Bolshoy Business (Moscow), - September 5, 2008

The 18th international business conference, Russia and emerging markets: ways to avoid global financial crises, organized by RBC and OTKRITIE Financial Corporation, was held on July 2-6 in Cyprus. The business forum in Limassol was attended by over two hundred businessmen, investors, and representatives of Russian financial groups and authorities. The key topic of the conference was the current situation on the global financial market, the prospects for Russia's investments and Russia's monetary policy.

The heat of the Mediterranean also promised heated discussions, as the topic of the global financial crisis has dominated the front pages of all newspapers for over a year already. Meanwhile, the greeting ceremony created an atmosphere suitable for a leisure vacation at sea. Keeping with tradition, the guests were greeted at the airport by RBC's General Director Yury Rovensky wearing a national Cypriot costume. Natalia Barshchevskaya, Deputy Chairman of the Executive Board of OTKRITIE Financial Corporation, was also wearing a white tunic. The guests were offered Greek cheese and olives. The business part of the conference was the logical continuation of such a greeting. A round table discussion on the influence of the media on the country's investment image was held on the beach, for instance. At the same time, a round table on investment management and protection of capital was moved to the lobby bar, where its participants discussed the peculiarities of doing business in off-shore states while enjoying fresh fruit.

The business conference's program included an array of entertainment events: gala dinners with exciting shows, night swimming, Igor Butman's performance, and a Beach Party with wacky competitions, to name just a few. However, even these fascinating venues could not distract the business people from the key topics - Russia's involvement in the global financial crisis and the future status of Cyprus, home to the majority of companies investing in Russia's economy.

The key participants of the conference were First Deputy Chairman of the Bank of Russia Alexei Ulyukayev; Deputy Economy Minister Andrei Klepach; President of the Association of Russian Banks Garegin Tosunian; and Micex President Alexander Potemkin. From Cyprus's side, the Cypriot President Dimitris Christofias, Finance Minister Charilaos Stavrakis, and Minister of Commerce, Industry and Tourism Andonis Paschalides all delivered speeches on the development of financial cooperation.

A controversy between the Economy Ministry and the Central Bank in their global market assessments drew a great deal of attention. Andrei Klepach asserted that it was too early to talk about the global financial crisis in the past tense, as it was just beginning to erupt. He believes that the main financial challenges have not yet been assessed in full, even though there are signs of a slowdown in the global economy, which could result in a long-term period of stagnation. Such pessimistic forecasting invoked a sharp response from Alexei Ulyukayev, First Deputy Chairman of the Bank of Russia. He assured the conference's participants that the peak of the global financial meltdown had passed back in March 2008. "We are now facing a slowdown in financial activity rather than a crisis." Moreover, he pointed out a number of factors inspiring optimism. Above all, he expects the global crisis to breathe new life into banks and "burst bubbles," and secondly, Russia is enjoying foreign investor confidence, which testifies to its economic resilience. In the last several months, foreign investment inflow, which had ebbed because of crisis woes, has been gathering steam again. In the beginning of the summer, Russia enjoyed a $5bn investment inflow per month. Moreover, net private capital inflow is expected to amount to $40bn by the year-end.

The results of combating inflation can also be viewed as a positive factor. Alexei Ulyukayev believes that Russia will see slowing inflation in the second half of 2008, and annual inflation will not exceed 10.5%. Surprisingly, Deputy Economic Development Minister Andrei Klepach supported Ulyukayev's forecast regarding inflation, stating that inflation should stand at 5-7% by 2010.

President of the Association of Russian Banks Garegin Tosunian was also in high spirits about Russia's financial market, saying that Moscow could evolve into an international financial center, as both former Soviet republics and East Asian countries were gravitating towards the city financially. Thanks to Moscow's location - halfway between the Asian, European and US markets - traders could work here nearly 24 hours a day. The assets of banks operating in Moscow amount to $715bn. The Moscow Interbank Currency Exchange (Micex) is ranked 17th in the world according to its volume of trade in shares and bonds, with non-residents accounting for 35% of all transactions. It is also important to note that the ruble may become a regional reserve currency. "How will Moscow benefit from becoming an international financial center? It will be able to actively participate in making "global decisions" on key financial issues instead of being merely an observer, who will be obliged to follow the rules set by somebody else," said Garegin Tosunian.

In stark contrast to Moscow, Cyprus's investment future could very well be jeopardized, despite the fact that the country is one of the major investors in Russia's economy: accumulated investment in Russia made by and via Cyprus exceeds $40bn at the moment. Since Cyprus opts not to provide complete information upon tax authorities' requests concerning transactions performed by Russian residents there, it may cease to be an offshore state, meaning preferential tax treatment will also be discontinued. The issue spurred a debate between Cyprus's Finance Minister Charilaos Stavrakis and Alexei Ulyukayev during the conference in Limassol.

The discussion that started in Cyprus drew the attention of Russia's Finance Minister Sergei Shatalov, who then held a meeting in Moscow with his Cypriot counterpart Charilaos Stavrakis. Shatalov pointed out that Cyprus had already expressed its intent to change its approach to taxation, as well as to provide information on Russian residents more promptly and accurately. All unresolved matters are expected to be settled as early as the coming fall, during Cyprus President Dimitris Christofias's visit to Moscow, where he is expected to sign all the necessary documents.