Ouch! The FT Blasts the Russian Economy

An editorial in the Financial Times:

In a week of extraordinary events, Friday’s 30 per cent bounce in Russia’s stock market ranks with the best of them. The $130bn support package stitched together during Moscow’s two-day market shutdown achieved its immediate goal. But, like the bigger crisis 10 years ago, Russia’s crash of 2008 has long-term implications.

First, it punctured the conceit that Moscow can soon become a global financial centre. The market plunge exposed deep cracks in its financial infrastructure. Russia must deepen its domestic capital pool, accelerate moves to get pension funds into equities, and develop its retail investment market. It must cultivate properly functioning domestic bank lending so that businesses can finance themselves on competitive terms. And it must ensure future central bank liquidity injections are more efficiently disbursed into the financial system.

Second, the crisis has highlighted that Russia is hardwired into the global economy. It cannot escape external factors such as dollar or oil price shifts. And a confrontational foreign policy has had a cost in terms of battered confidence and capital flight. That may restrain future aggression. Above all, Russia wants a seat at the top table of world affairs – but its claim to one relies on having a big enough economy.

There may be another restraint: the oligarchs. Putinism was built on the understanding that if tycoons played by Kremlin rules they would prosper. Recent military adventurism undermined that grand bargain. Lower commodity prices and slowing growth will make it even trickier to sustain. Oligarchs have been hit hard by the market fall; the rescue package came only after a restive business elite complained to the Kremlin.

Vladimir Putin’s entrenched power makes more vigorous opposition highly risky. But, after the recent jolt, oligarch loyalty is no longer a given.

3 responses to “Ouch! The FT Blasts the Russian Economy

  1. Pingback: Business blog » Blog Archive » Ouch! The FT Blasts the Russian Economy

  2. Let us looks at the 130 billion. That is roughly one quarter of all the reserves that Russia had accumulated over the last few years and they had to spend it over a few days to prop up the market. Most of the money they spent to boost the stock market is now likely safe in foreign bank accounts. A few more bad weeks and the reserves will be gone. Then, what will Russia do?

  3. Russia has no leverage over the countries that were originally outside of their sphere of influence.

    If russia wants to change that, the world is light years ahead.

    P.S. I have adult diapers to sell your soldiers.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s