Jeff Randall 18.03.13 Interview with Ivan Tchakarov, Chief Economist at the Russian investment bank, Renaissance Capital

Jeff Randall:       Okay Mr Tchakarov many thanks for joining us; we really do appreciate your time.  Now I've read several estimates of how much Russian money is on deposit in Cyprus at risk, what is your understanding?  

Ivan Tchakarov:    Well our understanding is there is about $30bn of bank and non-bank deposits in Cyprus which means that if, under the solution that has been talked about, if there is a 10% clear cut imposed on these deposits we’re going to have about $3bn of losses for Russian depositors which obviously represents only a 10th of a per cent of Russian GDP, only ½% of Russian gross reserves.  So from a pure macroeconomic perspective the hit and the loss for the Russian economy could be quite small.  

JR:       Indeed, but for the individuals and businesses concerned it’s very serious, I've read that President Putin has described the so called bank tax as “dangerous” would you agree?  

IT:       Well absolutely I think that the response from the Russian political establishment has been loud and clear; the Russian Finance Minister said this morning that we were not contacted about this decision, we were left in the dark and this makes us unhappy.  President Putin has been on the wireless as you suggested yourself characterising this decision as unfair, as unprofessional and dangerous.  Now I think we should understand that Russia was, and still is, the only country that has extended loans on a bilateral basis to Cyprus, they gave about $2.5bn two years ago, this is about 15% of separate GDP.  So I think from that perspective we may understand why the Russians could feel a little bit aggrieved by the whole situation because they think that given their bilateral involved in Cyprus they should have at least been contacted.  So I think there is some case that could be made as to why Russians could be a little bit unhappy about the whole situation.  

JR:       But inside the corridors of power in Brussels and elsewhere in the EU you could see the thinking, their view is “Well all this Russian money, or a lot of this Russian money, in Cyprus is hot money, it’s only there to be laundered, so what if they take a haircut.”  

IT:       I think that you are basically taking the other side of the equation and described it very well, I think the idea has been with the European Union government and mostly the German government and the government in Netherlands that we should not be using our taxpayers money to bail out what are probably rich Russians depositing their money in Cyprus.  So you could see the logic, the pure economic and financial logic behind that decision.  What is very unfortunate is that, as I'm sure you have discussed before, this is setting up a very dangerous precedent, if in a certain bail out situation as is the case right now in Cyprus, we are enforcing certain losses on the depositors what could be the situation if a similar situation develops in Spain, in Greece, and Portugal, and then you can understand why the market is really frightened about this situation.  You can understand why the market is reacting the way it is this morning in London but also as the markets are opening in New York.  So I think there is a very dangerous situation that European governments have unfortunately created.  

JR:       And finally Sir would you agree that the Russian money in Cyprus is largely hot money there to be laundered, because if it’s not why is there so much Russian money in Cyprus?             

IT:       Well I think this is probably the right way to describe it, and I think this is not a secret, I think we should probably refer to a very interesting interview at the outgoing central bank governor in Russia did a couple of weeks ago, he said in the local papers that about 40% of the overall amount of capital outlaws that have been leaving Russia for many years now are actually related to suspect money, to corruption money, to monies that are being siphoned off Russia into offshore locations including Cyprus.  There was at that point of time the understanding that this could have happened, the Central Banking Governor could have given such an interview only with the permission from a very, very high level, and if this is the case, that is if our President Putin has approved such an interview you could actually make the positive conclusion that there is a certain desire these days within the Russian political establishment, coming from Putin, coming from Medvedev to squeeze corruption a little bit, to tackle corruption, to squeeze on the inefficiencies in the Russian economy.  Because I think this is the only way for Russia to go, we need some of this money to go back in Russia and to be channelled into productive areas.  

JR:       Indeed, alright, Mr Tchakarov many thanks for joining us, we appreciate your time.  

IT:       Thank you very much.