Lidija Rangelovska

"A1+ performed a valuable public service in offering substantial media access to a broad spectrum of opinion makers, political leaders, and those holding differing views."

The Azerbaijani prime minister promised to allocate $3.5 million in credits to media outlets - but, tellingly, made this announcement exclusively on the state-owned channel. The bulk of the television tax in Macedonia ends up in the coffers of the somnolent and bloated state channel which caters to a mere one quarter of the viewers. The independent media - both print and electronic - face unfair competition in attracting scarce advertising revenues.

The managers of six Latvian private television and radio stations published an open letter to President Vaira Vike-Freiberga, Prime Minister Andris Berzins, the Competition Council, the National Radio and Television Council (NRTC), the State Support Monitoring Commission, and political parties.

They deplored the commercialization of the public media. State support - fumed the signatories - allows these outlets to undercut the prices of advertising airtime. They urged a major revision and modernization of the law. Latvia is considering the introduction of a monthly mandatory "subscription fee" to finance its state-owned media.

Media properties are awarded to loyal cronies and oligarchs - having been expropriated from tycoons and managers who fell from official grace. Such assets are often "parked" with safe corporate hands ad interim. Russian energy behemoth Gazprom, for instance, acquired a media empire overnight by looking after such orphan holdings. It is now dismantling these non-core operations.

In Russia, the tendered broadcasting rights of TV6 were allocated to Media-Sotsium, a consortium led by regime stalwarts such as Yevgeni Primakov, a former prime minister and the current chief of the Chamber of Commerce and Industry and Arkadi Volski, head of the Union of Industrialists and Entrepreneurs. The group included leading managers and active political figures. The consortium's general director is none else than Yevgeni Kiselev, the erstwhile general manager of TV6.

TV6 was taken off the air by the Kremlin in 2001 - as was Russia's most popular independent station, NTV. Quoted by Radio Free Europe Radio Liberty, the Editor in Chief of the Ekho Moskvy radio station commented that this "completes the redistribution of television property in Russia from one oligarch who was not loyal to the authorities to others that are".

Gorbachev, whose group bid for the station, concurred wholeheartedly. In a rare show of consonance, so did the communist Zyuganov. Muscovites polled in April 2002 said they hoped TV6 would become a sports-only channel.

In a speech to the National Press Club in Washington on April 9, 2002 Russian Media Minister, Mikhail Lesin, admitted that "developments surrounding the NTV and TV-6 companies certainly had a political background, and there is no denying it". He promised to substantially cut funding to "politically oriented mass media".

Russian media, insisted the Minister, is having "growing pains". Referring to the older and more mature media in America, he asked: "Let us remember how this 100-year-old gentleman looked when he was 10 years old. He did not have any problems at that time?"

State interference rarely stops at the ownership level. Subtle self-censorship by obsequious or terrorized journalists is often coupled with governmental micromanagement. The license of NTV, the eponymous successor of the shuttered independent Russian TV station, was renewed only recently for another five years - after many delays and public statements casting doubts on the outcome. This form of subtle pressure to self-discipline is common.

The Russian business daily Kommersant commented:

"(The delays were intended to) stimulate Gazprom to more quickly sell its shares in the company and to frighten (NTV's General Director) Jordan into being a bit more attentive to what NTV puts on the air."

Belarusian president, Alaksandr Lukashenka, instructed the chief of the Belarusian Television and Radio Company to "work around the clock" to improve programming. "The Belarusian Television and Radio Company works in the same information field with powerful foreign broadcasters: ORT, RTR, NTV, Radio Rossiya, Radio Mayak, Radio Liberty, Radio Racja, and others. It is in a state of ideological competition with them and, speaking straightforwardly, sometimes in confrontation."

"Belarusian Television, as before, remains an information supplement to foreign television companies." - he was quoted as saying by REF/RL. How would such a turnaround be achieved with a shoestring budget was left unarticulated. Belarus couldn't pay Kirch Media the $500,000 it demanded for the World Cup rights.

The Belarusian Language Society appealed to UNESCO and the EU to help launch a Belarusian heritage and culture satellite broadcast on the Discovery Channel. Russian-language broadcasts, they noted ruefully, account for a crippling 97 percent of airtime.

Lukashenka finished his diatribe with a practical advice: "Beginning from tomorrow, every manager in the Belarusian Radio and Television Company has to sleep with a television set." In a country where disagreeing with the president can be the last thing one does, his wish is a command.

The situation is especially egregious in the fiefdoms of Central Asia.

In Georgia, the politically-pliant tax police, often an instrument of intimidation of opponents, raided Rustavi-2, an independent thorn in the irate government's side. In Kazakhstan, in November 2001, all the media properties of Alma-Media - including its prized Kazakh Commercial TV - were suspended. Malicious rumors were spread by the police against the editor of the outspoken newspaper, "Karavan". The rumors were promptly denied by the Kazakh Minister of Internal Affairs.

If all else fails, crime does the trick. the independent Kazakh paper, "Delovoe-Obozrenie-Respublika", was first firebombed and then - five days later - closed by the court because it failed to provide a publication schedule. OSCE slammed Kazakhstan for its new Administrative Offenses Code which is replete with 40 media-related transgressions.

RFE/RL quoted a statement by Rozlana Taukina, head of the Independent Media Association of Almaty, in a press conference in Moscow. She complained that 22 independent media outlets have been closed in Kazakhstan over the past month.

Another instrument of suppression are libel suits which invariably result in exorbitant and destructive penalties.

Aleksandr Chernov, a Krasnodar judge, won in February 2002 $1 million in compensation from "Novaya Gazeta", a paper owned by the disgraced and self-exiled oligarch Boris Berezovsky. Senior Russian public figures issued a passionate plea to reduce the fine and prevent the paper's bankruptcy.

In an unrelated lawsuit, Mezhprombank, alleged by "The Moscow Times" to be a money laundering venue, won c. $500,000 in damages from the aforementioned besieged "Novaya Gazeta". Court bailiffs seem determined to force the closure of the paper despite a pending appeal.

The largest circulation Slovak paper, "Novy cas", was ordered to pay a whopping $100,000 in compensation to Real Slovak National Party (PSNS) Chairman Jan Slota. The paper reported that he had been seen drunk.

Vladimir Putin, Russia's president, encapsulated the philosophy of state interventionism neatly in an interview he granted to ITAR-TASS and other Russian news agencies:

"If freedom of the press is understood as the freedom of a handful of so-called oligarchs to buy journalists, to dictate their will in the interests of their groups, and to protect the way of Russia's oligarchic development that was thrust on the country over the past decade, then yes, it is in danger ... (The authorities should not) allow individuals to shape the country's strategy the way they like, (while) filling their pockets with illegally earned money ... (Freedom of the press) implies the ability of journalists and their groups to freely, openly, and fearlessly define their position on key problems of the development of the country and society, to criticize actions of the authorities (and to make sure that the authorities react properly)."

Putin harked back to the nanny state, calling Russian media immature and still in the development stage. They need assistance in developing ways to secure their future economic independence. The state will create the necessary conditions for the "economic freedom of the press".

The president's aide, Aleksei Volin, was quoted by REF/RL as having told radio Ekho Moskvy that state-ownership of the media is rendered meaningless in an age of multiple channels. The state, said the aide, should concentrate on programming and thus "ensure its role in television media".

Russia's then Media Minister, Lesin, hastened to make clear that the state has no intention of privatizing its television media holdings, ORT, the second channel (RTR), and Kultura, an educational cum entertainment network. The government - a minority shareholder in ORT - denies meddling in the editorial affairs and policies of either of these federally-funded channels. ORT and RTR just paid c. $40 million for the Russia World Cup rights.

A bill, introduced in the Duma by independents, failed to pass last week. It would have reduced state ownership of mass media outlets to 25 percent within 6 months. Anti-government deputies claimed that the state controls 90 percent of all the media in the vast country. Their colleagues from the coalition cited a figure of 10 percent.

In Moldova, a committee of lawyers, journalists, and deputies of parliament issued a report on May 3, 2002 advocating against privatization of the media. Both radio and television, they intoned, must remain in the safe hands of the state, though in the form of an "autonomous" public broadcasting authority. This flew in the face of recommendation issued earlier by the Parliamentary Assembly of the Council of Europe (PACE).

In response, incensed journalists, intellectuals, and lawyers established Public Television Company. Modeled after the BBC, it will be sponsored by private sector donations and advertising revenues - they told Infotag, the news agency. The head of an EU visiting delegation went as far as warning the Moldovan government that ignoring PACE's advice "will have catastrophic consequences both for the current government and the citizens".

The new Hungarian government is considering to shut down one or more of the state-owned TV channels and to reform the media law. But, EU-orientated statements to the contrary - Hungary's state media is still under the collective thumb of its politicians. According to the May 15, 2002 issue of "Nepszabadsag", the Socialist party media spokesman publicly "suggested" that the President of Hungarian Television should resign due to his bias during the elections.

Journalists on all levels readily collaborate with political masters. The staff of Hungarian Pannon Radio took over the previous location of the station and are broadcasting virulent nationalistic propaganda with the financial and political backing of the extremist MIEP - the Hungarian Justice and Life Party.

The ownership of electronic media is the electoral trump card in most countries in transition. Papers are little read. According to Emil Danielyan in RFE/RL:

"There are several newspapers that are highly critical of the authorities but their impact on public opinion is limited, as their combined daily print run does not exceed 10,000 copies (Armenia's population is just over 3 million)."

In Macedonia, the circulation of "Dnevnik", the country's leading paper, is thought to be c. 20,000 copies on a weekday (its official figures of triple that notwithstanding) - compared to more than 500,000 regular viewers of A1, the dominant independent TV station, owned by business interests. No weekly sells more than 3000 copies in this country of 2 million people.

Foreign ownership of media is still a rarity. Xenophobia and crookedness combine to drive away potential investors. Central European Media Enterprise (CME), an American holding company for central European media properties, endured the most grueling experiences in the late 1990's in the Czech Republic and Slovenia.

Tele5, a new Polish television channel, is owned by Fincast, a Polish subsidiary of Italian Eurocast Italia and more than 70 percent of Poland's regional media are in the hands on two Western companies. The second largest paper, Rzeczpospolia, is owned by a Norwegian firm. But these are the Polish exceptions that only highlight the regional rule.

Poland is atypical on other fronts as well. Poles are avid devourers of broadsheets. More than 20 percent of them feast on the Gazeta Wyborcza every day. Amendments to the existing law prevent the formation of media monopolies by restricting media ownership to one nationwide broadcasting license or one nationwide daily. The Wyborcza would thus be prevented from taking possession of the private Polish TV station, Polsat, one of many.

Adam Michnik, an erstwhile dissident turned influential editor, remarked acidulously to "The Economist":

"Of course (prime minister) Miler (a former senior communist) should know how evil a monopoly can be ... (The government wants to render Wyborcza) cowardly, toothless, and servile. Authoritarian states like such papers, but Polish democracy does not need one."

Admittedly, Poland is not above harassment and intimidation. The managers of Rzeczpospolita - 49 percent owned by the government - were hounded by tax inspectors and their passports were confiscated. "An action usually reserved for big-time criminals" - notes "The Economist" dryly.

The board of the state-owned television is packed with sycophants and cronies. Now, the widely-held theory goes, Miller has his sights on the print media. He wants to force the Norwegians to sell to Trybuna, the little-read mouthpiece of the ex-Communists.

But the media in the post-Communist territories may be simply reaping what they sowed.

In an article published by "Central Europe Review", I summed up the state of the media in Central and Eastern Europe thus:

"What sets the media in the countries in transition apart from its brethren in the West is its lack of (even feigned) professionalism, its venality and its tainted and ulterior motives. In these nether regions, journalism amounts to influence peddling. Journalists are easily bought and sold and their price is ever decreasing. They work in mouthpieces of business interests masquerading as media. They receive their instructions - to lie, to falsify, to ignore, to emphasize, to suppress, to extort, to inform, to collaborate with the authorities - from their Editor in Chief. They trade news for advertising.

The commercial media - the likes of 'Nova' TV in the Czech Republic - are poor people's imitations of the more derided aspects of American mass culture. Overflowing with lowbrow talk shows, freaks on display, malicious gossip which passes for 'news' and glitzy promos and quizzes - these TV stations and print magazines derive the bulk of their income from advertising. Then there is the mercenary media. These are groups of hired pens and keyboards - so called journalists - who offer their services to the highest bidder. Their price is often pathetic: a lunch a month, one hundred euros, a trip abroad and a dingy hotel room. They collaborate with their editors and share the spoils with them.

The mercenaries often work in 'business-sponsored media outlets'. These are TV stations, daily papers and periodicals owned by the oligarchs of malignant capitalism and used by them to rubbish their opponents and flagrantly and unabashedly further their business interests. This phenomenon used to be most pronounced in Russia, where virtually all the media was once identified with mafia-like interests - before it was taken over by the newly authoritarian state."

According to a poll conducted in May 2002 by a few Russian Web sites in collaboration with radio Ekho Moskvy, more than 57 percent of all respondents in all age groups supported state censorship. The main concerns were overt and excessive violence and pornography.

Aware of this popular mandate, Putin's alma mater, the FSB (formerly known as the KGB) moved to further its hijacking of the media. ITAR-TASS reported that FSB Lieutenant General Aleksandr Zdanovich, former chief spokesman and head of the public relations center of the spy organization, was appointed deputy director of the VGTRK, the state broadcasting company.

Return

Moral Hazard and the Survival Value of Risk

Risk transfer is the gist of modern economies. Citizens pay taxes to ever expanding governments in return for a variety of "safety nets" and state-sponsored insurance schemes. Taxes can, therefore, be safely described as insurance premiums paid by the citizenry. Firms extract from consumers a markup above their costs to compensate them for their business risks.

Profits can be easily cast as the premiums a firm charges for the risks it assumes on behalf of its customers - i.e., risk transfer charges. Depositors charge banks and lenders charge borrowers interest, partly to compensate for the hazards of lending - such as the default risk. Shareholders expect above "normal" - that is, risk-free - returns on their investments in stocks. These are supposed to offset trading liquidity, issuer insolvency, and market volatility risks.

The reallocation and transfer of risk are booming industries. Governments, capital markets, banks, and insurance companies have all entered the fray with ever-evolving financial instruments. Pundits praise the virtues of the commodification and trading of risk. It allows entrepreneurs to assume more of it, banks to get rid of it, and traders to hedge against it. Modern risk exchanges liberated Western economies from the tyranny of the uncertain - they enthuse.

But this is precisely the peril of these new developments. They mass manufacture moral hazard. They remove the only immutable incentive to succeed - market discipline and business failure. They undermine the very fundaments of capitalism: prices as signals, transmission channels, risk and reward, opportunity cost. Risk reallocation, risk transfer, and risk trading create an artificial universe in which synthetic contracts replace real ones and third party and moral hazards replace business risks.

Moral hazard is the risk that the behaviour of an economic player will change as a result of the alleviation of real or perceived potential costs. It has often been claimed that IMF bailouts, in the wake of financial crises - in Mexico, Brazil, Asia, and Turkey, to mention but a few - created moral hazard.

Governments are willing to act imprudently, safe in the knowledge that the IMF is a lender of last resort, which is often steered by geopolitical considerations, rather than merely economic ones. Creditors are more willing to lend and at lower rates, reassured by the IMF's default-staving safety net. Conversely, the IMF's refusal to assist Russia in 1998 and Argentina in 2002 - should reduce moral hazard.

The IMF, of course, denies this. In a paper titled "IMF Financing and Moral Hazard", published June 2001, the authors - Timothy Lane and Steven Phillips, two senior IMF economists - state:

"... In order to make the case for abolishing or drastically overhauling the IMF, one must show ... that the moral hazard generated by the availability of IMF financing overshadows any potentially beneficial effects in mitigating crises ... Despite many assertions in policy discussions that moral hazard is a major cause of financial crises, there has been astonishingly little effort to provide empirical support for this belief."

Yet, no one knows how to measure moral hazard. In an efficient market, interest rate spreads on bonds reflect all the information available to investors, not merely the existence of moral hazard. Market reaction is often delayed, partial, or distorted by subsequent developments.

Moreover, charges of "moral hazard" are frequently ill-informed and haphazard. Even the venerable Wall Street Journal fell in this fashionable trap. It labeled the Long Term Capital Management (LTCM) 1998 salvage - "$3.5 billion worth of moral hazard". Yet, no public money was used to rescue the sinking hedge fund and investors lost most of their capital when the new lenders took over 90 percent of LTCM's equity.

In an inflationary turn of phrase, "moral hazard" is now taken to encompass anti-cyclical measures, such as interest rates cuts. The Fed - and its mythical Chairman, Alan Greenspan - stand accused of bailing out the bloated stock market by engaging in an uncontrolled spree of interest rates reductions.

In a September 2001 paper titled "Moral Hazard and the US Stock Market", the authors - Marcus Miller, Paul Weller, and Lei Zhang, all respected academics - accuse the Fed of creating a "Greenspan Put". In a scathing commentary, they write:

"The risk premium in the US stock market has fallen far below its historic level ... (It may have been) reduced by one-sided intervention policy on the part of the Federal Reserve which leads investors into the erroneous belief that they are insured against downside risk ... This insurance - referred to as the Greenspan Put - (involves) exaggerated faith in the stabilizing power of Mr. Greenspan."

Moral hazard infringes upon both transparency and accountability. It is never explicit or known in advance. It is always arbitrary, or subject to political and geopolitical considerations. Thus, it serves to increase uncertainty rather than decrease it. And by protecting private investors and creditors from the outcomes of their errors and misjudgments - it undermines the concept of liability.

The recurrent rescues of Mexico - following its systemic crises in 1976, 1982, 1988, and 1994 - are textbook examples of moral hazard. The Cato Institute called them, in a 1995 Policy Analysis paper, "palliatives" which create "perverse incentives" with regards to what it considers to be misguided Mexican public policies - such as refusing to float the peso.

Still, it can be convincingly argued that the problem of moral hazard is most acute in the private sector. Sovereigns can always inflate their way out of domestic debt. Private foreign creditors implicitly assume multilateral bailouts and endless rescheduling when lending to TBTF or TITF ("too big or too important to fail") countries. The debt of many sovereign borrowers, therefore, is immune to terminal default.

Not so with private debtors. In remarks made by Gary Stern, President of the Federal Reserve Bank of Minneapolis, to the 35th Annual Conference on Bank Structure and Competition, on May 1999, he said:

"I propose combining market signals of risk with the best aspects of current regulation to help mitigate the moral hazard problem that is most acute with our largest banks ... The actual regulatory and legal changes introduced over the period-although positive steps-are inadequate to address the safety net's perversion of the risk/return trade-off."

This observation is truer now than ever. Mass-consolidation in the banking sector, mergers with non-banking financial intermediaries (such as insurance companies), and the introduction of credit derivatives and other financial innovations - make the issue of moral hazard all the more pressing.

Consider deposit insurance, provided by virtually every government in the world. It allows the banks to pay to depositors interest rates which do not reflect the banks' inherent riskiness. As the costs of their liabilities decline to unrealistic levels -banks misprice their assets as well. They end up charging borrowers the wrong interest rates or, more common, financing risky projects.

Badly managed banks pay higher premiums to secure federal deposit insurance. But this disincentive is woefully inadequate and disproportionate to the enormous benefits reaped by virtue of having a safety net. Stern dismisses this approach: