NEWS,24.09.2012

Putin could go 'overnight' without reforms, says economist

Russian President Vladimir Putin, who faces the biggest protests of his 12-year rule, could lose power overnight if the oil price sinks and he fails to reduce corruption, a leading Russian economist said today.Sergei Guriev, Rector of the New Economic School in Moscow, said the former KGB spy was in little danger in the near future if the price of oil, Russia's main export commodity and a vital revenue source, remained over US$100 per barrel.But he said political upheaval could follow swiftly if the oil price sank and Putin, back in the Kremlin since May, failed to improve the investment climate or tame the corruption and bureaucracy that have plagued Russia for centuries."We all lived through the Soviet Union - which was forever until it was no more... These systems change very quickly," Guriev told the Reuters Russia Investment Summit, recalling that few predicted the Soviet empire's sudden demise two decades ago."The regime may fall apart overnight, and in a way that we don't know. It may be in a peaceful way, it may be in a bloody way," said Guriev.Putin, 59, has dominated Russia since he was first elected president in 2000 and an oil-fuelled economic boom helped keep him popular during his first two four-year terms.He remained Russia's paramount leader when he stepped aside to become prime minister in 2008 because of constitutional term limits, and won almost two-thirds of the votes in a presidential election in March despite the protests in big cities.Guriev is an active player in an "open government" initiative set up by Prime Minister Dmitry Medvedev that is pushing a business-friendly reform agenda, but also has ties to one protest leader, lawyer and blogger Alexei Navalny.He said he thought Putin would heed the warnings before it was too late but must urgently improve the investment climate to keep credibility with the business community.Corruption fight is key Large capital outflows, which reached US$80 billion last year, highlighted Russian investors' pessimism and the protests showed the dissatisfaction of the emerging middle class, he said.Opinion pollsters say Putin's traditional support is holding up in the provinces but Guriev said: "I think (Putin) has already written off the Moscow middle class ... But the general public outside Moscow is also losing patience.""If he didn't care, we wouldn't see all this repression," he said, referring to new laws that increase potential fines for protesters, tighten controls on the Internet and force lobby groups that receive funding from abroad to register with the authorities as foreign agents and undergo additional checks.An anti-corruption drive would be a more effective way for Putin to disarm the opposition, which has made fighting graft a top demand, and help shore up his own popularity, Guriev said."If Putin fights corruption successfully, the opposition is gone," he said. "If Putin doesn't fight corruption, he's gone, and a new government will fight corruption."Underlining the importance of economic growth to Putin's political fortunes, he forecast growth of 3% in 2013 - a relatively low level compared with recent years - but said that even this rate would depend on the oil price. Were the price to fall to $60 per barrel, fiscal reserves would run out in two years, causing a crisis in the government's finances, he said.The oil price at which Russia's budget balances has risen to above $100 per barrel, from $50-55 per barrel five years ago."The government is popular (with ordinary Russians) because it spends more and more and more," he said. "If the oil price were $55, and the government could spend only what it can afford at $55, I think Putin would be gone."

World powers call for new Iran sanctions

Britain, France and Germany have officially called for new European Union sanctions against Iran over its nuclear programme, diplomats said Sunday.The foreign ministers of the three countries wrote to EU foreign policy chief Catherine Ashton last week calling for tougher measures as the showdown with Tehran becomes more tense, a European diplomat said on condition of anonymity.The EU is working on more sanctions as President Mahmoud Ahmadinejad seeks to counter the pressure on his country at this week's UN General Assembly in New York.Ahmadinejad met UN leader Ban Ki-moon on Sunday as the EU foreign policy chief held talks on Iran and other topics with US Secretary of State Hillary Clinton in New York.Details of the new EU measures are still being worked on but foreign ministers from the 27-nation bloc will discuss the move at a meeting in Brussels on October 15.The United States and its European allies say that Iran is working toward a nuclear bomb. Iran says its research is for peaceful energy purposes. There has been mounting speculation in recent months that Israel is planning a military strike on Iran's bunkered nuclear facilities.The United States, Britain and France warned at the UN Security Council last week that time is running out for a negotiated solution with Iran."It is necessary that we sharpen the sanctions," said a second western official, confirming the request by foreign ministers William Hague of Britain, Laurent Fabius of France and Guido Westerwelle of Germany."We think there is still time for a political solution, a diplomatic solution, and this is what we are working for. But we cannot accept nuclear weapons in the hands of Iran," said the official, also speaking on condition of anonymity.Ashton is to chair a meeting in New York on Thursday of the six nations - the EU three, plus the United States, Russia and China - who have been seeking to negotiate a solution with Iran.The international community has pursued a dual track of pressure through sanctions while seeking to negotiate. But the US and European nations say Iran is refusing to talk.UN chief Ban "urged Iran to take the measures necessary to build international confidence in the exclusively peaceful nature of its nuclear program," said a UN spokesperson, Vannina Maestracci.Ban and Ahmadinejad also discussed the war in Syria and the protests in the Muslim world against a US-made film that mocks Islam.The showdown with Iran is one of the key topics at the UN assembly where Israel's Prime Minister Benjamin Netanyahu is also scheduled to speak.Ahmadinejad, who will address world leaders on Wednesday, is probably making his last appearance at the UN assembly where he has become a controversial figure.Western nations regularly walk out of his speeches in protest at his anti-Israeli comments.

German business mood worsens for fifth straight month

German business sentiment dropped for a fifth straight month in September, raising fears of recession as companies struggled with what they said was the worst economic outlook since mid-2009.Germany's relative resilience to the euro zone debt crisis has been steadily fraying as its firms see falling demand for their products from European partners and signs of a slowdown in other markets.The European Central Bank's plan for potentially unlimited government bond-buying has raised hopes on financial markets of an end to the most acute phase of the crisis, but that optimism has not spread to company boardrooms.The Munich-based Ifo institute's monthly sentiment index reached its lowest since early 2010 and Ifo economist Klaus Wohlrabe told Reuters the outlook was the worst since May 2009."Today's Ifo index shows that German companies remain sceptical about the economic impact of (ECB president) Mario Draghi's magic," ING Bank economist Carsten Brzeski said."Despite fears of a looming Eurozone break-up clearly fading away, German businesses are downscaling their expectations. The German economy could see a contraction in the third quarter."Ifo said its business climate index, based on a monthly survey of some 7000 firms, fell to 101.4 in September from 102.3 in August.In its monthly report, the Bundesbank said the domestic economy was robust, but added it saw signs of "weaker dynamics" and "great uncertainty".Foreign trade could be hit more strongly than before by developments in the euro area, the central bank added, also pointed to the labour market, where the rise in employment is slowing as companies become less willing to hire.Dutch business confidence also fell in September to -6.7 points from -4.6 in August, other data showed on Monday, adding to signs that the euro zone's stronger "core" economies are succumbing to the downturn.While they have not been punished by debt markets like much of the euro's southern half, both Germany and the Netherlands have slashed public spending to secure the future of public finances."The drop in Ifo business confidence is a potent reminder that the outlook for the German and Eurozone economies still hangs in the balance," said Holger Schmieding, German economist at investment bank Berenberg."Further policy steps to contain the Euro crisis may be needed for the Eurozone to turn the corner."Tough cuts While the German economy steamed ahead in the first three months of the year, saving the euro zone from recession by growing 0.5%, it lost momentum in the second quarter, with growth slowing to 0.3%.Dragging on the Ifo index in September was a sharp decline in sentiment among manufacturers, although companies in retailing and wholesaling reported a slightly brighter mood. Last week's ZEW survey also showed German analyst and investor morale picked up in September.Industrial group Bosch and steelmaker ThyssenKrupp , have announced plans to introduce "Kurzarbeit" or government-subsidised short-time work at German plants.The index would have fallen further had it not been for a ruling by Germany's constitutional court on Sept 12 in favour of the ratification of Europe's permanent bailout fund.Half of the responses in the survey came after the ruling.The Finance Ministry warned in its monthly report last Friday that data pointed to weaker growth in the remainder of the year. Many economists are now predicting a contraction for the third and possibly the fourth quarters.Another forward-looking indicator, the Purchasing Managers Index (PMI), last week showed Germany's private sector shrank for a fifth month, and a separate index for the euro zone showed that the ECB's bond-buying plan had so far failed to inspire any major improvement in business at ailing euro zone companies.However, economist Gerd Hassel said he believed news of the ECB's bond-buying plan had yet to fully sink in."I'm optimistic that the Ifo climate index will rise again in the coming months," he said.