Financial Sector Corruption in Russia

Allegations of widespread corruption in Russia are not a new phenomenon. However, as Sergey Guriev, a leading Russian economist and former Rector of the New Economic School of Moscow, pointed out in a speech delivered at Columbia University this past Friday, the problems facing the Russian, while endemic and deeply ingrained, can be ascribed to three principal dysfunctions: low industrial optimism, high capital flight and poor performance by Russian companies on the stock markets.

Industrial optimism, while not commonly used by states in order to determine economic performance, is an element that the Russian government has utilized in order to correctly gauge current economic output and, based on future output trends, calculate in which direction its industry may move in the future. Russia’s poor performance in its own Industrial Optimism Index can be directly attributed to corruption. Swift vacillations in demand due to an uncertain investing climate and oft-changing pricing structures have deterred international enterprises from transacting business and purchasing goods from Moscow, while slowing demand and economic output have created domestic concerns surrounding growth prospects and the viability of the Russian market to thrive unencumbered.

Capital flight, or the flow of funds leaving the Russian market, has reached an all-time high. In 2013, more than $63 billion in funds streamed out of the Russian market, as more and more investors came to doubt the ability to freely invest in the Russian economy. Bloomberg recently reported that the Russian stock market fell to record lows in January as a result of foreign companies withdrawing from emerging markets within Russia.

The relative decline of companies of the magnitude of Gazprom, the gas extraction giant and great hope for the Russian economy has been faced with allegations ranging from widespread mismanagement to collusion with the Russian government.  Gazprom has, in instances, cut off the supply of gas to nations that speak out against Moscow, and heavy subsidization by the Russian government has created anti-competitive prices in the Russian gas and oil market.

Guriev, who fled Russia in 2012 after reports emerged that he was being investigated for his political affiliations, asserts that, in spite of the problems facing the Russian economy, the fact that “these problems are known” furnish the current Russian government an opportunity to resolve deeply ingrained issues before they become worse.

News Briefs:

  • In a move that highlights the degree to which Central Asian nations remain closely bound to Russian financial markets, the National Bank of Kazakhstan has devalued its currency, the tenge, by 18.9 percent. The rapid devaluation of the tenge directly correlates to drops in value of the Russian Ruble, and makes apparent the Kazakh dependency on Russia business. The drop in value is expected to trigger similar devaluations, with the Ukrainian hyrvnia seen as “the next likely candidate for devaluation,” as the formerly Soviet states scramble to retain relevance in the Russian market.
  • The Eurasia Review reports on a set of disconcerting restrictions on freedoms of expression and religion that were ratified in virtue of a decree issued Monday by Uzbek authorities. Though reports such as those issued by the Europe and Eurasia Media Sustainability Index have documented the oppression and deprivation of human rights common in Uzbekistan, the ratification of legal norms that expressly prohibits the “distribution of all such [Religious] materials” and grants the Uzbek Religious Affairs Committee the right to restrict and control religious imported religious materials as well as any materials developed within the country.
  • Ukrainian protestors and Ukraine’s public prosecutor’s office have agreed to the terms of a deal that establishes that all anti-government protestors will be provided amnesty in exchange for the protestors’ abandonment of the Kyiv City Hall, which had been occupied for more than two months.  The agreement marks the second agreement brokered between the two sides, but does little to allay concerns surrounding a possible Ukrainian default  or provide a blueprint for a long term deal, as both sides of the conflict look to respective sponsors for further aid.
  • Leaders of the Tajik and Farsi Parliaments met to discuss increased bilateral cooperation during the 9th Meeting of the Organization of the Islamic Cooperation Inter-Parliamentary Union. Sentiments expressed in meeting echo previous statements made by Tajik President Emomali Rahmon urging for stronger ties between the two nations. Although claims of money laundering and the widespread use of illicit financial practices have cast doubt on the legitimacy of relations between the two nations, Iran’s already strong stake in the Tajik economy is expected to grow as collaboration in infrastructure and energy continues to augment.
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