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Russia’s Stimulus Plan: Open the Gulag Gates

August 8, 2013 by

More than 110,000 people are serving time for what Russia calls “economic crimes,” out of a population of about three million self-employed people and owners of small and medium-size businesses. An additional 2,500 are in jails awaiting trial for this class of crimes that includes fraud, but can also include embezzlement, counterfeiting and tax evasion.

But with the Russian economy languishing, President Vladimir V. Putin has devised a plan for turning things around: offer amnesty to some of the imprisoned business people.

“This can be understood in the Russian context,” Boris Titov, Mr. Putin’s ombudsman for entrepreneurs’ rights, said of what is, even by the standards of the global recession, a highly unusual stimulus effort.

The amnesty is needed, he said, because the government had “overreacted” to the threat of organized crime and the inequities of privatization and over-prosecuted entrepreneurs during Mr. Putin’s first 12 years in power as president and prime minister.

Russia’s economy does need help. In the first quarter, growth fell to a rate of 1.6 percent because oil prices are level. And in that economic climate, few Russians seem willing to risk opening a new business that might create jobs and tax revenue for the government.

Mr. Putin told an audience of chief executives at an economic forum, including Michael L. Corbat of Citigroup and Jeffrey R. Immelt of General Electric, that releasing some businessmen would help revive the economy with “the values of economic freedom and the work and success of entrepreneurs.”

In 2010, the police investigated a total of 276,435 “economic crimes,” according to the Russian prosecutor general’s office, whose statistics show burglary and robbery are prosecuted less than economic crimes.

So many Russian business owners are doing time that support groups have sprung up in Moscow for their families known as “The 159 Society.” It takes its name from the article on fraud in the criminal code. Rus Sidyashchaya, or Russia Behind Bars, organizes weekly dinners for the wives of imprisoned businessmen.

Russia’s infamous penal colonies, rural camps swirled in barbed wire, appear today much as they did when Aleksandr Solzhenitsyn wrote “The Gulag Archipelago” in the 1960s. But at least one of every 10 prisoners today is a white-collar convict.

In the “zone,” as the prison camps are known in colloquial Russian, the business owners live, as nearly all Russian prisoners do, in squat wood or brick barracks. It is a grim, violent and disease-ridden world, they say.

These newcomers are for the most part nonviolent, though many are recidivists. Several indicated in interviews that they did well in prison, having the skills that matter: the ability to boss around other inmates, avoid abuse and bargain with the guards for little extras like cigarette butts or pillows.

Mr. Titov, an amiable former oil products trader who speaks bluntly about corruption in spite of his government job, spends his time combing through the list of economic criminals with a team of lawyers, trying to free as many as possible. “We fight for every one,” he said.

One of those Mr. Titov championed was Ruslan V. Tyelkov, whose short arc from businessman to inmate illustrates both the entrepreneurial spirit that still simmers in Russia and the risks. Mr. Tyelkov, a strapping 32-year-old from Moscow, invested nearly his last ruble to open a wholesale upholstery business that could hardly have gone wrong in Russia: selling leopard-print fabrics.

In 2010, Mr. Tyelkov spent the equivalent of $31,000 for 25,000 yards of Chinese-made leopard-print fabric suitable for chairs and sofas. “It’s very popular here, not only for furniture but cloths, wallpaper, sheets, shoes, bags, everything.”

Article source: http://www.nytimes.com/2013/08/09/business/global/russias-stimulus-plan-open-the-gulag-gates.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Immigrants Find it Cheaper to Send Money Home

April 28, 2013 by Leave a Comment

The first time Carmen Gonzalez sent money back to her family in Mexico, in 1991, Western Union charged her a $12 fee to wire $100. She earned that $12 working for six hours in a clothing factory in midtown Manhattan, which paid her $2 an hour.

These days Ms. Gonzalez pays $5, which she earns in less than an hour, so she sends a bit more. The family is benefiting from a financial transformation propelled by new technology and increased competition that has driven down the average cost of sending money to Mexico by nearly 80 percent since 1999.

The drop in fees saved Mexican immigrants about $12 billion over the decade that ended in 2010 — five times the amount of official United States aid to Mexico during that time, according to data from the World Bank and recent Mexican government figures. The cost of sending money to other countries has also declined sharply, though not by quite as much.

The benefits are far-reaching, development experts say, providing a powerful means to chip away at poverty in other countries and expanding the hard-won earnings of immigrants in the United States.

The lower costs may be one reason that remittances have held steady even as fewer immigrants from Mexico have come to the United States and the recession has cut into incomes. Overall remittances to Mexico declined during the global recession but picked up again after 2009.

Some experts say more money could flow to countries like Mexico if Congress approves an immigration overhaul granting a path to citizenship to millions of illegal immigrants, because studies have shown that legalization can lead to increased wages. Others argue that with legalization, many immigrants will invest more heavily in the United States, sending less of their income back to relatives.

The total remittance transfers sent across the globe from the United States in recent years are almost $50 billion annually, according to the Bureau of Economic Analysis, or roughly the equivalent of the government’s foreign aid budget. (Estimates by the World Bank suggest that the figure is significantly higher, close to $100 billion per year, according to Dilip Ratha, an economist who leads the World Bank’s remittances program.)

“Remittances may well be the best single way to foment development,” said Nancy Birdsall, the president of the Center for Global Development, a nonprofit research group in Washington. “It turns out that even a modest reduction in the cost of making remittance transfers adds up to a substantial amount compared to official aid.”

Estefana Bautista, who left two children in her native Mexico when she immigrated to Texas in 2005, said she pays $5 less to send them money now than when she first arrived, which she called “a big help.” “I send those 5 dollars to Mexico,” Ms. Bautista said. “My kids know that they’re getting a little more money every two weeks.”

Growing competition among transfer companies has been the driving force behind the steady decline in costs. A decade ago, Western Union and Money Gram dominated the market. Now they contend with dozens of international competitors like Xoom and Ria.

Western Union’s share of the global remittance market has dropped to about 15 percent from around 75 percent in the late 1990s, while Money Gram’s market share has declined to 5 percent from 22 percent in that time, according to the companies and government figures.

“What we’re really seeing is competition not just based on price, but also on service quality,” said W. Alexander Holmes, the chief financial officer of MoneyGram. “It’s a very interesting time in the market.”

Worldwide, costs for sending remittances to any country have come down from around 15 percent per $300 transaction in the late 1990s to below 10 percent today, Mr. Ratha said. For money sent to Mexico, costs have declined from 9.5 percent per $300 to just over 2 percent today.

In addition to fees covering the processing, remittance companies make money from converting currencies. Remittance experts say these exchange rate fees have not come down nearly as much in recent years. In a meeting in 2011, finance ministers from the Group of 20 countries committed to reducing remittance costs over all from around 10 percent to 5 percent per transaction by 2014.

This month, a bipartisan group in the Senate introduced proposals to allow immigrants here illegally to gain legal status and eventually become citizens.

Article source: http://www.nytimes.com/2013/04/28/us/politics/immigrants-find-it-cheaper-to-send-money-home.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

O.E.C.D., Slashing Growth Outlook, Warns of Global Recession

November 27, 2012 by Leave a Comment

LONDON — The Organization for Economic Cooperation and Development sharply cut its forecast for the world economy on Tuesday, warning that failure to resolve the euro crisis and to avert a fiscal impasse in the United States could trigger a global recession.

The Paris-based O.E.C.D. predicted that gross domestic product in its 34 member nations, all developed economies, would expand by 1.4 percent in 2013, a significant downward revision from its forecast of 2.2 percent made just six months ago.

That assumes that the United States agrees on a budget deal in January, averting billions of dollars in tax increases and automatic spending cuts.

If that so-called fiscal cliff is not avoided, “a large negative shock could bring the U.S. and the global economy into recession,” according to the forecast, written by Pier Carlo Padoan, the organization’s deputy secretary-general and chief economist.

Even leaving that possibility aside, the O.E.C.D. report makes grim reading, particularly with regard to the 17-nation euro area — which, still mired in recession, is where the “greatest threats to the world economy remain.”

“Challenging fiscal sustainability conditions in some countries risk sparking a chain of events that could considerably harm activity in the monetary union and push the global economy into recession,” the report said.

Highlighting the continuing lack of economic confidence, the report urged European policymakers to accelerate efforts to bolster their single currency through the creation of a banking union.

“Temporary fiscal stimulus should be provided by countries with robust fiscal positions (including Germany and China),” it added.

“Over the recent past, signs of emergence from the crisis have more than once given way to a renewed slowdown or even a double-dip recession in some countries,” the document said, adding that “the risk of a new major contraction cannot be ruled out.”

According to the O.E.C.D., provided the “fiscal cliff” is avoided, the U.S. economy should grow by 2 percent in 2013 and 2.8 percent in 2014. In Japan, G.D.P. is expected to expand by 0.7 percent in 2013 and 0.8 percent in 2014.

The euro area probably will remain in recession until early 2013, leading to a mild contraction in G.D.P. of 0.1 percent next year before growth accelerates to 1.3 percent in 2014.

Labor markets, meanwhile, remain weak, with around 50 million jobless people in the O.E.C.D. area. Unemployment is expected to remain high, or even rise further, in many countries unless structural measures are used to lift employment growth, the report said.

“The world economy is far from being out of the woods,” the O.E.C.D’s secretary-general, Angel Gurría, said in a statement. “Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs, in the United States, in Europe, and elsewhere.”

Tom Rogers, a senior economic adviser at Ernst Young, said the report was “consistent with our view that the euro zone faces another year of stagnating economic output and rising unemployment, and that the medium-term recovery is likely to be weaker than from previous recessions.”

Although much has been achieved in stabilizing the euro area, “more needs to be done to deepen the fiscal and banking unions, to improve medium term growth prospects through reform, and to broaden the single market to include trade in services,” Mr. Rogers wrote in a note.

Article source: http://www.nytimes.com/2012/11/28/business/global/oecd-slashing-growth-outlook-warns-of-global-recession.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,