Alexey Ulyukaev: We Have All Opportunities to Be Among the Leaders (interview for Russia24)
The Asian Infrastructure Investment Bank (AIIB) officially started in Beijing.
Alexey Ulyukaev, Minister of Economic Development of Russia: One can definitely say that there is such regional world significance. You mentioned 57 states. Among them 37 states are regional ones, they will realize all banking operations, 20 states are those belonging to different regions. They are all European countries. Not all these states have completed domestic procedures. 22 states including Russia are full-fledged members represented by the Governors. The rest are applying necessary procedures and will join the bank as soon as they complete them.
We know from our colleagues and bank managers that there are about 30 states interested in this project and probably they will be involved in the bank work very soon. We see a significant interest, it is true.
Alexey Valentinovich, today we can say that the Asian Infrastructure Investment Bank officially started, 57 states are participating in it. Are other countries currently outside the Bank interested in joining it? Does this organization have regional, even world significance? It is mostly a regional project but everybody talks about the partial changes of world financial system. I mean a potential competition that the Bank can provide for the World Bank and the Asian Development Bank. Can we say that the picture of world financial system is being redrawn now with the appearing of AIIB?
I would rather say not about a direct competition but about the addition to the work that existing financial organizations conduct (the World Bank, Asian Bank and so on). The most important thing here is aiming at infrastructure projects, lifting restrictions in trade, investment, economy as a whole. Primarily we mean transport, communication, energy. The Bank should become the centre of such expert evaluation. The region it works in is the most rapidly developing part of the world economy, hope and fear of the world are connected with this region. You see people concerning about slowdown in China. Every company in the world takes a lively interest in this process. Here we see the very centre of this work. Here qualitative skills and the best practices of investment cooperation will be developed. We strongly reckon on the fact that due to our participation in AIIB a significant contribution will be made to the development of Russian economy.
Some words about our participation in the Bank. You are appointed as a Governor from Russia and Russia occupies the third place in the number of voices and shares after China and India. Our country has 6% or a bit more. What advantages does this third place give to Russia in choosing the projects and taking important decisions?
Firstly, we are the third largest Bank shareholders and we are included in the regional group where the banking operations will be realized. But there is another thing: in such organizations they create groups, board of directors that are represented by the directors. Now there is being formed a group chaired by Russian director that includes four countries. According to the number and share of voices consolidated by the group Russia takes the second place after China. It is very important because it allows occupying a definite position among the directors. There has been voting today, the results haven’t been announced yet but we are sure Russian director will be elected mostly due to our notable quota. It will allow us to introduce Russian specialists in the Bank management that will be dealing with project preparation and also it will allow us to influence the decisions on the projects since the Bank staff will take decisions and prepare the projects and the Board of Directors will make a final decision. And decision will be made according to the amount of voices a director operates. In our case it is almost one eighth of all Bank voices. We are sure that due to this fact we’ll be able to take effective decisions supporting positive tendencies of Russian economy development.
Was there any discussion concerning the projects that would be considered in the nearest future? I wouldn’t like to talk about any specific projects, I am interested in the sphere the Bank concentrates on?
First of all, at the present moment the projects are not being developed. The Bank must get started, complete arrangements regarding internal documents formation, staff, cooperation adjustment, information support. The management and elected Bank President assure us that from the second quarter on the substantive work with the projects will begin. We must be ready for this.
As for the spheres, first of all it is transport (railway, highway, pipeline, air, sea), communication (telecommunications), energy with a focus on renewable energy sources. The slogan of the Bank is three English words: lean, clean, green. Lean means saving, cost reduction as infrastructure is constraint for business development. It is ecologically clean technology, other energy, other transport, other technologies. And in this way we shall orient Russian business regarding the projects we are going to offer the Bank.
Has Russia chances to be among the leaders?
I think we have all opportunities to be among the leaders.
What spheres and what regions are supposed to be among the top ones?
The regions we are talking about are those of Siberia and the Far East that are close geographically to the Bank’s scope of work and also are risky ones because of insufficient investment. It is extremely complicated to raise domestic investment in order to solve infrastructural problems of Siberia and the Far East. We are working towards these problems solution but we need additional financial support from such important financial institution like Asian Bank.
And what is your opinion on projects intersection? Many of them are funded or considered by different regional financial institutions: the New Development Bank, the Asian Development Bank, the New Silk Road Bank of China and so on. Will there be some common points or contradictions?
Frankly speaking, I do not see here the danger of contradictions, from the other hand synergy is possible. The institutions you have mentioned are being created now. The way we are creating them determines the practice of working with the projects.
It is very good when we can create synergy in our work. For example, one financial institution allows developing infrastructure, railroad that helps a new source of natural resources to enter the market and the other institution will invest into resource development. One supports the transport infrastructure, the other – energy infrastructure. This way of comprehensive development of territories and new growth area seems to be correct.
In your opinion, was this organization created quickly? 800 days passed, it is not much. Such hurry may be connected with regional and mainly Chinese restorative economy that experience hard times. The Chinese Chairman said that the new organization would be the means of help for regional economy. Can we consider a new Bank to be such means?
Firstly, you are right, the organizational procedures are being passed very quickly. I do not know the examples when a large organization (the capital is 100 billion dollars, 20 billion have been paid already) is created for such a short period. It is connected with the challenges the region is to face. This region is underinvested. There is capital but there isn’t a means of capital distribution. We can say about redundant capital in Chinese economy that is looking for its application. And we know the spheres where it can be used. The lack of capital distribution means must be removed by AIIB in order to link demand for capital and capital supply in the projects that should combine comfort conditions for loaners and low risks for lenders.
The opening of the bank comes against the background of incredible Chinese stock exchanges volatility. Nothing has calmed down this week. In the middle of the week the price rate on Chinese and world stock markets stabilized but at the end of the week Shanghai index fell again. What is your prognosis? How can you explain this situation? There is an opinion that this reaction is connected with worries about Chinese economy. Is it the only reason? And is the point of these worries here in Beijing, in China?
There are several global trends. From the one hand, there exist problems that are actual not only for Chinese economy but also for all emerging markets that have been the main locomotive of world economic growth for the last two decades. Today these positions are slightly shifted. It is natural because they are losing their main advantage – low costs that were connected with low-cost labor. Now these countries are turning into the economies with medium income level, they do not manage to be world workshop, to be the largest exporter of finished goods. That is why they need to cross over to other directions. Chinese economy is looking for the ways to concentrate on inner consumer demand, connected with another household income policy, another saving policy, another quality of banks credit work. It is one thing to give a credit to a champion, to a development project, another thing to give credits to multiple enterprises working for consumer demand. These factors shift the balance between production of goods and production of services, the latter will increase in the whole scope of Chinese economy. These changes are very serious and they cannot pass smoothly. So this volatility is natural. It happened so that several factors have synchronized: the problems of all emerging markets, specific problems of Chinese economy connected with its structural transformation, the problems of advanced economies. Prolonged stagnation in the world is reality. European economy has not been able to overcome this situation for several years. Risks emerge in Latin America, Russian economy faces hard times. Therefore it is not quite correct to talk about China as a centre that is the reason of all these problems. During quarter of a century many expectations were connected with China, everybody got used to the fact that China was a non-faulty locomotive that had no right to drop speed. But it does and it has right to do it. Now everybody should adapt for this new situation, Chinese colleagues are looking for the new ways and so are we. We understand that for us it means another demand for our energy products and exported goods. We must diversify our export, develop mainly non-energy export (non-fuel), that will hedge us against undesirable volatility.
Alexey Valentinovich, fears are connected with the fact that world traders and investors do not understand the possible actions of the People's Bank of China regarding yuan rate. What is your prognosis for further yuan depreciation and is yuan strengthening possible? What is more profitable for China and for the world as a whole?
It is hard for me to judge about the actions of the People's Bank of China. We see that it conducts the policy of decline yuan rate against global currencies. From the point of view of competitive ability this policy is reasonable but it cannot be permanent. It may allow gaining time for structural transformation but it cannot substitute it. And here the cooperation between the People’s Bank of China and financial markets regulators is very important. Another important factor is the quality of structural and institutional transformations in Chinese economy.
This week there has been information about Russian currency strengthening factors. What are they?
They exist and I would like to say about two fundamental factors. Firstly, we and almost all analysts expect oil market to stabilize after the first quarter; the level price will be low for a long time but much higher than it is now. It means that external imbalance will be better. From the other hand capital account of external balance will be better than it was last year at least because of external debt repayment schedule for Russian companies and banks. Now it is twice less harsh than it was last year. Last year the amount was about 130 billion dollars, today it is about 60 billion. It means that capital outflow connected with external debt will be much lower; it is an additional factor of strengthening. That is why I consider these factors to be the reasons for possible changes of exchange rate fluctuations.
Are you talking about exact figures?
Not in the least.