Global Challenges & Threats: Risks for Our Country
Questions regarding current affairs of risk management, as well as prospects for the global economy in the period of continuing uncertainty – these topics discussed by the participants of the IX International Conference on risk management. Most of the speakers of the event agreed that the global financial crisis is far from over. In these circumstances, Kazakhstan is subject to a number of negative effects of systemic risk.
What does the global economy slows down?
This year’s conference brought together more than 300 representatives of business and political leaders from more than 40 countries, including leading scientists, economists, and members of the public. The initiator and organizer of the event was traditionally an insurance company “Eurasia”. As pointed out in his opening speech, the Chairman Boris Umanov, the main response to the financial instability has been the emergence of two trends.
The first is sporadic activity, aimed “putting out a fire here and there”. The second resulted in the desire of governments, supranational bodies, regulators and markets insulate from the influence of all of the risks.
“This is the second trend is alarming, as an attempt to get rid of the risk seems to be not just counterproductive but also unreliable in principle. I will express the hypothesis that, as in the case with the global law of conservation of energy, apparently, there is a universal law of conservation of risk. Getting rid of one, we immediately meet the other. Risks can only transform, accumulate, change their shapes and conditions, become less obvious or, conversely, escalate”.
At the same time, Mr. Umanov called a utopian attempt to mitigate risks by “tightening the screws”, introduction of new restrictive measures, de-globalization and protectionism: “This is a very dangerous trend, when governments, regulators, the people who make management decisions produced antipathy or even disgust to risks. No risk, no new ideas, without developing and testing new theories and models cannot make a breakthrough in economic development and in overcoming the recession or stagnation”.
Protectionism and over-regulation, in his opinion, are the brake on the recovery of the global economy. “Any successful businessman will confirm that the risk appetite and the ability to make it at home – it is an important component of his work”, – said the Head of “Eurasia”.
The Director of the Risk Assessment Group Dosym Satpayev in his speech touched on the prospects of Kazakhstan's participation in the Eurasian Union. According to the expert, in our country, this topic is “sufficiently politicized”, and therefore he called to rely on objective factors such integration, namely, “the processes of globalization and, as an interim step to this – the regionalization of countries”.
Speaking of the projects that are currently offered outside players to the Kazakh elite players, he referred to the conclusions of the research officer of KISS Constantin Syroezhkin. The last identified four of the integration project: Eurasian Union (1 promoted by Moscow), Greater Central Asia, or the New Silk Road (driver here is the United States), the integration of the region with China under the auspices of the Shanghai Cooperation Organization, as well as the “New Ottomanism”, lobbied by Ankara.
What refers to the processes of integration of the official Acorda, then, as the speaker said, they all go “as part of the action on building a positive public image of the president of Kazakhstan, with an emphasis on economic cooperation”. However, in its relations with Russia in the current year, there have been alarming notes, the cause of which, in the Mr. Satpaev’s opinion was the use of non-tariff methods by the Russian side to dislodge from its market Kazakhstan products. In this regard, he noted that Kazakhstan's exports last year fell by 3.7% while imports increased by 12%.
In addition, there is in society ideological separatism, and assertions about possible political integration are considered the country's leadership is quite painful. At the same time, the analyst drew attention to the fact that the demographic trend points to a growing share of the titular nation's total population. Because of this, he said, there has been increasing national patriotic sentiment. And because the main risk for the Eurasian Union, according to experts, will be a possible change of political power in Kazakhstan and Belarus, together with an increase in the negative to this supra-national education.
The Russian agenda includes the integration of the region into two areas: the military-political (CSTO) and the economic and political (EEC). A key goal for Russia, according to Mr. Satpaev will be to create a political union and a single currency for the establishment of a mechanism to contain China. The expert is sure that Belarus has a priority not an economic union; it has a common economic space with equal access to pipeline infrastructure and tariffs.
From all this Dosym Satpayev concluded that the need for integration is, however, Kazakhstan is not ready for the creation of supra-national organizations. The main priority for our country the political scientist called integration with Central Asia, because that's where, in his opinion; it is the source of all threats to Kazakhstan.
Then experts have moved to the discussion of what will be called a new round of volatility in global markets. In this discussion, the participants were divided into two camps. Konstantin Sonin of the Russian School of Economics and Alexei Maslov of the Higher School of Economics, take the position that the next crisis will come from China. The first of them in his speech marked that China is on the way of foreign expansion (once provided by the U.S.), and in this connection, to The Celestial Empire is very high risk of loss of assets.
In turn, Mr. Maslow described the Chinese policy of “more coarse and brutal” and risk assessment system – located on the “rudimentary level”. According to him, China’s economy is now being reformed "by itself", and it is here waiting "meteorite".
Another point of view was expressed by the representative of Standard & Poors Anwar Gabidulin, who believes that it will come from Europe. “Today there are characteristically the typical structural imbalances in the EU between north and south, along with the problem of a weak euro. While the world will not see progress in the euro zone on the establishment of fiscal and political union, talk about the full output of the impasse is not necessary”.
Meanwhile, Mr. Sonin sees a breakup of the euro zone as a precursor to the economic boom in the region.
In turn, Boris Umanov considers that the greatest and most unstable player in Europe at the moment – this is Italy. At the same time, he stressed that the euro zone problems prove that as “in questions of a single currency does not need to hurry up and write some unnecessary laws for everyone and everything”, including the CES. “I am for tenge! The people of Kazakhstan are accustomed to our currency, which is relatively more stable than in the neighboring countries”, – as he explained his position. “To unite and integrate we need gently. It is impossible that the administration went from Moscow or St. Petersburg. And I want that as a result of this process, we stayed with our National Bank".
By this, the last statement, Konstantin Sonin added that integration policies linked to the ideology of Russia to return all back into the Empire. While Alexei Maslov said that of the other participants in the project the participants in the integration process are still receiving benefits, but not integration itself. All this takes place against the background when China “is coming to the region and buys the elite”.
The great interest attracted the report of Alexei Maslov “Problems of China's sustainable development and financial stability in Central Asia”. Talking about the current situation in China, the expert described it as the country's transition to a new course – the so-called “Chinese Dream”. This refers to the emergence of China beyond its borders, as well as the intention to regain the lost status. The Celestial Empire intends to achieve this through an aggressive export investment in all directions, along with an active policy of buying up assets.
However, on the way of the “Chinese Dream” there are a bunch of problems: inflation, the internal debt of enterprises to banks, as well as the growth of the second economy. The debt of local authorities, according to Mr. Maslov is already 25.1% of GDP, or about $ 2 trillion, and the bank debt – about 49% of GDP. In this issue of inflation for China is very crucial because it causes social tensions in Chinese society. Officially, it hovers around a few percent, but in reality, in some regions for individual key goods, it reaches 13% or more. Special attention Mr. Maslov focused on the fact that “a whopping rate of inflation”, observed in the south of China, contributing to the growth of the second economy.
As for the Central Bank of China, its main task is to internationalize the yuan, and indirect control of its course. By 2015, the Chinese government plans to convert one-third of foreign trade in the yuan, which has already signed exchange agreements with several countries. The goal – the gradual replacement of dollar in mutual trade. “It is important to note that even now most of the currencies of the countries in South-East Asia, and South Africa have a greater dependence on the yuan, rather than the U.S. dollar”, – said Mr. Maslov.
At the same time, China has become the largest creditor of the CIS countries. For example, in Kazakhstan, it is a leader in investment areas: China's share reached 9.5% of all foreign investment, and it is about $10 billion as a result, 18.5% of Kazakhstan's exports goes to the side of China. It is increasingly binds both the economy and their financial stability.
“The CIS market will soon become a major recipient of Chinese investment. And if you take into account that the debts on its loans China takes in the form of shares in state-owned enterprises, it is even more updated Chinese threat. In particular, China can put under the control of the resources of the South Kazakhstan”, – he stressed.
On the second day of the conference the greatest interest attracted the presentation of the professor of the Columbia University Marcus Troyho “From deep globalization to the risk of de-globalization”. In his report, the economic scientist named five major characteristics of the current world order.
At first, the market economy, in his view, is out of fashion, as the crisis undermined a confidence to the market, and the “looming in the foreground state capitalism”. Moreover, out of fashion is and democracy. It is said that “the West is now no a compass for the rest of the world”.
The second key aspect is that the U.S. "cannot be called hegemony, which can form the world order".
The third important characteristic was innovations. They, according to the economist, may already allow “anyone to create a powerful international corporation, as did it the founders of Facebook, Instragram, Google and others”.
The fourth, China is poised to become a great economy, but it will remain a country with a poor population.
And in the fifth – this is a revival of the nation-state. “And the list goes towards the nationalistic, and more – to the individualistic. It’s a new world in which every man for him. Jobs and taxes are more important in this world than profits. The world today, if not unglobalized, then living under the risk of de-globalization”, – concluded Mr. Troyho.
The equal interest attracted the performance of the financial reviewer Tulegen Askarov, who allocated the risks caused by government intervention in the financial sector. Taking as an example – Kazakhstan during the first wave of the crisis, he said that the arrival of the state contributed to the reduction of responsibility for the state of the industry regulator and reduces transparency, and led to an increase in the share of public and quasi-public companies with the distortion of the key parameters of the market.
Against this backdrop, private institutions become accustomed to the constant state support. Moreover, there were explicit and implicit preferences for quasi-parties that, in current conditions, exposed the inability of the state to withdraw from the market in the post-crisis period.
As a result, there is now a reverse process of “creeping nationalization”. As an example speaker called the emergence of the one Registrar of Securities, the one credit bureau, increased capital requirements for broker-dealers, transfer to the National Bank 50% stake of Kazakhstan Stock Exchange, as well as plans to create the one pension fund and the one processing center.
All this, according to Mr. Askarov indicates weakening of economic liberalism and strengthening of the state "dirigisme", the consequence of which could be "sudden adoption of unjustified measures of a systemic nature”.
About the main risks for the banking sector of Kazakhstan said the Chairman of the Board of JSC Eurasian Bank Michael Eggleton. In this list, in addition to increasing requirements on capital adequacy under the introduction of a regulator of the Basel III standards, a large proportion of non-performing loans and provisioning of new mechanisms, the banker also included the preservation of banks depending on the collateral property. “We do not know what will happen to real estate prices. The market is very weak, and that worries us”.
The equal concern to Mr. Eggleton causes the rules of formation and operation of the Customs Union. First of all from the point of view of how they will affect the ability of borrowers to repay loans. “Today it is very difficult to understand the trading and cash flows. In this case, there is low interbank activity, and the need for capitalization”, – concluded the financier.