Friday, June 30, 2006

Russian economy would collapse without corruption - expert

The Russian economy would collapse if corruption was to disappear today. Such is the strength of the system of corruption in the country which occupies the 126th place in the Transparency International index.

The transition to a legal economic system would require far too many resources and sacrifices to be taken. Not only it would take years for the country to progress towards a transparency, but support from business and the general public is vital.

Another issue which dogs any investor is insider trading. Whilst corruption scares foreign investors away, insider dealing negatively impacts the stock market. Although progress seemed to be made with the introduction of the Insider Dealing Legislation, the truth is that the new law is fundamentally flawed. Previously, any high-ranking official could have been under investigation, but now the legislation is only applicable to private companies. This means that Central Bank and the ministries have to regulate themselves while state officials are excluded from the list of potential suspects.

Since state officials are the likely recipients of unpublished price-sensitive information, their competitive advantage on the stock market will only increase. Not only is the state the biggest holder of Russian securities but its funds account for over 30 percent of the total 2005 Russian M&A. Corporate control of the ruling political system will become more apparent with the upcoming IPOs of Rosneft and VneshTorgBank. This potentially suggests that the level of insider trading will only increase in the future and, just like corruption, it will become a Russian institution.


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