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An unconventional economist
by Tim Wall at 04/06/2012 21:06Two decades ago, Swedish economist Peter Westin was trying to decide where to go to study emerging markets: Latin America or Russia. Since everyone else seemed to be rushing down to Rio, Westin went the other way – and traded the classroom for the higher-octane world of Russian finance.
The habit of not following the herd is one that he’s stuck to over the years, predicting $100-a-barrel oil in 2005 when the price stood at $55, and (equally correctly) recommending a downgrade of Russia’s sovereign rating in August 2008. On the first occasion, many of his investment banking colleagues were skeptical that oil would rise so high. On the second occasion, he was again ahead of the curve in seeing that oil would fall so far. By the end of 2008, oil had plummeted to around $30 a barrel, and Russia’s stock market had fallen 70 percent.
It wasn’t the first time that Westin was going the opposite way from most of his colleagues.
‘Lower oil price needed’
“The Russian economy has now come up against its limits,” Westin said. “Growth has been lowered [after the 2008 crisis] by 3 percentage points. Growth of 3-4 percent is not that much for an emerging market.”
One of the answers, Westin believes, is in the development of Russian businesses, from small enterprises to the global brands.
“Sberbank is now a good company, and Gazprom could be great,” he said. “Small and medium sized businesses are a key sector for growth, but its one that isn’t big enough in Russia. Because of bureaucracy and fees (bribes) people don’t want to invest, start up small businesses.”
Perhaps recalling his early days in Moscow, Westin notes that, ironically, what Russia needs now is… a lower oil price.
“The problem now is the way policy is made,” Westin said. “In general, it’s the same people who have been moved around in the government, or promoted within the same ministries. Not many outsiders have been brought in. In the absence of deep-rooted political will to reform, Russia needs a lower oil price before reforms will be made.”