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The Actuary The magazine of the Institute & Faculty of Actuaries

‘Vider fields’

Well, fields for actuaries don’t get much wider than this. The former Soviet Union, which was my area of responsibility, was ten time zones wide. For five years I have been financial sector adviser contracted to the Know-How Fund (KHF). This is the name given to the UK government’s aid programme to the former Soviet Union and eastern Europe.
My role has been to review the financial sector in each of ‘my’ countries and recommend ways in which the UK government could assist the country improve the quality of its financial services. The long-term aim was to eradicate poverty. Wisely, the KHF felt that economic growth was one of the keys to addressing this issue, but it was hard to imagine much economic growth without a functioning financial sector. For this reason, a material part of the KHF budget was devoted to financial services.

In each country the major components of the financial sector were analysed:
– banking;
– capital markets;
– tax system;
– pensions;
– insurance; and
– accounting standards.
We were able to help both the private and the public sector but, for obvious reasons, care had to be exercised in using aid money to help privately owned institutions. The beginning of this work can perhaps be defined as the break-up of the Soviet Union at the end of 1991 (although work had been done in eastern Europe before then).
At this point the banking sector was merely a (poor-quality) money transmission system with no expertise in determining who would be a good borrower. They just decided to lend to their friends (in the West we called this relationship banking, but that is a different story) and when the friends didn’t/wouldn’t/couldn’t pay the interest... well, there weren’t any effective civil courts to pressurise defaulters so more basic methods were used (quite a lot of bankers got shot!).
At the end of 1991 capital markets a prerequisite for insurance companies and private pensions didn’t exist. Every country decided it wanted a stock exchange to go alongside its national airline (which wasn’t safe either). In fact, following American advice, many countries wanted two or more stock exchanges. In an environment of severe shortage of stock to exchange, money, offices, trained people, and laws, the priority for the second exchange still escapes me.
Some sort of prioritisation for the KHF work emerged. The key requirement was a functioning banking system and reasonable central banking to avoid (i) hyper-inflation and (ii) bankers taking depositors’ money and running. Naturally, there were many multilateral and bilateral agencies trying to assist. Avoidance of duplication was difficult, particularly as there were several different visions of the best way forward.
Privatisation was also a key area of work. Most countries had the aim of privatising as quickly as possible. The basic logic of this was that the political leaders wanted to give the choice pieces to their friends before whoever was squatting on the assets could steal them. Their success was variable some of the thieves were pretty practised.

Five years on, progress had been made. Banks functioned in most countries. There was some form of currency stabilisation, once the economies had tried inflation and found it generally distasteful. But by this time clear winners and losers were emerging. Given that all countries had a comparable heritage from 1991, I was surprised by which countries broadly succeeded and which didn’t. I recall that in 1992 there was widespread expectation that Ukraine, with its excellent agricultural base, would be an economic leader: it wasn’t. Little hope was given to the Baltic States, which had little in the way of natural resources or industry. They have made immense progress.
I kept in touch with each of the countries (strictly, 14 out of 15 countries the fighting never stopped long enough in Tajikistan for me to get there) with a view to keeping the limited KHF resources targeted on issues that were proving obstacles to development. In countries making good progress, this has included assistance with actuarial training, insurance and pensions supervision, and capital market work. Relevant parts of this work were contracted through the Government Actuary’s Department, assisted by the Institute of Actuaries. I realised that there were signs of progress when one Russian minister said to me that the trouble with Russian actuaries was that they were too expensive because many institutions wanted to employ them. He also recognised that part of the solution was to train more of them!
The work has had many aspects:
– Frustrating like the time I flew from Uzbekistan to Kazakhstan on Air Uzbekistan. When I landed, we westerners were surprised to find we were back in Uzbekistan. It turned out that the Kazakh airport was closed by snow but none of us had understood the announcement on the aircraft when it turned round.
– Humorous like the time that McDonald’s in Belarus was asked to stop undermining Belarus culture and serve proper Belarusian food.
– Spooky I had dinner with various politicians in one of the smaller countries. I was placed next to the prime minister’s place. A great honour, I thought. Except he didn’t show up. Two weeks later two of the other local politicians at the dinner were murdered. It was not clear whether they were targeted by the government, the opposition, the government wanting to blame the opposition, the Russians wanting to blame either, or maybe just organised crime. Each of these theories was proposed seriously.
– Bizarre I had to fly to Uralsk in west Kazakhstan by Air Kazakh from Almaty. I arrived OK. The following day I arrived at the airport at the due time, only to find no aircraft. Further investigation found that there was unlikely to be another plane that day, to anywhere. The train would take 48 hours to get back to Almaty. I went to the airport the next day to catch the ‘daily’ flight. It turned out that the daily flight only actually flew when the plane was full. That way the airline made more profit (actually, smaller losses). On the third day there were enough passengers so we took off. For reasons hard to understand, they decided to take off at the very unsociable time of 4am.
And from here
And what of the future? The KHF is now totally under the wing of the Department for International Development. Under Conservative government control had been shared with the Foreign Office. The prioritisation of work in the financial sector has been reduced, leading to substantially lower budget allocations (and therefore less work for me!). In some countries sufficient progress has been made to lessen the need for aid-funded assistance in the financial sector. Governments in some other countries, eg Belarus, are not seeking to operate in a market-orientated manner, so there would be little point in trying to work there. For the countries in the middle, the struggle continues.