 2015 growth rates of mutual trade in goods within the EEU fell 33% on the last year level. A drop in the monetary volume forms to a great extent commodity goods. The analysis of the amassed experience shows that at the stage of functioning of the Common Economic Space there is an objective need to further develop cooperation in macroeconomic and financial fields to secure harmonization.
Presentations to reports:
Also, an expert round table on the topic -- Costs and Benefits of Low-Carbon Development, Modelling of Energy and Environment – was held. The moderators of the discussion were Маria Kazakova, Head of the Department of Economic Growth Studiers, RANEPA and Deputy Head of the International Department of
Fiscal Sustainability Studies, Gaidar Institute and Alexei Kokorin, Director of the Climate and Energy Program, World Wildlife Fund. 
Proposed for the discussion were the following topics: Deep Decarbonization Pathways Project (DDPP); international cooperation in matters related to countering climate change; global energy transition: the role of innovations and costs in shaping future energy markets; sustainable development and long-term economic growth; the role of energy-saving buildings and transportation in low carbon development; modeling climate change in a life-cycle, multi-regional dynamic framework; environmental effects of trade liberalization in Russia’s WTO accession.
Participants in the round table discussion were the following: Igor Bashmakov, General Director of the for Effective Energy Use; Vladimir Berdin, Deputy Executive Director of the International Sustainable Energy Development Center under the auspices of the UNESCO; Lawrence Kotlikoff, Head of the International Department for Fiscal Sustainability Studies of the Gaidar Institute, Professor of Economics, Boston University; John Lightner, Senior Researcher of the Center for Economic Modeling of Energy and Environment, RANEPA; Oleg Lugovoi, Research Advisor, Center for Economic Modeling of Energy and Environment, RANEPA; Sergei Safonov, Director of the Center for Environmental and Natural Resource Economies, HSE; David Tarr, Economist and Consultant, World Bank.
The debates were opened by David Tarr who told about his multi-sectoral model which calculates greenhouse gas reduction effects. According to the economist, an environment regulation method is important as inefficient regulation may trigger a political reaction which in its turn may reverse environmental policies. In D. Tarr’s opinion, environment regulation should be based on market principles with use of such methods as emission quota trade or general tax rate for all emission types. In addition to the above, D. Tarr said that if mechanisms of inadequate competition or direct foreign investments were neglected together with their endogenous efficiency effects, that situation may result in quite the opposite conclusions as regards implications of trade and environmental reforms.
Lawrence Kotlikoff highlighted the main issues of climate change modeling. Professor L. Kotlikoff told about the overlapping generations model developed at the Gaidar Institute for analyzing the economic policy as regards reduction of greenhouse gas emissions. In the above model, difference is made between hydrocarbons as energy sources and alternative types of energy. The model permits to analyze the effect of taxes and quotas on production of hydrocarbons and evaluate the impact of the alternative energy sector on the level of production and dynamics of prices on hydrocarbons. The model will help analyze efficiency of economic policy measures in the field of alternative energy as regards smoothing of global climate change implications and distribution between generations of the burden and benefits resulting from efforts to counter climate change. Also, the model will permit to evaluate efficiency of motivation to reduce pollution of the environment.
As a moderator, Alexei Kokorin made an excursus referring to the Paris agreement (global climate change agreement) and highlighted the main issues which were discussed in Paris. In particular, a carbon tax was proposed as a national regulation instrument.
Vladimir Berdin, presented a general vision of the Paris agreement and noted that at present the UN was mobilizing efforts aimed at reduction of greenhouse gas emission. In addition to that, in Paris a decision binding on all the parties to the agreement was taken: by 2020 they have to present long-term strategies aimed at reducing the level of emissions and provide on a regular basis reports on climate change adaptation.
Together with Gorgy Safonov, John Lightner told about the outputs of his work on the international project -- Deep Decarbonization Pathways Project (DDPP) coordinated by Jaffrey Saches -- in which a team of Russian scientists and researchers participated.
Also, John Lightner spoke about the results of his research in global energy transition and the role of innovations and costs in shaping future energy markets having referred to the work carried out by Russian economists from the RANEPA.
In his turn, Igor Bashmakov told about the role of energy-saving buildings and transportation in low carbon development.
Also, participants in the debates discussed the ways of international cooperation in matters related to countering climate change and common factors behind sustainable development and long-term economic growth.
Presentations to reports:
Within the frameworks of the Gaidar Forum, the expert discussion: Islamic Finance: Problems in the Formation of the Industry was held. (Moderators: Bekhan Chokaev, Deputy Head of the Department of Empirical Financial Market Research, Gaidar Institute and Magomet Yandiev, Senior Researcher, RANEPA and Associated Professor, Lomonosov Moscow State University. The very fact that discussions on the above issue were held at the Gaidar Forum for two years running points to the relevance of the subject of the discussion. This year the list of participants was more representative than before. The main issue which is always meant in debates on the subject of Islamic finance is how the Russian economy can benefit from that new type of financial relations. The answer is simple and consists in the fact that development of Islamic finances will permit to attract to the economy, first, savings of those households which did not have a chance to save money before and, second, foreign investments through issuing by Russian companies of Islamic securities. It is to be noted that the above two mechanisms require amendments to the legislation.
In his report, Dmitri Savelyev, Vice Chairman of the Financial Market Committee of the State Duma noted that target amendments should be introduced in different statutory acts and six draft laws aimed at establishment of Islamic financial instruments were already introduced by him to the State Duma last year. Two of the above draft laws deal with the Civil Code and the Law on Banks and are aimed at lifting the existing mandatory condition of availability of a loan against payment of interests. The above aspect is a key one as in compliance with the principles of Islamic finance funds (either it is individuals’ and legal entities’ deposits with financial institutions or other instruments) should be provided on a profit-sharing and not fixed income basis. Other draft laws deal with issues related to insurance, leasing, trade in real assets and bank trust management.
Sergei Platonov, Deputy Director of the Department of Financial Policy, Ministry of Finance of the Russian Federation agreed that it was necessary to introduce target amendments to the legislation, but pointed out that such amendments should not concern the existing financial market participants so that to prevent new economic risks. S. Platonov explained why the government gave negative comments on Savelyev’s draft law permitting banks to engage in trade activities: it is risks related to weakening of supervision over banks’ activities and violation of depositors’ rights.
The report by Linar Yakupov, President of the Islamic Business and Finance Development Fund was dedicated to the feasibility study (FS) on development of Islamic finance in the Republic of Tatarstan carried out jointly with Malaysian experts on order of the government of the Republic of Tatarstan and approved last December. L. Yakupov pointed out that FS was the first official document (400 pages) which lists all the required measures for formation of the Islamic financial sector both in the Republic of Tatarstan and the Russian Federation as a whole, including amendments to be made to the legislation. The main conclusion of the FS is that establishment of the Islamic financial sector in the Republic of Tatarstan is required. The speaker called on state authorities, business and expert community to study FS to form general opinion on efficiency of the proposed measures. A special role in analysis of the above document should be given to the Central Bank of Russia and the Ministry of Finance of the RF as the main financial market regulators.
In his report, Alexander Torshin, Deputy Chairman of the Central Bank of Russia said that a working group studying the experience of activities of Islamic financial institutes and prospects for those institutions’ development in Russia was established at the Central Bank of Russia. A. Torshin noted that the group needed time to study all those issues and at present
the Central Bank of Russia was not prepared to assess expediency of large-scale changes in financial market regulation. However, the speaker added that the Central Bank of Russia had nothing against the presence of Islamic financial products on the financial market and in his opinion such products would develop successfully.
The report by Khamzata Asabayeva, lawyer of Linklaters, international legal firm was dedicated to the issues related to support of emission of Isalmic securities (sukuk) and prospects for Russian companies to enter that market. It was pointed out that between large deals on attraction of foreign capital by Russian companies (through IPO or Eurobond issuing) and those on issuing of Islamic securities by foreign companies there was an important common link – such deals were carried out within the jurisdiction of the UK. It means that as Russian companies have experience to attract capital within jurisdiction of the English law they may use that experience to attract capital by means of sukuk issuing. The specifics of the sukuk issuing process consist in the fact that the opinion of a Sharia board is to be secured on compliance of financial instruments with all the principles of Islamic finance. However, the entire process takes place within the jurisdiction of the UK and Russian companies are well aware of all its integral components. So, the speaker draws a conclusion that there are no fundamental obstacles to Russian companies’ entry to the sukuk market. The main obstacle is a lack of goal-oriented and consistent efforts dedicated to studying of the Islamic securities industry and networking with major agents which support such deals (including those which provide Sharia expertise services). As early as 25 years ago, Russian companies’ entry to the IPO and Eurobond markets would be regarded as a great success, but then companies managed to overcome that barrier by studying the market and networking with other market agents and at present it is quite an ordinary think.
Summing up participants’ reports, the following can be stated. At present, legislative amendments for formation of the Islamic financial sector in the Russian financial system have been identified and some of them were already introduced into the State Duma. However, the Central Bank of Russia and the Ministry of Finance are studying those measures and so far are not prepared to evaluate them. So legal limitations on development of Islamic financial services in the Russian economy still exist, but there are no limitations on Russian companies’ access to the Islamic securities market. Russian companies can issue Islamic securities within the jurisdiction of the English law the same way they issue Eurobonds, but to achieve that a “psychological” barrier is to be overcome.
So, out of the two Islamic finance development mechanisms – that is domestic savings stimulation and attraction of foreign investments -- which the Russian economy can benefit from, only the latter can potentially work.
The moderators of the expert discussion: Endowment Funds in the Public Space «Фонды целевого капитала в публичном пространстве» were Irina Tolmacheva, Researcher of the Legislation Expertise Laboratory, RANEPA and Head of the Legal Department, Gaidar Institute and Alla Samoletova, Chief of Staff, European University at St. Petersburg. At the discussion, there was an exchange of views on positioning of endowment funds in the public space and requirements, differences, approaches and best practices of public and financial reporting of endowment funds. Also, legislative proposals were discussed.
Participants in the discussion were the following: Artem Shadrin, Director of the Department of Social Development and Innovations, Ministry of Economic Development of the RF; Lydmila Panteleeva, Head of the Art Banking Center, Gazprombank; Alexei Antonyuk, Head of the Portfolio Investment Department, Gazprombank, Oksana Oracheva, General Director of V. Potanin Charity Foundation; Yekaterina Gerus, Executive Director of the Istoki Endowment Fund; Marina Petrova, Executive Director of the MGIMO Development Fund; Yelena Yashina, Chairman of the Board, CLINICAL HOSPITAL foundation and Andrei Generalov, Director of the CLINICAL HOSPITAL foundation.
The session was opened by Irina Tolmacheva who explained that the work of endowment funds in the public space was to some extent beyond the limits of their own activities. The public space is open and networking with colleagues, experts, mass-media representatives, business circles and public authorities takes place often through conferences, seminars, round tables or business lunches so that participants could express their views and position and at the same time be heard. Amid greater openness of the public space, there is a need in greater transparency in funds’ operations.
Аlla Samoletova continued the discussion on ensuring transparency and formation of donors’ confidence in foundations, having reminded that endowment funds were specific non-profit institutions engaging in accumulation of funds for funding socially useful activities in future and so it was not always clear to donors on what and how their funds would be spent.
Marina Petrova told about practical guidelines for preparation of public reporting. According to her, a report is a powerful information instrument which should in a good sense provoke donors into making new contributions and continuing cooperation. Yekaterina Gerus, touched upon preparation of annual reports of endowment funds, having emphasized that reporting contributed to growth in donors’ confidence. A lack of confidence is a major problem any non-profit organization encounters with and it is important to prepare and publish reports on a timely basis, the expert said.
Artem Shadrin generalized a number of proposals on upgrading the legislation on endowment funds and charity in general, including those on amendment of preferential tax treatment for legal entities; such amendments are long expected by experts.
Alexei Antonyuk spoke about the need of attributing endowment funds to qualified investors in order to raise efficiency of capital management and adjust positions on currency revaluation in calculating of managers’ compensation packages. Lyudmila Ponteleeva spoke about a new trend in culture.
A specific case of establishment of an endowment fund was presented by Yelena Yashina and Andrei Generalov from the CLINICAL HOSPITAL foundation which was the only one in healthcare. Also, issues which the foundation encountered with in its work were discussed.
Oksana Oracheva completed the discussion on amendments to the legislation and put together experts’ proposals.
Participants came to a conclusion that endowment funds in education, culture and healthcare should exchange experience and developed guidelines for amendment of the legislation in that field.
Presentations to reports:
Irina Starodubrovskaya, Director of the Center for Political Economy and Regional Development, Gaidar Institute was the moderator of the discussion: The Integration of Migrants: Crisis of Multiculturalism –What Next? Experts discussed problems and the specifics of the process of integration of migrants in different conditions; cultural and legal pluralism of the migrant community; solutions and limitations of the state integration policy; alternatives to multiculturalism; practices for local integration of migrants.
Participants in the discussion were as follows: Vladimir Malakhov, Director of the Center for Theoretical and Applied Political Science, RANEPA; Evgeny Varshaver, Senior Researcher of the Institute of Applied Economic Studies, RANEPA; Dina Lobodanova, Senior Researcher of the Center for Regional and Urban Studies, RANEPA; Konstantin Kazenin, Senior Researcher of the Gaidar Institute; Sergei Fedyunin, Researcher of the National Institute of Oriental Languages and Civilization (Paris).
Presentations/brief outlines of reports: