Foreign economic security

Currently, the volume of foreign exchange assets of the Russian Federation located in the jurisdiction of NATO countries exceeds $ 1.2 trillion, about $ 0.8 trillion thereof being short-term. Their freezing might be partially offset by reciprocal measures regarding assets of NATO countries in Russia, which amount to $ 1.1 trillion, including more than $ 0.4 trillion in long-term assets. This threat would have been neutralized, if the monetary authorities had organized in a timely manner the withdrawal of Russian short-term assets from the U.S. and the EU, which would have changed the balance in our favor.

While there is yet time, it is necessary to sell out the foreign exchange assets placed in the obligations of the United States, Great Britain, France, Germany and other countries participating in sanctions against Russia. They should be replaced by investments in gold and other precious metals, in creation of stocks of highly liquid commodity values, including critical imports, in securities of the EEU, SCO, BRICS member states, as well as in the capital of international organizations with Russian participation (including the Eurasian Development Bank, CIS Interstate Bank, IIB, BRICS Development Bank, etc.), expansion of the infrastructure for supporting Russian exports. Among the elements of the latter, it is of great importance to create international exchange trading marketplaces for trade in Russian primary goods within the Russian jurisdiction and for rubles, as well as to create international sales and service networks for Russian goods with high added value.

The Central Bank dragged out the creation of a national payment system for servicing bank card transactions, as well as an international system for the exchange of inter-bank information that could protect the Russian financial system from sanctions on the part of Western payment systems, such as VISA, Mastercard, SWIFT, which was discussed more than two years ago.

The task of forming an own national payment system, which is currently being addressed in Russia, should dovetail with the established international payment systems. This could be done in cooperation with China, which will require an appropriate framework agreement. With the appropriate steps of other BRICS countries, it would be possible to successfully promote on the global market (countries with a total population exceeding 3 billion people) a new international payment system with a card compatible with all national payment systems of the BRICS countries. Russia, on its part, could become a pioneer in the issue of such a card in the course of establishment of the national payment system.

It is necessary to develop international standards for rating determination and rating agency activities in order to reduce the systemic distortion of risk assessment of market-oriented assets in favor of any given country, as well as to ensure unified international regulation of rating agencies. At the level of the BRICS countries, it is necessary to determine the appropriate procedures for certification and licensing of rating agencies, the grades awarded by which should be internationally recognized. For this purpose, the BRICS Development Bank that is being established can be used. A similar approach should be applied to the activities of audit companies and legal advisors.

It is important to ensure the harmonization of rules for the operation of national monetary authorities, when it is necessary to protect their monetary and financial systems against speculative attacks and suppress the associated turbulence. Contrary to the position of the U.S. and the IMF, it is advisable to agree on the need to create national systems of protection against global risks of financial destabilization, including: a) an institution of reservation for foreign exchange operations of capital flows; b) a tax on income from the sale of assets by non-residents, the rate of which should depend on the asset ownership period; c) the Tobin tax; d) enabling countries to impose restrictions on the cross-border movement of capital for transactions threatening national security.

The point here is not only economic sanctions. As evidenced by research of the current condition of the global financial market, the factors of destabilization of the global financial system are still active. Given the ongoing turbulence of the global financial market, which the U.S. is planning to stabilize by dumping its external obligations, the risks associated with large-scale issuance of world currencies make currency regulation and control indispensable. In modern conditions, especially when there is an excess of global liquidity that seeks investment opportunities and can be destabilizing, it is important to pay attention to the quality of capital, the timing, nature and areas of its use, and conditions of repatriation, ensuring that these parameters comply with economic priorities[245].

In conditions of monetary expansion and measures to reduce the cost of financial resources consistently implemented by the issuers of world currencies, it is necessary to equalize the activity conditions of Russian enterprises in comparison with foreign competitors regarding the cost of financial resources, the periods of their provision, and the level of risks. To do this, it is necessary to reduce the refinancing rate, set by central banks of many leading countries for a long term at a level below inflation, to reduce the risks and costs of borrowers, and lengthen the periods for extending credit resources. In so doing, it should be borne in mind that developed economies place an emphasis when carrying out monetary issue on the formation of targeted long-term and extra-long-term resources (up to 30-40 years in the U.S., Japan and China) against government obligations, including those  related to funding of long-term investment projects that are supplemented with medium-term refinancing instruments (for example, up to 3 years in the EU), which creates a powerful long resources foundation in the economy.

The monetary and credit policy pursued by the leading WTO members is linked to industrial priorities (including sectoral, corporate and regional ones), allowing us to talk about the formation of a mondustrial policy.

Given the necessity to double investments for modernization of the Russian economy, the Bank of Russia and the Government of the Russian Federation should link their monetary policy to the tasks of modernization crediting and growth of the Russian economy. At the same time, in order to prevent negative impact on the Russian economy from foreign sources of financial resources, it is important to ensure the priority role of domestic monetization sources, including expansion of long and medium-term refinancing of commercial banks against obligations of manufacturing enterprises and authorized government bodies. It is also advisable to consistently replace foreign borrowings of state-controlled banks and corporations with domestic sources of credit.

It is necessary to carry out at last the instructions repeatedly given by the President of Russia on the deoffshorization of the Russian economy, which creates a super-critical dependence of its reproduction contours on Anglo-Saxon legal and financial institutions and entails systematic losses of the Russian financial system up to $ 60 billion a year merely on the difference in profitability between the borrowed and the placed capital.

The growth of the above-mentioned threats in excess of critical figures requires the quickest possible implementation of the following set of measures to ensure Russia's economic security in the face of growing global instability.

In respect of deoffshorization and cessation of illegal export of capital:

1.1 The concept of a " national company" should be legislatively introduced that meets the requirements of registration, tax residency and conduct of core business in Russia, being owned by Russian residents who are not affiliated with foreign persons and jurisdictions. Only national companies and Russian citizens-residents should be granted access to subsoil assets and other natural resources, government orders, state programs, state subsidies, loans, concessions, to property and real estate management, to housing and infrastructure construction, to operations involving household savings, as well as to other activities that are strategically important for the state and socially sensitive;

1.2 The ultimate owners of shares in Russian backbone enterprises should be obliged to register their ownership rights with Russian registrars, leaving the offshore shadow;

1.3 Agreements should be concluded to exchange tax information with offshores, the existing agreements with them should be denounced to avoid double taxation, including Cyprus and Luxembourg, which are transit offshores. A unified list of offshores should be made, including those located within onshores;

1.4 Transfer of assets to offshore jurisdictions that have not concluded agreements on the exchange of tax information under the OECD transparency model should be legislatively prohibited;

1.5 Requirements to offshore companies owned by Russian residents should be introduced for compliance with Russian legislation on providing information on company participants (shareholders, depositors, beneficiaries), as well as on disclosure of tax information for purposes of taxation in Russia of all revenues received from Russian sources, under threat of imposing a 30% tax on all transactions with " non-cooperating" offshores;

1.6 A " black list" should be made including foreign companies and banks involved in questionable financial schemes with Russian companies and banks, treating transactions with them as dubious;

1.7 An authorization-based offshore operations procedure should be introduced for Russian companies with public ownership;

1.8 A Presidential program for deoffshorization of the Russian economy should be developed, taking into account the provisions of the Presidential Addresses to the Federal Assembly in 2012 and 2013, and the Presidential Decree dated May 7, 2012 N596;

1.9 A set of measures should be adopted to reduce tax losses from unauthorized export of capital: 1) reimbursement of VAT to exporters only after receipt of export proceeds; 2) collection of advance payments for VAT by authorized banks when remitting import advances to non-resident suppliers; 3) imposition of fines for overdue accounts receivable under import contracts, non-remittance of export proceeds, as well as for other types of illegal export of capital at a rate equal to its amount;

1.10 Inclusion of bad debts of non-residents to Russian enterprises into extraordinary expenses (that reduce taxable profits) should be discontinued. Lawsuits shall be initiated against managers concerning compensation of damage to the enterprise and the state in case of revealing such debts;

1.11 Administrative and criminal liability should be toughened for illegal export of capital from the member states of the Customs Union, including in the form of feigned foreign trade and credit transactions, payment of excessive interest on foreign loans;

1.12 Active work of law enforcement agencies should be initiated in extending the effect of Article 174 of the Criminal Code " Legalization (laundering) of money or other property acquired by other persons by criminal means" to income obtained through tax crimes and illegal export of capital, with inclusion into tax crimes of non-payment of taxes subject to the existence of a taxable base;

1.13 Taxes should be imposed on speculative financial transactions (the Tobin tax planned in the EU) and net capital export;

1.14 There should be an upgrade of the information and statistical basis for countering the offshorization of the economy, capital flight and minimizing taxes, including obtaining data on the balance of payments and international investment position from all offshores, broken down by countries.

2. In order to prevent further losses of the Russian financial system due to the nonequivalent foreign economic exchange and protect the financial market against destabilization threats:

2.1 To suppress illegal capital export operations accompanied by tax evasion, a unified information system should be established for currency and tax control, including electronic declaration of transaction report forms with their transfer to databases of all currency and tax control authorities, introduction of liability standards for business executives that allow the accumulation of overdue accounts receivable on export-import transactions;

2.2 Orderliness of the financial market should be assured, which includes strengthening the supervision over the financial status of professional participants, pricing and the level of market risks; creation of a national clearing and settlement center; regulation of activity of financial conglomerates and their aggregated risks;

2.3 Discrimination should be stopped against domestic borrowers and issuers relative to foreign ones (when calculating liquidity indicators, capital adequacy, etc., the Central Bank should not consider obligations of non-residents and foreign states more reliable and liquid than similar obligations of Russian residents and government). Domestic standards should be introduced for the activities of rating agencies, with refraining from using the grades assigned by foreign rating agencies in government regulation;

2.4 Restrictions should be imposed on the volume of off-balance sheet foreign assets and liabilities to non-residents on derivatives of Russian organizations, investment of Russian enterprises in foreign securities should be limited, including U.S. Treasury securities and bonds of other foreign countries with a high budget deficit or public debt;

2.5 Mandatory advance notice should be introduced for capital export operations, reserve requirements for Russian banks on foreign currency transactions should be increased, limits should be established for long and short foreign exchange positions of commercial banks and backbone companies, as well as all state-controlled enterprises that enjoy state support and receive loans refinanced by the Central Bank of the RF;

2.6 Creation of the central securities depository should be accelerated, to record ownership rights to all shares of Russian enterprises;

2.7 The obligation of Russian issuers to perform primary placement on Russian trading venues should be statutorized.

3. In order to increase the potential and safety of the Russian monetary system and consolidate its position in the world economy, give the ruble the functions of the international reserve currency and establish the Moscow financial center:

3.1 Transition to rubles in mutual settlements within the CIS should be encouraged, using rubles and euros in settlements with the EU, and rubles and yuan in settlements with China. Economic entities should be advised to switch to settlements in rubles for exported and imported goods and services. At the same time, tied ruble loans should be extended to importing states of Russian non-primary products to maintain commodity turnover, using credit and currency swap transactions for this purpose;

3.2 The system for processing settlements in national currencies between enterprises of the CIS countries through the CIS Interstate Bank should be profoundly expanded, using in settlements with other states Russian-controlled international financial organizations (IBEC, IIB, EDB, etc.);

3.3 A payment and settlement system in the national currencies of the EurAsEC member states should be created. An own independent system of international settlements should be developed and implemented, which could eliminate the critical dependence on the U.S.-controlled SWIFT. This system should include the banks of Russia and the member states of the Customs Union and the CIS, as well as China, Iran, India, Syria, Venezuela and other traditional partners;

3.4 The Bank of Russia should be recommended to refinance commercial banks for ruble crediting of export-import transactions, and also to take into account in the main spheres of monetary policy the additional demand for rubles connected with expansion of foreign trade turnover in rubles and formation of exterior ruble reserves of foreign countries and banks;

3.5 The should be organized the ruble exchange trade in oil, oil products, timber, mineral fertilizers, metals and other primary goods; in order to ensure market pricing and prevent the use of transfer prices for tax evasion, exchange goods producers should be obliged to sell at least half of their products, including those exported, through the Russian government-registered exchanges;

3.6 Foreign borrowing of government-controlled corporations should be restricted with a gradual replacement of foreign-currency loans taken by state-controlled companies with ruble loans from state-owned commercial banks through their targeted refinancing from the Central Bank at an appropriate interest rate;

3.7 Provision of guarantees for deposits of citizens within the deposit insurance system should be limited only to ruble deposits, with simultaneous increase in the reserve requirements for deposits in foreign currency;

3.8 A Reinsurance Society should be established on the basis of the Export Insurance Agency of Russia using Vnesheconombank's guarantees instead of direct investments to fill the Society's authorized capital; it should be granted the dominant position in the market of reinsurance of risks of Russian residents;

3.9 A Moscow club of creditors and investors should be created to coordinate the credit and investment policies of Russian banks and foundations abroad, promote recovery of troubled loans, develop a unified position towards defaulting borrowing countries.

Along with deoffshorization, for ensuring Russia's foreign economic security it is important to achieve the fulfillment of the President's repeated instructions on the creation of a national financial market infrastructure, including the transition to domestic rating agencies, audit, legal and consulting companies. A hitch in their implementation entails significant losses of the national financial system due to a systematic downward biasing of credit ratings of Russian borrowers and unfair behavior of Western partners.

 

 

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