UNFAVOURABLE FORECAST

For many people - not just for the-man-in-the-street, but also specialists - the global financial crisis came as a bolt from the blue. It is no accident that the first accusations to fly, following the collapse of the mortgage market and banking system in the USA and leading European countries, were levelled at well-known rating agencies and international financial institutions. While publishing regular assessments of the situation in the world economy, none of them mentioned the forthcoming catastrophe.

But there were economists who risked predicting the inevitability of a crisis. One of them was Russian economist Mikhail Khazin. When he warned in 2000 that "most of the Russian oligarchy would go bankrupt within three years", many did not believe him. Before that, in 1998, Khazin had predicted a default in his country, and the unfavourable forecast proved correct. This was the last "sensational" prediction by Mikhail Khazin as deputy head of the President of Russia's economic department.

The forecasts he made in 2006 and his statement in 2007 about the inevitable collapse of the world economy are especially popular today. Literally: "The collapse of the world financial system: its days are numbered."

Now he is called the "Cassandra of the 21st century", the most famous "alarmist" in Russia and so on. One way or another, his predictions are taken much more seriously. He shared some of them with R+.

- Some analysts, especially in the West, are now saying that the crisis has bottomed out and the economic situation can be expected to return to normal. But when will this steep downturn actually go into reverse?

- For the time being, there is no reason to believe that the crisis will end in the near future. Our theory indicates that the crisis will not end until total demand in the USA falls by about 40 per cent, from its maximum level in early 2008. For the time being, the decline has not exceeded 10 per cent, which leads us to believe that the crisis will last for at least three or four years. It is quite difficult to say what will happen after that, because the shape of the economy will begin to change, which means that it is impossible to assess the situation within a framework of the current model.

- The whole world is now facing the question of how to invest without risking losses. Where do you think investments should be made?

- This is the main question for modern economics. The fact is that demand has already been taken into account in the capitalization of companies for many years ahead, and loans have been taken out for this capitalization. Demand will fall by at least three trillion dollars per year, which means a fall in the cost of production assets. It is possible to understand which of them will be in most demand after the crisis only if you have a new financial-economic model for the world economy, post-crisis, but there is no such model yet.

- Russia and China have suggested the introduction of a new world currency and, naturally, the USA opposes this. What do you think could be an alternative to the US dollar, and who needs this alternative most of all?

- There is no practical alternative to the dollar today, and all talk about such a currency is a means of political pressure rather than a realistic project. We can talk about an alternative only after the collapse of the single dollar area, which is likely to happen as the crisis gains momentum, but not within the next few months.

- Russia has also suggested carrying out transactions within the CIS using the national currencies of member countries. Is this viable?

- It is perfectly viable, but I doubt that pro-American forces inside the CIS will allow this scenario to happen.

- In recent months, oil prices have stabilized at about 50 dollars per barrel. Can we expect a further rise in price following the implementation of anti-crisis packages in consumer countries? How high will prices go this year?

- Since demand is declining, oil prices should fall, and they can only grow through local speculation or as a result of dollar inflation. Both options are possible but, on the whole, prices will fall gradually to 20-25 dollars per barrel.

- What is your assessment of the current economic situation in the countries of the South Caucasus? In Armenia, the dram has reached rock bottom, while Georgia seems to have forgotten about the economy completely in the midst of political crisis. Azerbaijan is still holding the fort. What happens next?

- In a crisis, the smaller the country, the more problems it has with its economy. This is an objective law and you can't do anything about it. The only way out is to find an opportunity to place any rare products on the market which can be profitably manufactured in the country. For the South Caucasus, this is first and foremost the Russian market. But there are political limitations here, especially for Georgia. On the whole, apart from processes of integration within the CIS, I cannot see any significant opportunities for the economies of these regions.

- The global crisis has made people think about a new model for the world economy. Banks are going bust, plants and factories are closing down and states are buying the shares of major companies to help them out. Will this end in re-nationalization? How do you see the future model?

- I think it will have strong socialist tendencies, but it is quite difficult to say anything for sure and no-one has the answer yet. In any case we, the Neokon company, are actively dealing with these issues and have a significant competitive advantage in our understanding of the essence of current economic processes, which is not so prevalent in modern times.