18
Jul

Stock markets fall on fears over Europe’s debt crisis

The euro and stock markets fell, and borrowing costs of indebted countries rose, as worries over debt crises in the eurozone and US mounted.
The euro touched a record low against the Swiss franc, and bond yields in Spain and Italy hit new highs.
Financial shares fell sharply, with Barclays down 7%, Societe Generale down 5.5% and Commerzbank 4% lower.
The FTSE 100 and Germany’s Dax were down 1.5%, while France’s Cac 40 shed 2%.
Wall Street’s indexes were also lower, with the Dow Jones, S&P 500 and Nasdaq more than 1% down.
Meanwhile, the price of gold topped $1,600 an ounce for the first time as investors put money into the haven commodity.

Read more at BBC News

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17
Jul

Why Banks Aren’t Lending: The Silent Liquidity Squeeze

by: Ellen Brown, Truthout | News Analysis
Where did all the jobs go? Small and medium-sized businesses are the major source of new job creation, and they are not hiring. Startup businesses, which contribute a fifth of the nation’s new jobs, often can’t even get off the ground. Why?

In a June 30 article in The Wall Street Journal titled “Smaller Businesses Seeking Loans Still Come Up Empty,” Emily Maltby reported that business owners rank access to capital as the most important issue facing them today; and only 17 percent of smaller businesses said they were able to lend needed bank financing. Businesses have to pay for workers and materials before they can get paid for the products they produce and for that they need bank credit; but they are reporting that their credit lines are being cut. They are being pushed instead into credit card accounts that average 16 percent interest, more than double the rate of the average business loan. It is one of many changes in banking trends that have been very lucrative for Wall Street banks, but are killing local businesses.
The Travesty of the $1.6 Trillion in “Excess Reserves”
The bank bailout and the Federal Reserve’s two “quantitative easing” programs were supposedly intended to keep credit flowing to the local economy; but despite trillions of dollars thrown at Wall Street banks, these programs have succeeded only in producing mountains of “excess reserves” that are now sitting idle in Federal Reserve bank accounts. A stunning $1.6 trillion in excess reserves has accumulated in bank reserve accounts since the collapse of Lehman Brothers on September 15, 2008.
The justification for TARP – the Trouble Asset Relief Program that subsidized the nation’s largest banks – was that it was necessary to unfreeze credit markets. The contention was that banks were refusing to lend to each other, cutting them off from the liquidity that was essential to the lending business. But an MIT study reported in September 2010 that immediately after the Lehman collapse, the interbank lending markets were actually working. They froze, not when Lehman died, but when the Fed started paying interest on excess reserves in October 2008. According to the study, as summarized in The Daily Bail:

… [T]he NY Fed’s own data show that interbank lending during the period from September to November did not “freeze,” collapse, melt down or anything else. In fact, every single day throughout this period, hundreds of billions were borrowed and paid back. The decline in daily interbank lending came only when the Fed ballooned its balance sheet and started paying interest on excess reserves.

The Fed began paying interest not just on required bank reserves (amounting to 10 percent of deposits for larger banks), but also on “excess” reserves on October 9, 2008. Reserve balances immediately shot up and they have been going up almost vertically ever since.

By March 2011, interbank loans outstanding were only one-third their level in May 2008, before the banking crisis hit. And on June 29, 2011, the Fed reported excess reserves of nearly $1.57 trillion – 20 times what the banks needed to satisfy their reserve requirements.
The Fed’s decision to pay interest on reserves may not be the only reason banks aren’t lending, but it is high on the list of suspects. Bruce Bartlett, writing in the Fiscal Times in July 2010, observed:

Economists are divided on why banks are not lending, but increasingly are focusing on a Fed policy of paying interest on reserves – a policy that began, interestingly enough, on October 9, 2008, at almost exactly the moment when the financial crisis became acute …

Historically, the Fed paid banks nothing on required reserves. This was like a tax equivalent to the interest rate banks could have earned if they had been allowed to lend such funds. But in 2006, the Fed requested permission to pay interest on reserves because it believes that it would help control the money supply should inflation reappear.

… [M]any economists believe that the Fed has unwittingly encouraged banks to sit on their cash and not lend it by paying interest on reserves.

In the traditional banking model, banks collected deposits from their own customers and stored them for their own liquidity needs, using them to back loans and clear outgoing checks. But, today, banks typically borrow (or “buy”) liquidity, either from other banks, from the money market or from the commercial paper market. The Fed’s payment of interest on reserves competes with all of these markets for ready-access short-term funds, creating a shortage of the liquidity banks need to make loans.

Why Pay Interest on Reserves?
Why the Fed decided to pay interest on reserves is a complicated question, but it was evidently a desperate attempt to keep control of “monetary policy.” The Fed theoretically controls the money supply by controlling the Fed funds rate. This hasn’t worked very well in practice, but neither has anything else, and the Fed is apparently determined to hang onto this last arrow in its regulatory quiver.
In an effort to salvage a comatose credit market after the Lehman collapse, the Fed set the target rate for Fed funds – the funds that banks borrow from each other – at an extremely low 0.25 percent. Paying interest on reserves at that rate was intended to ensure that the Fed funds rate did not fall below the target. The reasoning was that banks would not lend their reserves to other banks for less, since they could get a guaranteed 0.25 percent from the Fed. The medicine worked, but it had the adverse side effect of killing the Fed funds market, on which local lenders rely for their liquidity needs.
It has been argued that banks do not need to get funds from each other, since they are now awash in reserves; but these reserves are not equally distributed. The 25 largest US banks account for over half of aggregate reserves, with 21 percent of reserves held by just three banks; and the largest banks have cut back on small business lending by over 50 percent. Large Wall Street banks have more lucrative things to do with the very cheap credit made available by the Fed that to lend it to businesses and consumers, which has become a risky and expensive business with the imposition of higher capital requirements and tighter regulations.
In any case, as noted in an earlier article, the excess reserves from the QE2 funds have accumulated in foreign rather than domestic banks. John Mason, professor of finance at Penn State University and a former senior economist at the Federal Reserve, wrote in a June 27 blog that despite QE2:

Cash assets at the smaller [US] banks remained relatively flat…. Thus, the reserves the Fed was pumping into the banking system were not going into the smaller banks….

[B]usiness loans continue to “tank” at the smaller banking institutions….

The real lending by commercial banks is not taking place in the United States. The lending is taking place off-shore, underwritten by the Federal Reserve System and this is doing little or nothing to help the American economy grow.

Local Business Lending Depends on Ready Access to Liquidity
Without access to the interbank lending market, local banks are reluctant to extend business credit lines. The reason was explained by economist Ronald McKinnon in a Wall Street Journal article in May:

Banks with good retail lending opportunities typically lend by opening credit lines to nonbank customers. But these credit lines are open-ended in the sense that the commercial borrower can choose when – and by how much – he will actually draw on his credit line. This creates uncertainty for the bank in not knowing what its future cash positions will be. An illiquid bank could be in trouble if its customers simultaneously decided to draw down their credit lines.

If the retail bank has easy access to the wholesale interbank market, its liquidity is much improved. To cover unexpected liquidity shortfalls, it can borrow from banks with excess reserves with little or no credit checks. But if the prevailing interbank lending rate is close to zero (as it is now), then large banks with surplus reserves become loath to part with them for a derisory yield. And smaller banks, which collectively are the biggest lenders to SMEs [small and medium-sized enterprises], cannot easily bid for funds at an interest rate significantly above the prevailing interbank rate without inadvertently signaling that they might be in trouble. Indeed, counterparty risk in smaller banks remains substantial as almost 50 have failed so far this year.

The local banks could turn to the Fed’s discount window for loans, but that, too, could signal that the banks were in trouble; and for weak banks, the Fed’s discount window may be closed. Further, the discount rate is triple the Fed funds rate.
As Warren Mosler, author of “The 7 Deadly Innocent Frauds of Economic Policy,” points out, bank regulators have made matters worse by setting limits on the amount of “wholesale” funding small banks can do. That means they are limited in the amount of liquidity they can “buy” (e.g. in the form of CDs). A certain percentage of a bank’s deposits must be “retail” deposits – the deposits of their own customers. This forces small banks to compete in a tight market for depositors, driving up their cost of funds and making local lending unprofitable. Mosler maintains that the Fed could fix this problem by (a) lending Fed funds as needed to all member banks at the Fed funds rate and (b) dropping the requirement that a percentage of bank funding be retail deposits.
Finding Alternatives to a Failed Banking Model

By inhibiting interbank lending, the Federal Reserve and banking regulators appear to be creating a silent “liquidity squeeze” – the same sort of thing that brought on the banking crisis of September 2008. According to Jeff Hummel, associate professor of economics at San Jose State University, it could happen again. He warns that paying interest on reserves “may eventually rank with the Fed’s doubling of reserve requirements in the 1930s and bringing on the recession of 1937 within the midst of the Great Depression.”
Make a tax-deductible donation to Truthout this week, and your contribution will be doubled by a charitable foundation! Keep independent journalism strong – support Truthout by clicking here.
Paying interest on reserves was intended to prevent “inflation,” but it is having the opposite effect, contracting the money and credit that are the lifeblood of a functioning economy. The whole economic model is wrong. The fear of price inflation has prevented governments from using their sovereign power to create money and credit to serve the needs of their national economies. Instead, they must cater to the interests of a private banking industry that profits from its monopoly power over those essential economic tools.
Whether by accident or design, federal policymakers still have not got it right. While we are waiting for them to figure it out, states can nurture and protect their own local economies with publicly owned banks, on the model of the Bank of North Dakota (BND). Currently the nation’s only state-owned bank, the BND services the liquidity needs of local banks and keeps credit flowing in the state. Other benefits to the local economy are detailed in a Demos report by Jason Judd and Heather McGhee titled “Banking on America: How Main Street Partnership Banks Can Improve Local Economies.” They write:

Alone among states, North Dakota had the wherewithal to keep credit moving to small businesses when they needed it most. BND’s business lending actually grew from 2007 to 2009 (the tightest months of the credit crisis) by 35 percent. BND accomplished this through participation loans, in which BND contributes to a community bank’s loan, in order to free up the bank’s capital for more lending. Other tools that boost bank lending power and lower interest rates include purchases of community bank stock and – together with the state’s targeted economic development programs – interest rate buy-downs. As a result, loan amounts per capita for small banks in North Dakota are fully 175 percent higher than the US average in the last five years and its banks have stronger loan-to-asset ratios than comparable states like Wyoming, South Dakota and Montana.

Fourteen states have now initiated bills to establish state-owned banks or to study their feasibility. Besides serving local lending needs, state-owned banks can provide cash-strapped states with new revenues, obviating the need to raise taxes, slash services or sell off public assets.

This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.

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13
Jul

Bank of Georgia eyes hotel construction market segment

The July edition of the Georgian National Investment Agency’s rose tinted view of the deepening recession is now available for download. The content of the newsletter is carefully selected and tailored to the needs of Agency’s wide target audience.

The main news this month concerns the Bank of Georgia announcing that they are the only bank in Georgia who will lend you money to build a hotel these days.

The article basically states that more hotels are needed because of some dubious tourist numbers (do they mean “visitor” numbers, or actual tourists?) and that the Georgian Bank have employed some sort of expert to assess the budgets of any project proposals before they will lend any money.

There’s nothing wrong in the BoG wanting to ensure that their loans are used for the right purposes, and maintain oversight on the projects to make sure they get finished on time and within budget, but it sounds to me like they’re (again) trying to stimulate the economy by getting people to spend money they haven’t got – only in this case they’re targeting local businesses instead of consumers, at a time when the IFC and International Hotel Brands are steering well clear of Georgia. If there was that much potential for such a fabulous growth in tourism here international funds would be flooding in. Why aren’t they? Why are the IFC reluctant to fund many tourism projects outside of Tbilisi –well, they’re worried about low numbers of tourists and the short length of the tourist season for a start.

Georgia are trying to attract the same sort of tourists which foreign governments are so keen to keep on their own soil these days. Everyone is feeling the pinch right now and the economic warning bells which are sounding right across Europe right now suggest that the 5 million tourists which Georgian government keep gibbering on about are not going to materialise. If they were so very confident that this is going to happen the government would be investing themselves in the infrastructure needed to fulfil all of the coming hotels & resort projects. But, they’re not. As they say at the end of the article:

“Until international hotel brands can enter into the developing resorts, the local businesses have to construct hotels and develop the infrastructure”.

And finally…

A bit of information overload in the piece about CNN’s recent coverage of Georgia’s trumped up economic expectations at the end…

“It should be noted that CNN is not a contractor company”

You can download the latest issue of this riveting read here:

http://www.investingeorgia.org/upload/file/GNIA_Newsletter_July_2011_.pdf

RD.

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12
Jul

CE Job Alert | International Agronomist – Georgia
Title: International Agronomist
Location: Georgia
Languages: English, Russian
Deadline: 20th July 2011
Organisation: IAK Agrar Consulting GmbH
Sectors: Rural Development, Food Processing & Safety, SME & Private Sector, Agriculture, Livestock (incl. animal/bird production & health)

Georgian Agricultural Finance Facility (GAFF) – Assistance to Partner Institutions
Location: Georgia
Donor: EBRD
Type: Services
Status: Pre-qualification
Sector: Training, SME & Private Sector, Agriculture
Assignment Description: The European Bank for Reconstruction and Development (EBRD or the Bank) wishes to engage a consultant for the implementation of the technical co-operation (TC) programme developed to support the lending programme Georgian Agricultural Finance Framework (GAFF), a joint initiative with KfW, established to contribute to the development of sustainable agri-lending in Partner Institutions (PIs) and the strengthening of agricultural value chains.
Specialist professional services capable of training bank staff and other stakeholders in all aspects of agrilending are required. This will include design of robust credit products tailored to agricultural seasonal finance as well as a general upgrading of skills across the sector.

Increased credit to agriculture will be achieved through the introduction of sound lending policies and procedures tailored to agricultural lending within PIs, while rebuilding value chains will take place through fostering coordination among farmers and restructuring and rebuilding of linkages between agri-businesses and farmers / other sub-borrowers. The Consultant is expected to use a series of training seminars for all PIs (and other stakeholders as appropriate) as the main delivery mechanism. Other stakeholders may include: Ministry of Agriculture (MoA), Georgian State Agricultural University, Bank Training Centre and Farm Service Centres.

The Consultant will continue to develop the already identified value chains as well as identify new ones. They will be available to provide individual “consultations” to PIs seeking to develop specific value chain finance products.
An agronomist will form part of the team of consultants which will add to the robustness of the credit appraisal procedures as well as adding value to farmers in terms of promoting best practice and sustainable farming methods. Part of the budget will be for a number of sub-sector specialists who should be contracted on an as-needed basis.
Specifically, the consultant will undertake the following tasks:
A. Increased Credit to Agriculture
- provide a series of training seminars and workshops to PI staff and other stakeholders as appropriate;
- ensure that banks have access to crop budgets (tech cards) for major crops;
- provide individual recommendations to PIs on how to build sound and diversified portfolios of agricultural and agriculture-related credit;
- identify opportunities for medium-long term credit/leasing which will promote value chain finance;
- work with each of the PIs to develop a formal agricultural lending strategy;
- provide written technical reports on each of the agri sub-sectors identified for further development.
B. Rebuilding of Value Chains
- build on the already identified value chains and identify other top-down initiatives to pilot and develop project proposals for PIs / MoA that promote the restructuring and rebuilding of linkages (value chain) between agribusinesses and farmers;
- identify bottom-up initiatives to pilot and develop project proposals that foster coordination among small and medium farmers (co-operatives);
- deliver seminars/workshops to banks, extensions service providers and other interested parties on each identified sub sector for which a study is undertaken;
- select extension services for the implementation of the aforementioned initiatives and provide training/advice or seek other donor initiatives that can provide the necessary training and support;
- facilitate linkages between GAFF PIs, their agri sub-borrowers and medium and large agro-processors and suppliers of agricultural inputs.
Assignment Duration:
The assignment should be complete within two years with considerably more emphasis on the first year and less input in the second year to ensure a smooth graduation from TC. The TC may be extended for a further year if there is additional interest from new PIs, subject to project needs, satisfactory performance of consultants and availability of funding.
Expert Profile:
International Agronomist:
- 10 years of international project experiences
- Experience of developing value chains and value chain finance
- Technical agronomic expertise
- Knowledge of developing economies
- Language: English (fluently) / Russian (Advanced Speaker)
Experts who are interested in this position should contact: a.kather@iakleipzig.de
In your application please specify that you found out about this opportunity via Collaborative Enterprises. Please visit our website and subscribe to our newsletter to learn more www.collents.eu

Collaborative Enterprises – helping people to help themselves
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12
Jul

CE member speaks to students about Tourism Development in Georgia

Collaborative Enterprises member Jeffrey Silverman gave a talk on tourism development in Georgia, with a particular focus on the Tusheti region, to students at the Ilia Chavchavadze University in Tbilisi on Saturday 9th July 2011. Jeffrey was invited to speak by the Eurasia Management House (www.emh.ge) and his talk included a discussion of three main points:
1) Tourism Development: Strategic Issues for Change
2) Overview of eco and agro tourism in Georgia
3) Earning Foreign Income versus Promoting Local Tourism
Jeffrey discussed his experience in working with tourism development in Adjara and the Tusheti Region of East Georgia, from a practical perspective, and how local schools and communities can even be involved and lead the development process.
He shared how tourism training can be incorporated into English language educational programs, even at the high school level and advocated environmental education, association development, etc., and how Georgia needs to develop its tourism from the regional/community level up, and how emphasis should be placed on Georgian and regional tourists first and foremost, as part of any strategic tourism development plan.
Said Jeffrey:
“It is good to see students with such pro-active and open minds. You hear of Georgia become a new Switzerland – we (CE) happen to believe in a similar ideal, but the difference is that this “vision” is shaped like Georgia – ours is shaped like the whole of the Caucasus, and tourism development must be approached from a regional and local perspective at the same time.
Tourism has been top of the government’s agenda for a number of years – we keep hearing about how 5 million tourists are going to come here… one day… we hope. But will they? Can they? Why visit Georgia?
There is no doubting Georgia’s great beauty and year-round appeal, from the terraced tea plantations in Adjara to the vineyards of Kakheti. Georgia is one of the few great places on the planet which has been left largely untouched by the hordes of tourists who flock to places like Antalya from just about every regional airport in the United Kingdom or Europe, day-after-day-after-day, year-after-year.
These are kind of tourists which spring to mind when Georgia talks about 5 million tourists – but is it really possible and, if it is, then why aren’t they already here? What has become of all those millions of dollars which have been spent in developing the tourist industry in Georgia. Could it be that much of it was mis-spent, was cost-effectiveness achieved, what are the “opportunity costs”?
One of my day jobs here is designing projects and as an editor of various “end-of-term” reports for programs such as the Georgia Employment and Infrastructure Initiative (GEII), which has sought to increase incomes, forges partnerships, and supports strategies that bolster local economic development throughout rural areas. Its community-based projects focus on skills development, employability, and private sector demand.
Such reports are occasionally written by well intentioned people who try to tell the truth about what these programs actually achieve, but what is actually not always included in the executive summary is the kind of information that is often far more revealing. What is left in is BECAUSE the purpose of reports is to satisfy the donor organizations and that the program has not run long enough to have sustainable results. The question often remaining is whether that money has been well spent, but such reports seem written with the sole purpose of asking, in true Oliver Twist style: “please will you give us some more”.
Some of the things which have been left out are comments such as one from a prominent Georgian lady who runs a women’s organization here. In short she complained that all these programs have done is to make all the villagers raise their prices to cater for foreigners, so ordinary Georgians find it harder to be able to afford to go to these places, and yet the foreigners are almost no-where to be seen aside from the odd coach trip, because (A) it is very difficult for foreigners to actually find and explore all of the information which is available, (B) if they DO find the information then it is often quite a difficult task to make a booking directly with a guest house (often there is only a phone number given and no guarantee that the owner will speak English), and (C) actually planning a trip around Georgia is quite difficult because the information they find often like such crucial information such as how to get there.
So, actually booking a holiday in Georgia is a daunting task in itself, but then you need to consider that many governments are actively encouraging their own people to holiday at home these days. Flying, as we are so often told, leaves big bad carbon footprints all over the planet but also you need to consider that many ordinary people in the west are hurting right now. In the United Kingdom alone thousands of people are losing their jobs every month and they have estimated that the 2010 (so called) “austerity budget” in that country will cause up to 1.3 million job losses over the next five years, with millions more facing higher taxes, reduced incomes, an extended retirement age and reduced pensions.
All of these millions of visitors are in pretty bad shape right now – right across Europe from Ireland to Greece people are worried. So it makes sense to consider the possibility that perhaps Georgia should be looking inward rather than outward.
Unfortunately most Georgians I have spoken to say that they receive better value by going on holiday to Turkey where they receive better service from a long and well-established tourist sector. It seems strange that, for all of the government’s huff and puff about tourism, that private guest houses – many of which do a fine job in difficult circumstances – are taxed 10 GEL per square metre of rentable space during the tourist season. This makes it very hard for the owners to make a profit – but perhaps that is part of the government’s master plan? Yes, they want all of this money coming in but “they” want it?
The main problem in Georgia is that there isn’t a culture of cooperation – people are accustomed to fighting to exist on a regional and personal level so it is very difficult to get people to understand that, in order for tourism to really take off here, there has to be a paradigm shift in thinking – and this applies all the way up to the highest levels of government too. Regional tourist boards should work together as part of a national tourist board with it’s own website where all of Georgia’s attractions and amenities are brought together under one banner. All parts of the country deserve equal billing, and all regional tourist information centers should have information on the rest of Georgia too, and be able to tell travelers how they can get from A to D, and be able to help them to make bookings before they come and while they are actually here.
There is so much which could be done – and needs to be done – but we see another year go by and still nothing changes. Foreign experts come and go, new organisations come in on the gravy train and try to attract investment to fund yet more programs and write more reports, but none of these are needed. The Georgian people themselves have what it takes to do this, but they need educating. What we at CE have tried to do is to voluntarily reach out to these people – the people at the sharp end – and try to help them. We don’t ask for their money, we don’t come in and say “here’s our big fancy program which is going to make you rich”, we sit down and listen to people, discuss their problems and try to identify solutions. If we need to stand in front of a class and talk about something we do it. If someone needs an English teacher for their hospitality students we try and provide one – often for no more than food and lodging. Why? Because we live here too, and the only way we can improve our own situation is to go out there and cut through all of the barriers which exist between now and the good times.
It’s difficult because we go against the grain and have no funding apart from heaps of our own good will, and it is difficult to partner with other organisations because we know that many of these “non-profits” are run by well-heeled people who want to stay that way. They don’t actually care about Georgia or it’s people – they are in the business of appearing to care, but if there was no money in it then they wouldn’t be here. That’s not sour grapes, that’s reality and that’s what CE are about – empowering the people… helping people to help themselves because no-one else will.”

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12
Jul

Obama: US debt talks failure ‘could restart recession’

[BBC News] Failure to raise the US debt ceiling could trigger another recession and throw millions out of work, President Barack Obama has said.
Mr Obama is struggling to marshal support for a budget package that would include some $4tn (£2.5tn) of cuts.
But ahead of renewed budget talks with Republicans on Monday, Mr Obama said the stalemate would be resolved within a “reasonable period of time”.
The US risks defaulting on its debts on 2 August, when the budget runs out.

Republican House Speaker John Boehner agreed the debt limit must be raised but said the House would not pass a bill that included tax increases.
Mr Boehner’s remarks were a reiteration of what the Republicans have described as their bottom line in negotiations.

The US currently runs an estimated $1.5 trillion (£932bn) annual budget deficit, and has already exceeded the national debt limit of $14.3tn.

http://www.bbc.co.uk/news/world-us-canada-14111695

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12
Jul

Spanish protesters fight off repossessions

[BBC News] Protesters are angry that banks – propped up with public funds – are now turning families in difficulty onto the street.
There is bemusement it is happening at all, when almost 700,000 unsold properties stand empty.
The campaigners’ main demand is for a legal change to allow people to clear their entire debt by handing their home to the bank if they cannot meet the mortgage.
Currently, if a bank sells a repossessed home for less than the value of outstanding debt, the borrower is liable for the difference.

http://www.bbc.co.uk/news/world-europe-14112247

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28
Jun

Is the US in denial over its $14tn debt?

One of the BBC’s most senior correspondents seems think so…

http://www.bbc.co.uk/news/world-13906274

Ever wondered what $14t looks like? just add another half dozen storeys to the picture on the following page and you’ll get the general idea…

http://www.pagetutor.com/trillion/usdebt.html

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22
Jun

Dealing with Business reform and struggling with the Russian “Shadow Economy”

Deserving something better in life, and “getting it”

By Jordan H. Evans

Vladimir Biryukov, Chief Expert of the Billioninvest Corporation, is a well-known Russian-American economist and international business consultant. He represents a US-based strategic investment and consultancy firm which seeks to operate in the former Soviet market. Here he shares a bit of insight into the value of a business reputation and fighting corruption during difficult times.

Dr. Vladimir Biryukov is an expert on economic transition and reconstruction in Russia; he is a specialist is combating corruption through ensuring transparency in economic relations and when dealing with governments. Dr. Vladimir Biryukov has published articles and lectured on “Shadow Economies” around the world. He has been instrumental in designing methods to reduce the influence of corrupt practices on healthy economic development through the continuous adaptation of Western transparency principles to the emerging economies of ex-Soviet countries.

Here he talks about how a full range of political and economic forces have come together to create a chaotic situation, in an interview given a few days after the International Economic Forum in St. Petersburg, in late June, which addressed many of the same issues that Dr. Biryukov has devoted his professional career to.

JE: Dr. Biryukov, can you first tell us a bit about your company and your background?

VB: Billioninvest Corporation is a US-based strategic investment and consultancy firm, based in the State of Pennsylvania, which advises international clients. Recently, despite the difficult economic circumstances, it has not only worked here in the United States but in Russia and countries of the former Soviet Union.

I completed my doctorate at the Russian Academy of National Security, which is responsible to the President’s Office of the Russian Federation, specializing in economic reform and battling corruption and the shadow economy, which is a serious problem in Russia.

My work involves all spheres – transport, commodity trade, property rights, a bit of everything; the global crisis has demonstrated that everything in the world is interconnected. As President Dmitry Medvedev told economic and political leaders at the St. Petersburg International Economic Forum, with powerful aftershocks from the 2008 financial crisis still rattling global markets, Russia plans to become a safe haven for investors, and we are working on this.

JE: Can you tell me what you mean by the term global crisis?

VB: Let’s start from what is going on now, looked at from an American perspective. Few could have predicted the real estate crash and mortgage crisis in the U.S., which continue to have grave ramifications for economies around the world, especially in Europe and communities across the U.S. Here banks are being bailed out, and the problems which still exist have become international in scope.

The transformation of the American Dream into a mass nightmare has severely impacted on state, national and local budgets. The bankers ran to the government for bailouts and the immediate crisis was averted. However, the already strapped taxpayer is now left to foot the bill.

Coming from Russia, and a system which continues to be economically anarchic, I can tell you that a number of specifics come together to create the “perfect storm” – including greed, corruption, seemingly endless confidence in market growth and the naïve belief that all will end well and that the “party” will go on forever.

JE: But what is globalization? What is this bigger picture we need to look at?

VB: Only a few years ago globalization was the buzzword on everyone’s lips. The so-called ‘advanced common economic system’, and all the supposed benefits a global society would bring, were elevated to the level of a new religion. However, we soon realized that such “highfaluting” concepts were too broad and ambiguous in scope; they had so many meanings that in the final analysis they were devoid of any meaning at all. Often they became associated with negative phenomena such as job outsourcing, factory closures and environmental degradation.

JE: What can we learn from this American and global catastrophe, if anything?

VB: If we learn nothing, we will see many more such crises in different economic spheres. Nuclear energy is one area which has claimed public attention and much can be learned from the tragedy at Fukushima in Japan. However the jury is still out on this; not all the safety violations which took place there (by either the Japanese government or the private sector) have been made public, so we still don’t know all that happened at the plant or what its long-term impact will be.

Nonetheless, what we do know gives us enough grounds to suggest an alternative to the way the global economy currently operates, which would address all its inherent weaknesses – a new system, based on fundamental human values and not artificially created ones.

JE: But what does the Fukushima disaster have to do with the global economy?

VB: The destruction of the plant, and the contamination it spread, have put the foundations of the global economy under threat. Long-standing problems have been magnified, and these will inevitably affect political relations, economic systems and the very way we think, as there has been a lack of proper communication between government, public/private sectors and regulatory agencies. This has been a proverbial wakeup call. The lesson is simple, we are all in this together, and as such there can be no shortcuts in the proper allocation of scare resources and safety.

JE: Who should therefore be held accountable for this, and how can we then improve things?

VB: Everybody and nobody is accountable; the fault lies with the shadow economy … which may not make immediate sense but please bear with me and I’ll explain. The disaster in Japan has opened up flaws in the current economic system, which is guided by the “invisible hand” of eighteenth-century economic guru Adam Smith.

The economic playing field must be level. Much can be said about the malign influence of the so-called shadow economy, especially from the Russian perspective, which operates off the books and often illegally, and accounts for as much as 40 percent of GNP. However, that is not the whole story – the “shady aspects” of the official free market, its conditions, distortions and risks to the national security of individual countries, are at least as damaging to economic well-being, if only because they are more prevalent now in the developed world than ever before. Rent seeking behavior has taken a heavy toll, and much damage had been inflicted on business confidence.

JE: What do you actually mean by the shadow economy, a very broad term?

VB: The term “shadow economy” is often defined as a type of business, or exchange and usage of inventory holdings, “beyond the control of the state”. The other common definition is that it is a complex of “hidden” illegal socio-economic relations between some citizens, or social groups, who use different types of property for their own private interests.

In layman’s terms, the shadow economy is basically one which operates “off the books”, and these operations sometimes account for a large percentage of overall economic activity.

Just as the safety regime at Fukushima operated “off the books”, not subject to closer public or government scrutiny, because the company and the authorities preferred it that way, so shadow economies prosper until a financial disaster strikes, leaving the official economy unable to bear the burden of the economic fallout. When the shadow economy, like the official one, is global, there are no other levers left: a single world economy, which globalization creates, with official and shadow dimensions on an international scale, leaves us with no other model to follow when it collapses, as all human systems inevitably do.

JE: What therefore should we do to combat this? Adopt new regulations, or what?

VB: There are no easy fixes, or cosmetic or technical solutions to the problems we now face. Resolving one problem simply creates another (harming the environment of a neighboring country, for example, will always have bad consequences for your own) and this is why it is crucial to take a complex and “big picture” approach when addressing serious challenges.

Human beings must revisit their main ethical and spiritual values in order to survive, and more and more people are starting to understand this truth; we cannot escape global problems by hiding on some remote island in the southern hemisphere. There is no longer any place beyond the reach of the all-embracing economic system and its values.

Corruption feeds the shadow sector of the economy and generates bankruptcy, the criminalization of the financial sector and tax evasion. Corrupt officials have been successful in striking fear into many legally operating companies, to the extent that they are now afraid to report cases of extortion to the prosecutor.

JE: Are you proposing a shift in paradigm, new value systems or what?

VB: You could say that. Even in the sphere of business management, hired consultants are now being brought in to conduct untraditional training programs which go beyond time honoured principles, their methods and recommendations often being deeply rooted in a wide range of religions and cultures, so progress is being made.

Any new thinking, or shift in paradigm, must be founded on three guiding principles: tradition, spiritual purity and transparency. As a country is founded, so are its values. Take for instance America, which has a solid foundation of values, which time has proved to be superior to all others: there is no better system in the world.

Even in the face of adversity this country has been able to maintain stability, fortified by the values set forth in the Constitution and Bill of Rights. However, America is more than a political and economic system in the final analysis; it has evolved into a mindset, a way of thinking, of perceiving the world – and being able to act and change with it.

JE: How can we act, individually or as a group?

VB: Each group of powerful people blames the rest for all the world’s problems, but in reality we all commit the same sins. Everyone must ask themselves what positive contribution their actions will make to the local and global economy.

People who have something to lose, and those able to think reasonably, will always ask this question, and we see people asking it everywhere. Motivation is one of the most important spheres of working together or management.

Everyone must believe they can succeed in their hearts and minds. We must come to accept that natural disasters and problems can be resolved if we revisit our innate capacity to get along with one another. This capacity is, of course, global itself; it is of a scale ample enough to counteract many of the problems faced in today’s global economy.

JE: Why do foreigners want to come to live and work in the United States?

VB: Because they want to be freer than they already are … they want something better. Those applying for entry are not necessarily impoverished; on the contrary, more often than not they are rather well-off and smart enough to realize they deserve something better in life, and know how to go about getting it.

Jordan Evans is a German/Political Science Student, Transylvania University, Lexington, Kentucky who spent the Summer of 2010 in Georgia conducting research into tourism and the business climate for Collaborative Enterprises and also spent some time as an intern with Human Rights Centre.

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14
Apr

CE News | Tbilisi hosts International Tourist Exhibition 2011

Tbilisi is hosting the 13th International Tourist Exhibition 2011. The three day event was opened by the Minister of Environmental Minister Goga Khachidze and Minister of Economics and Sustainable Development Vera Kobalia. The exhibition has been organised by the National Tourism Agency and the Expo-Georgia Company. Tour operators, hotels and other private companies have exhibited their products for the visitors offering various types of services to them. This year the exhibition has twice as many participants as it had last year, 180 in total.
At the exhibition, the visitors will be informed about various activities in the sphere of tourism. The makers of hand made souvenirs have emerged at the exhibition for the first time this year.

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Deserving something better in life, and “getting it”

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