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Friday, July 21, 2006

Russian Economy Minus Fraud Equals Nothing

The New Russian Corporatism blog reports, relying on Vedomosti:

The Russian economy would collapse if corruption was to disappear today. Such is the strength of the system of corruption in the country which occupies the 126th place in the Transparency International index. LR: According to the study, Russia has the same level of societal corruption as Niger and Sierra Leone. Less than forty other countries in the whole world are more corrupt than Russia. Both Ukraine and Belarus scored far higher than Russia.

The transition to a legal economic system would require far too many resources and sacrifices to be taken. Not only it would take years for the country to progress towards a transparency, but support from business and the general public is vital.

Another issue which dogs any investor is insider trading. Whilst corruption scares foreign investors away, insider dealing negatively impacts the stock market. Although progress seemed to be made with the introduction of the Insider Dealing Legislation, the truth is that the new law is fundamentally flawed. Previously, any high-ranking official could have been under investigation, but now the legislation is only applicable to private companies. This means that Central Bank and the ministries have to regulate themselves while state officials are excluded from the list of potential suspects.

Since state officials are the likely recipients of unpublished price-sensitive information, their competitive advantage on the stock market will only increase. Not only is the state the biggest holder of Russian securities but its funds account for over 30 percent of the total 2005 Russian M&A. Corporate control of the ruling political system will become more apparent with the upcoming IPOs of Rosneft and VneshTorgBank. This potentially suggests that the level of insider trading will only increase in the future and, just like corruption, it will become a Russian institution.

In other words, as already reported in detail in La Russophobe, Russia is operating a sham economy based on illusion that is doomed to collapse. Even fundamentally strong economies like the U.S. are regularly victimized by the business cycle, but when that strikes Russia the country will be obliterated.

1 comment:

Karolus said...

Well,

Bonjour, la Russophobe!

I feel I have reaped the whirlwind on your forum; and I now know where to look for arguments should I want to warn anyone against Russia in general, and Russian finances in particular.

And it is necessary to warn against Russian finances.

Sincerely,

Karolus.


RUSSIAN INVESTMENTS:
RUSSIAN IPO INVESTOR ALERT

French holders of Russian government bonds remind all investors that the Russian Federation is still in default today (April 2007) on their estimate of some US$ 80 billion owed to them since the Bolshevik, then the Soviet, and now the Russian Federation governments have all unilaterally repudiated Tsarist debt and refused any form of contact or dialogue with their creditors.

They also remind investors that in its Sep. 15th 2006 report entitled "Governance matters: a decade of measuring the quality of governance", the WORLD BANK rated Russia's governance comparable to that of Swaziland, Zambia and Kazakhstan. Russia came 151st out of 208 countries in terms of (...) accountability, quality of regulatory bodies, rule of law, (...). In particular, rule of law (i.e. the courts and the quality of contract enforcement) was judged as effective in Russia as it is in Ecuador, Indonesia, and Bangladesh. Nicaragua, East Timor, and China's ability to control corruption was judged similar to Russia's.

In Paris on April 3rd 2007 for the launch of the NYSE-EURONEXT exchanges merger Mr. John Thain, the New York Stock Exchange CEO, warned that he was "very concerned about the quality of corporate governance, the transparency of company financials and the protection of minority shareholders. A number of Russian companies raise serious questions around these issues."

Despite these findings, and despite the main rating agencies' knowledge that Russia is in default on US$ 80 billion of Tsarist debt, Russia is rated "INVESTMENT GRADE"; whereas a child can see that Russsia is in fact clearly in "SELECTIVE DEFAULT".

French bondholders intend to pursue their claim until full settlement at present value, by any legal means and in any jurisdiction they deem appropriate.

EVERY POTENTIAL INVESTOR IN RUSSIA MUST BE MADE AWARE OF THESE FACTS.

FRENCH CREDITORS OF THE RUSSIAN FEDERATION STRONGLY ADVISE AGAINST ANY FORM OF INVESTMENT IN A COUNTRY WHOSE SOLVENT GOVERNMENT HAS SYTEMATICALLY REFUSED TO FULFIL ITS NATIONAL AND INTERNATIONAL OBLIGATIONS, REFUSES ALL CONTACT AND DIALOGUE WITH ITS BONA FIDE CREDITORS, AND REFUSES TO DISCLOSE LIABILITIES WORTH US$ 80 BILLION.