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Igor Yurgens, head of the Institute of Contemporary Development, talks with Bloomberg's Ellen Pinchuk about the Russian government's response to the financial crisis and the drop in investor confidence following the war with Georgia and the decline in commodity prices.
 
Ellen Pinchuk: Now to discuss the impact of the world financial crisis on investment and what the Kremlin can do about it, a man who stands at the intersection of politics and business here in Russia. He’s Igor Yurgens, advisor to president Dmitry Medvedev as the head of the Institute for Contemporary Development and also a chairman of the Bank Renaissance Capital.
 
Thank you so much for being with us. So your reaction to this - what are seeing? Panic?
 
Igor Yurgens: No, not panic yet, we are in the dire straits and it shows that investors took it seriously, doubly as seriously because apart from the financial crunch and credit crunch we had that external signal, which was a conflict with Georgia, some of them took it as a new era of the Cold War, which I hope it is not. So now the government takes extra measures, both to pump liquidity into the system. You know that the initial deficiency was estimated at about 40 billion and we pumped in 150 billion as I’ve already said, so we probably had taken care of that one, of the flexible financial system. But we didn’t take care of the scare of investors on what’s going on in terms of both: credit crunch and the confidence crisis and this external situation.
 
So now we see that President Medvedev made a huge effort to talk to Mrs. Merkel, including financial and economic projects with Germany. I think that will be the message next week for France and other parts of Europe. Prime Minister Putin is talking to the leadership of the European Union and so on and so forth. After the difficult situation, externally and internally, we look forward to positive messages.
 
Ellen Pinchuk: You’ve been one of the most vocal critics actually of the way the Prime Minister has influenced markets with his comments, for example, on Mechel, you also referred to the Georgian crisis, as you did just again.
 
Now, what more can the government be doing to clean up this mess?
 
Igor Yurgens: Well now they’re hiking up the stakes, they reinforce their position in terms of international negotiations because they are talking to oil and gas producers, they are talking to Russian allies and potential friends and so on and so forth, but after that we should resume full -fledged negotiations and talks with the European Union. And after the elections in the United States, and I hope in January there will be a friendly administration, we can de-escalate tensions externally and that will be a good signal. Internally, as I told you, there should be more of a dialogue with business, there should be crisis groups, which would embrace all business and government, there should be more transparency in terms of how Sberbank, VTB or all other state banks are pushing money into the system without nepotism, without favoritism in an open and transparent manner and if that’s done, I think, the confidence will be restored. All underlying methods are excellent, excellent. Macro economic stability is there and the commodities of Russia, which are so needed by China, India other huge markets are still there, so external driver is there.
 
Ellen Pinchuk: Are you finding now that the government and its policy is more of an asset or a liability in this situation?
 
Igor Yurgens: I think that at the moment, from the best of my knowledge, the real crisis group led by Mr. Shuvalov acts adroitly, efficiently and in the high speed. So at the moment I am not scared on that side of the equation… But this is the very top of the pyramid and how the money flows down on the sides of this pyramid, that’s the question to be watched.
 
Ellen Pinchuk: We’ve heard that there were some high-level meetings between Prime Minister Putin and that maybe he was putting out the word to Russian private business to keep their wealth in Russia, to put it back into Russia.
 
Igor Yurgens: Apart from the talk they did very serious step in this direction, putting another 50 billion bailout fund which will be available to the consumers and to the corporations at LIBOR+ but not huge plus, but only for the assets inside and the latest on Rusal Deripaska asset, Magna being let go to the French, shows that yes, there is a policy of keeping the strategic assets inside the country.
 
Ellen Pinchuk: And we are hearing now that actually Russia has suspended trading on its exchanges for one hour, obviously reacting to that massive slippage that we are seeing today, so, clearly, whatever is being done isn’t stopping the bleeding here, is it?
 
Igor Yurgens: Exactly. This dual double warning, this bell which tolls, tells us that there is a danger outside and inside is there.
 
Ellen Pinchuk: You work for Renaissance Capital, 50% of which was just bought by Mikhail Prokhorov [Igor Yurgens – 50 minus one], 50% minus one, correct me if I am wrong, is that a bailout with the liquidity problems there?
 
Igor Yurgens: No, we didn’t have much of the liquidity problem, we needed a bridge for about a week but time was so pressed that the offer of Mr. Prokhorov was very interesting and I think that in general the investment, the model of investment banking in Russia as well as in the United States changed. And the customer of our service needs the customer base behind us. So Merrill Lynch bought by the Bank of America is a good example of that.
 
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