Putin’s keynote address to Davos pushes debate on global financial system

Prime Minister, Vladimir Putin, called for an overhaul of the international financial system, during his keynote speech at the World Economic Forum, while calling for the world to steer clear of protectionism.

Vladimir Putin started by comparing the crisis to a perfect storm– saying that everyone should be ready for one – although Russians who see winter coming each year –never quite are. But as soon as the laughter faded – he got down to business outlining his vision of the problems facing the global economy and suggesting some solutions.

“One must not allow oneself to skid down to isolationism, and unbridled economic egoism. At the G20 summit the leaders of the foremost economies of the world agreed to refrain from setting up barriers in the way of world trade and movement of capital. Russia shares these principles.”

He also promised to keep Russia open to foreign investment. It was a message that reassured many who, before the speech, had not been sure what to expect, according to Charles Grant, Director, of the Centre for European Reform.

“What people will most be looking for from Putin is the tone. Is the tone going to be tough or rather aggressive, or is it going to be soft and conciliatory? Because there's been worry all over the world that faced with the economic crisis, governments are going to look in and become protectionist and look after their domestic constituencies and not think about global solutions.”

As he listed possible responses to the crisis, Mr Putin issued a warning against creeping state control, at a time when several western government have effectively nationalised their banks or car manufacturers.

“The flip side of the anti crisis measures, in almost every country, is the concentration of the excessive assets in the hands of the state. During the time of the Soviet Union, the role of the state in the economy was made absolute, which eventually led to the total non competitiveness of the economy. That lesson cost us very dearly. I am sure nobody would want history to repeat itself.”

On the financial markets, he said the world needed a variety of strong reserve currencies, and reform of the auditors and ratings agencies.

“Business has to write off their irrecoverable debts and get rid of bad assets. Not everyone does it willingly, having fears for the capitalization, bonus’s or reputation. But it must be done. Its time to do away with virtual money, bubble data and doubtful ratings. The notion of the real state of the economy and real state of cooperation should not be hostage to illusions, even if those authors, illusionists, are auditing companies and analytical companies.”

But this is something people in the industry are not quite ready to accept, according to Mike Kubena, CEO and Senior Partner, PricewaterhouseCoopers, Central and Eastern Europe.

“There's been a robust debate around fair value accounting – whether fair value accounting reflects the reality or whether it's driving a reality – and that's something that will likely continue for some time. I think the trend though toward having a common language in terms of accounting standards is the right thing to do.”

Mr Putin's comments prompted lively responses from the audience. Russia's prime minister finished on an optimistic note – saying that the crisis can and should be tackled and called on everyone not to give in to despondency. The variety of issues he covered not only made his speech the highlight of the first day – but will set the tone for the days ahead.