Special Extra: Market Matters

The inexorable march to zero

The inexorable march to zero: In the past three weeks the Russian stock market has lost half its value and is down 75% from its historic high

Though world markets were up on Friday (2-3% gains were posted in Europe’s major markets), the Russian stock market broke through yet another psychological barrier in its inexorable retreat, and as of 3 pm Moscow time on Friday the RTS dollar index was down nearly 5%.  Following yet another horrifying result of double-digit losses the day before (and yet another predictable market shut-down — they occurred three out of five trading days this week alone), as the price of oil fell below the $70/barrel barrier and called Russia’s basic budgetary assumptions into question the RTS broke through the 700 point barrier to stand at 685 (the MICEX ruble index, in turn, was on the cusp of smashing into 500 territory).  This means that the market has now lost nearly 75% of the value it established at its high water mark last May.  Gazprom was down 8% on Friday, LukOil down 10% and the oil & gas index down over 6%.

Where would the Russia market stand today if it had simply been allowed to trade without interruption throughout the week? Where would it be if the Kremlin had not become the nation’s leading stock purchasers, taking over Russian firms in a neo-Communist surge of centralization by squandering the nation’s savings to purchase them on the market, creating a Potemkin illusion of demand? The value could well already be zero.

Putin’s Kremlin is also laying out massive dollars to defend the value of the ruble, which is collapsing against the dollar and thereby driving the price of imported goods higher, fueling Russia’s pandemic inflation. It has spent over $30 billion of the national savings in just the last two weeks alone, putting Russia’s credit rating gravely at risk and obliterating a crucial rainy-day fund that should be used to develop the real economy rather than build Potemkin villages in the clouds.

34 responses to “Special Extra: Market Matters

  1. This isn’t all; Newsru.com news titles speak about banks failing to return deposits to clients and growing threat of shortages of basic grocery items as people are starting to buy up food.

    LA RUSSOPHOBE RESPONDS: Yikes!

  2. Oil gone up to $74.30 :(

    LA RUSSOPHOBE RESPONDS: That’s still half its historic high :)

  3. LaRussophobe what do you have to say about the following?

    http://search.japantimes.co.jp/cgi-bin/eo20081018a2.html
    http://www.iht.com/articles/2008/10/13/business/ruble.php

    or the fact that the IMF predicts a 7% gdp growth for Russia?

    LA RUSSOPHOBE RESPONDS:

    Did you even READ your OWN IHT link? It states:

    The Russian stock market declines seem to be signaling investors’ pessimism about the future of the economy and the government’s stewardship of it. Even as Russia has experienced strong economic growth in recent years, driven by revenue from oil and natural gas, it has not moved toward a diversified economy. Nor has it significantly modernized decrepit roadways, power grids and housing.

    Your link merely proves our point, you hopeless idiot.

    As for your JT link, there’s no doubt that Russia has amassed a large store of cash by grabbing the windfall profits of its oil companies. But Russia is rapidly depleting those stores in a feeble effort to hide the stock market apocalypse, and its attempt to weaponize them rather than use them to invest in future oil production and the social welfare of the Russian people is obscene. If you approve of it, you are a lunatic.

  4. I agree with La Russophobe. Russia has already spent 10% of its reserves, and this does not take into account the hundreds of billions promised to banks and Russian businesses. These hundreds of billions will come out the Russian budget, which will lead to massive deficits if oil prices remain low. These deficits will have to be paid using money coming out of the reserves. In other words, Russia is putting off spending the reserves as much as it can in the hopes of a miraculous recovery whereby oil prices will recover to their previous highs. Not exactly the best strategic planning in my opinion.

    Nonetheless, even the regional governors are not buying it. According to an article in vedomosti.ru:

    “Спасаются сами

    Губернаторы, не надеясь на помощь из центра, урезают областные бюджеты и предпринимают свои антикризисные меры. В основном они касаются помощи банкам, строителям и сельхозпроизводителям”

    Quick and rough translation:

    Save yourselves.

    Governors, not hoping for help from the center, are cutting their regional budgets and are implementing their own anti-crisis plans. Basically, they are helping banks, builders and the farm industry.

    Source: http://www.vedomosti.ru/newspaper/article.shtml?2008/10/17/165104.

    Regional governors in Russia expect the GDP to fall and they are cutting back on what they are planning on spending next year. In other words, they are not confident that the Russian state can come to their rescue, and they have no illusions about the Russian state that allegedly “remains awash with cash” according to The Japan Times.

  5. And, just when you thought it could not get any worse, the Russian State Duma authorized the Central Bank to buy shares in the stock market. This, according to gazeta.ru, carries grave risks including the eventual devaluation of the ruble and pushing inflation even higher.

    The gazeta.ru article notes that such moves not only puts the ruble at risk, but also will tarnish the already bad image of the Russian market.

    They write: “С другой стороны, излишнее воздействие Центробанка на курсы акций может отрицательно сказаться на имидже российского фондового рынка как рынка, подверженного манипулированию».”

    In other words, by allowing the Central Bank to play the stock market, it not only puts the currency and general economy at risk, it will make it clear to all investors that the Russian stock market is subject to manipulation by the state.

    Source: http://gazeta.ru/financial/2008/10/17/2858659.shtml

  6. This is question for Michel:

    Could this attitude & action of the regional Govenor lead to an instability that would be more worrisome to Putin than his own Silovoki turf wars within the Kremlin? It is one thing for Putin to put the screws to someone inside the Kremlin, but how does he go about bringing the hammer down on a regional governor (esp. if the govenor managed to keep from going under & the Kremlin did)

  7. Thank you, although the insult was uncalled for.

  8. Michel,
    part of the money given out to banks will be given out in loans, so the government will eventually get it back. Second governmental calculations on oil price are generally made on the basis of an annual average price, in the case of the Russian government at about $70 a barrel. Taking into consideration prices during the first half a the year an average of $70 a year is not out of the question.
    Moreover, oil makes up 40% of the revenues and since the government budget is about 25% of Russia’s GDP that those oil revenues make up about 10% of the GDP. Russia’s surplus is about 5-10% of its GDP and in nominal terms has been increasing every year. You will of course notice that a drop in oil prices at most would lead to a 5% deficit if Russia sold no oil or gas at all (the USA have a deficit larger that 5%). Furthermore youi ignore the Stability Fund which exists apart from Russia’s Forex Reserves.
    As for the prediction that Russia’s GDP will decline please cite one international organization (WB, IMF etc) or a respected analyst that supports this view.

  9. Cathy,

    Oil, gas, and revenues from other natural resources accounts for two-thirds of the Russian government’s revenues. The Russian state also has a sliding scale of royalties: the higher the price of oil, the more it collects for every dollar sold. As a consequence, the fact that oil prices have dropped by half, will leave the Russian government with a deficit, likely starting in a few months. This will lead to the Russian government quickly eating into its reserve funds, and if it lasts too long leaving the Russian state broke and with no way of protecting the ruble. This can lead to a devaluation of the ruble and a drop in imports from food to BMW’s.

    Also, small and medium sized companies account for only 15% or so of the country GNP IIRC. Most of the country’s GNP and GDP is generated by its large resource based corporations. When prices for natural resources drop (as they are now doing), they are hit as well. If it lasts, this will mean fewer profits and eventually layoffs. This will hurt the country’s GDP, but I have to read an article in a Russian newspaper speculating as to how much the GDP will fall if it falls in the next year.

    As for citing the decline in the Russian GDP, WB and IMF official reports are slow to react to rapid change. I, for one, would consider the governor’s of Russia who have a lot better insider information than the IMF or the World Bank. If they already expect to have to cut expenses because they will have less money, this is a good indicator of where they think the economy is heading in the next year.

    To answer Barb’s question, the challenge is as follows: the governors are hired and fired at the whim of the Russian President, but if memory serves me right the president’s choice has to be approved by the local legislature. If they don’t approve, the legislature can be dissolved with new elections held. When times are good and the local legislatures are subservient, then the system works well. The question remains as to what might happen if the economy is hard hit and local legislatures get uppity and start to stand in opposition to the President’s governor. It will be interesting to watch what will happen then.

  10. One final thing. Cathy, I have to say that you are naive if you believe that money given to banks will be returned, as the banks were not asked to provide any collateral. Given Russian corruption, most of that money is more than likely already in offshore accounts. Russia will not see a kopeck of that money ever again.

  11. Cathy, naive is an understatement! When you hear an expression “Joe is paying protection money” – you don’t think of marriage vows where the husband promises to protect his wife “until death doeth us part”, right?

    So, don’t think of the word “loan” in “car loan” sense. Think of it as the government official doles out government money to a group, and the group chairman is forever indebted to that official. In the Soviet Union there were dachas, cars with drivers, and special distribution centers (raspredeliteli) that served this purpose; in today’s Russia nobody needs those silly substitutes – cold cash is just fine.

  12. This is to Michel:

    obviously you are well versed in finances and Russia, you provide some wonderful items. My question….How is what Russia is doing with their stock market different from what the US government did with this $700 B bailout? Yes, US seems to be weathering the storm, but how? What is the difference?

  13. Michel, some of the things you said are either grossly inaccurate, irrelevant or vague.
    1) Oil and gas account for about two thirds of Russian exports not the Russian budget, while information from globalsecurity.org contradicts this assumption. Even if oil and gas did constitute 60% of the Russian state’s budget, on the basis this is about 25% of Russia’s GDP (something you have not yet denied) that would work out at about %15 of Russia’s GDP. But since Russia’s surplus is about 7.5% of Russia’s GDP (approximately $90-100bn out of 1,300) even if Russia stopped producing oil completely it would end up with a 7.5% deficit. Bad indeed, but not far worse than the US deficit under the Bush administration at times which has exceeded a trl$ at times)
    2) Your reference to small and medium sized companies is correct but beside the point in this case. Moreover please tell me how many people are employed in the energy sector out of Russia’s 75 million labour force.
    3) Your claim that international organizations/institutions are slow to react is just sour grapes. The IMF recently downgraded Russia’s forecast growth for the year 2008 to 7.1% down from 7.8% and then down to 7% some weeks later. I think that’s a timely reaction. Is the IMF or the WB less successful that Russia’s local governors in predicting growth around the world? That’s funny, because I always find references to the IMF or the WB on the web when it comes to growth predictions but not to Russia’s local governors. Even if these people do have insider information their budgets should be increased for the following year if nothing else because of inflation.
    Are you expecting us to believe that what no other country that is IN a recession has not yet done (cut budgets) will actually be done by a country that is predicted to continue growing at no less than 5.5% based on the insider information of people whom in other circumstances you would discredit and take what they say with a grain of salt? Wishful thinking! I mean, come on, seriously now, you’re talking about Russia like it is Western Europe in terms of GDP growth! By the way how is the price of a product, the sale of which comprises less than a quarter of a country’s GDP (according to eia, a US government agency) lead to the shrinking of the country’s GDP, hardly very logical isn’t it? What about the remaining 75-80%? P.S. There is an interesting article in the Economist in which it is explicitly stated that the assumption that Russia’s economy is based on oil to the extent assumed is false. Try finding it.
    4) Surprisingly enough, you pass no comment on my observation that governments on the basis of an AVERAGE annual price calculate oil prices. That means that with prices being over $120 a barrel around spring and even now only marginally below the Russian governments predictions of $70 a barrel an AVERAGE price of $70 a barrel is quite possible.
    5) As for you calling me naïve, my only comment is that I intend to refrain from any comments that could be labelled abusive, insulting or that would provoke verbal conflict.
    6) If you can find any concrete figures on the Russian budget to support your arguments or to contradict my figure pray bring them forth instead of beating around the bush.

    Some sources
    “Russia’s economy is heavily dependent on oil and natural gas exports. In order to manage windfall oil receipts, the government established a stabilization fund in 2004. By the end of 2007, the fund was expected to be worth $158 billion, or about 12 percent of the country’s nominal GDP. According to calculations by Alfa Bank, the fuel sector accounts for about 20.5 percent of GDP, down from around 22 percent in 2000. According to IMF and World Bank estimates, the oil and gas sector generated more than 60 percent of Russia’s export revenues (64% in 2007), and accounted for 30 percent of all foreign direct investment (FDI) in the country.”

    http://www.eia.doe.gov/cabs/Russia/Background.html
    (Energy Information Administration, Official Energy Statistics from the US government)

    “According to UBS, a fall in the oil price to an average of $40 this year would still see Russia’s GDP growing at 6pc a year”
    http://www.telegraph.co.uk/finance/2805662/Investment-column-Russia-and-Eastern-Europe-offer-more-than-oil-and-gas.html

    Another interesting source
    http://www.balticdata.info/russia/macro_economics/russia_macro_economics_russia_GNP_GDP_summary.htm

    For some details on the Russian budget
    http://www.globalsecurity.org/military/world/russia/budget.htm

  14. Michel, since something tells me you’re going to write something long yet irrelevant again I might as well tell you I’m not prepared to engage in some pseudo-serious discussion in which we beat around the bush and come to some dead end. I have laid down my evidence, presented by argumentation don’t expect a response unless it is on the evidence or argumentation I have presented.

    LA RUSSOPHOBE RESPONDS:

    You seem to be some kind meglomaniac. No wonder you like Putin so much. Do you really think you can decree what kind of responses will be made to your idiotic gibberish? Mental case!

  15. Cathy,

    You rely on data that is already out of date. Your first site, for example, the EIA, writes: “By the end of 2007, the fund was expected to be worth $158 billion, or about 12 percent of the country’s nominal GDP.” This was likely published before oil prices raced upwards a year ago and does not take into account all the spending Putin promised in the intervening year.

    The Baltic Data site is worse: it covers the period until 2003! The data is already 5 years out of date.

    The Global Security site’s analysis is also based from date from what seems to be the first half of 2007 before oil prices on the international market doubled.

    Here is my data from my sources as I will cite The Economist:

    “The share of oil and gas in Russia’s gross domestic product has more than doubled since 1999 and now stands at above 30%, according to the Institute of Economic Analysis, a think-tank. Oil and gas account for 50% of Russian budget revenues and 65% of its exports. ”

    Source: http://www.economist.com/business/displaystory.cfm?story_id=11332313)

    Oil and gas accounts for roughly one-third of Russia’s GDP, and oil prices have dropped by half (so far). Do you really believe that this will have a minimal impact of Russia’s GDP? Also, don’t forget that the prosperity in the oil and gas sector had spin-off effects on other sectors. The highly paid oil and gas workers and executives were buying cars, and traveling, and spending money elsewhere that helped to push up the GDP.

    Now to address your points. You write: “But since Russia’s surplus is about 7.5% of Russia’s GDP (approximately $90-100bn out of 1,300) even if Russia stopped producing oil completely it would end up with a 7.5% deficit.” First things first, GDP’s don’t have deficits, states have deficits. Two things have an impact on deficits: government revenues and government spending.

    With regards to revenues, the Russian state has already said it will start having deficits when oil prices hit $70 a barrel. We are already there. Other sectors are also going to be hit, which will also cut into government revenues as taxes from other businesses and corporations fall. Higher unemployment rates would also cut into personal income tax collected. All of which will lead to less government revenue.

    There there is government spending. So far, Puting and Medvedev have promised hundred of billions of spending to shore up banks, the stock market, and let’s not forget the 25% increase in military spending that was promised before the crisis. Then, there are the other expenses that will go up, notably money paid to the newly unemployed during a recession. All told, Russian spending will go up drastically, unless the Russian state takes some drastic measures to cut back on spending elsewhere. Either that or it will have to start printing a lot more rubles that will lead to even higher inflation.

    Given the upward pressure on expenses and the downward trend on revenues, the Russian state, barring a miraculous recovery in oil prices, will be faced with budget deficits and rapidly shrinking reserves. This is called Economics 101. It will sill hurt the Russian State, even if growth in GDP only slows and does not begin to stagnate or drop.

    2) Yes, most people are not employed in the oil and gas and banking sectors, but most people working for small and mid-sized businesses earn much less than those working for large corporations outside of Moscow. Typical wages from my experience for those not working for the state, banks or large corporations outside of Moscow range between 5,000 and 9,000 roubles per month. This is why, for example, that according to a survey done by the Levada Center, 76% of Russians said they spend 50% or more on food and close to 48% said they do not have enough money to feed their families. These are the Russians that have been hit hardest by inflation, inflation that has been rising fastest of all in basic food products in Russia.
    3) Again, the IMF and WB predictions you find are out of date (as most of your other sources by the way). They are based on date prior to the summer when the Russian economy was being pushed upwards by $147 a barrel gas and the RTS was getting close to breaking the 2,500 mark. Things have changed significantly since then, and I expect that both the IMF and WB will revise their numbers early next year.
    4) Every Russian-language source on the internet is noting that the planned budget is overly optimistic. If you can read Russian, I would recommend that you read this insightful piece in Novaya Gazeta: http://www.novayagazeta.ru/data/2008/77/12.html. Here a former prime minister, Mikhail Kasyanov, writes as to how the Russian market has died and that Russians should prepare for the worst in the next 6 months, even though the Russian television has been forbidden to say the “crisis” word when referring to the current economic events in Russia.
    5) You did not addresss my point which is: why do you expects bank to pay pack the monies given to them when they gave no collateral and given Russian corruption where billions always mysteriously disappear from the books?
    6) Well, I provided a good article from The Economist whose data supports my point. It was published in May, 2008, at the height of the Russian boom, so the date is both relevant and up-to-date.

  16. Yet again, as predicted you go off topic with a rather good economic analysis albeit in a cliche rational . Too bad you as usual refused to deal with number, too bad you did not find any serious source to support your wacky idea that Russia’s GDP will decline or that you ignored sources that were not in your interest (e..g The Telegraph’s). Too bad you you chose to attack my sources (as if they still do’t prove a point). Worse still you candidly provide inaccurate information, the International Herald Tribune reports the latest IMF forecast on September 26th (http://www.iht.com/articles/ap/2008/09/26/business/EU-Russia-IMF-Economy.php) so it is not that out of date certainly not before the summer or around then as you dishonestly claim. Oh well….

    LA RUSSOPHOBE RESPONDS:

    It’s sad to see you making such an ape of yourself. If you read this blog a little instead of just spewing forth your ignorant propaganda, you would know that when the stock market hit 1,500 there were plenty of Russophile cheerleaders here saying they were going to buy soon because a comeback was in the offing from mighty, resilient Russia. In fact, the market went down another 50% since the, such yahoos would have lost half their investment (if they’d been stupid enough to make them, which even they probabably weren’t).

    Morons like you said the same things throughout the Soviet period, right up until days before the collapse.

    Again, so sad to see such utterly profound baboon-like ignorance displayed so blithely for all the world to see. Such are Russia’s “friends” and so it has always been. We pity you Cathy. You live in your own world and imagine you have insight and significance, like the infamous Emperor and his new clothes.

  17. To answer Barb’s question, the main difference between the the Russian “bailout” and the American bailout that was approved by Congress, is that the American Congress imposed some accountability, some oversight and required that firms getting money provide some collateral and accountability. Compare what Paulson proposed with what Paulson got. Radical changes were imposed by the American Congress.

    How does this differ from the Russian bailout? Well, the Russian bailout provides no true accountability, no effective oversight and the Russian state did not even ask the banks or businesses to provide any true collateral to ensure that they will be reimbursed. In other words, it is IMHO one big state-sponsored money-laundering scheme. Given Russian corruption, it is unlikely that any of the money will get to where it is really needed, and will likely leave the country poorer and more vulnerable to future problems.

  18. an_angry_citizen

    As usual Cathy has presented a very successful case only to be degraded by people like Michel.
    1) Cathy’s data may go back to 2007 but this shows that until the latter half of 2007 when oil prices went up dramatically energy contributed much less to the Russian GDP than today. But the increase in oil prices is not Russia’s fault, although I think Michel would like to blame Russia for it.
    2) Michel instead of providing evidence for what (s)he claims insists on attack his interlocutor by implying Cathy cannot use English properly. Cathy never said GDPs have deficits, states’s deicits )as is the case with the countries of the Eurozone) is counted as percentage of the country’s GDP.
    3)Michel provides no evidence with regard to what Cathy claims but goes on with some general analysis on Economics 101 which (s)he must be particularly proud to have passed at college, though that leaves as (Russian type) cold. (S)he relies on some empirical impressions (and how do we know this is valid and truthful) to demonstrate his/her russophobia, impressions that contradict any formal reports.
    i could also turn round and say I know construction workers who earn about $1,000 dollars in Russia, but this being unconfirmed is of little interest.
    4) The IMF’s and WB’s predictions are published when they see fit. In fact the IMF’s prediction for 7% growth appeared in the International Herald Tribune on September the 26th. Did they perhaps print three month old forecasts as new. That’s crazier than your totally unsubstantiated claim that Russia’s GDP will shrink, which luckily you seem to have abandoned Michel.
    4) I can’t read Russian but I do know that Kassyanov has every motive (former ally/prime minister 2000-2004ca) now Putin’s rival) to be inaccurate or over the top about what he says about Putin’s economic policies. For this reason one should be cautious about what he has to say if we want ti be objective.
    5) The source from the Economist is of course respected but one should note that Cathy’s sources are also valid and serious.
    6) Michell again avoids to go into detail on Russia’s budget, while Cathy’s numbers seem credible to my knowledge. Moreover why is there no comment on Cathy’s point about the annual average price of oil and The Telegraph she cites as a source is totally ignored?

  19. an_angry_citizen

    Since Michel mentioned the Economist here is the latest profile on Russia dated October 14th. Nowhere does it include anything on Russia’s GDP declining, its budget balance is predicted to be positive until 2013 (and is counted as % of GDP) and its 2009-13 budget has been described as “frugal” contrary to Michel’s allegations.
    http://www.economist.com/Countries/Russia/profile.cfm?folder=Profile-Economic%20Data

    LA RUSSOPHOBE RESPONDS:

    Did you even read your own link? It shows Russia having double-digit inflation this year and next, and GDP growth rates halving over the next ten years. Russia’s tiny economic base means these anemic growth rates are worthless in promoting national recovery.

    Moreover, it clearly states: “The impact on the real economy of the financial maelstrom that has enveloped Russia and the global markets will depend mainly on the extent to which commodity prices are affected.” Yet, it says NOTHING about commodity prices, and does not even discuss the fact that the price of oil has halved from hits historical high.

    Your gibberish is not even worth considering.

  20. La Russophobe is right, you quote a source without apparently have read (or understood) what you are citing.

    This is what your source states: “The three-year 2009-11 budget is relatively frugal. However, the fiscal stance is set to loosen again because of massive budgetary interventions to stabilise Russia’s struggling financial markets.”

    Did you stop reading after the word frugal? It says, “the fiscal stance is set to loosen again” (explanation: Russia is spending like a drunken soldier) “because of massive budgetary interventions to stabilise Russia’s struggling financial markets” (explanation: because Russia has been throwing untold billions into banks and the stock market).

    In essence, you source confirms what I have been saying: the budget does not take into account the hundreds of billions of dollars worth of promised spending. How can you have a budget that ignores all this spending and still be taken seriously?

  21. an_angry_citizen

    Why do you constantly go on to another topic Michel, as Cathy has rightly observed instead of answering points that pose an inconvenient truth? Why do you yet again refuse to answer the numerous points made by Cathy and repeated by me as if my first post didn’t exist. Obviously Cathy has wiped the floor with you and is rightfully now refusing to engage in a discussion with you which has no potential of being serious.

    larussophoe: you have obviously read the source selectively (something which has become an unfortunate trait of you) and like Michel avoid commenting on the facts I used this source to support. Tragic really!

  22. Well, I addressed Cathy’s point. However, it is interesting that Cathy needs a “defender” while she sulks. Something smells fishy to me.

    As noted, both you and Cathy misread and misinterpret the information you present as “proof.” Rather than engaging in a discussion, you react with anger.

    An_angry_citizen? Anger confuses the mind and leads to irrational thought. This is evident in your posts.

    Cathy is refusing to engage in a discussion? Is she pouting in a corner? If she can’t engage in a discussion, then she clearly does not have much to add IMHO.

  23. an_angry_citizen

    Michel you have addressed practically no point put forward by Cathy. You have on numerous occasions gone off topic rambling so as to confuse anybody who has not read around. You hide behind economics 101 (though you probably flunked economics 201 or 102) , attack the person that disagrees with you, undermine his/her sources with some weird rationale and then rely on rumors and cliches.

    “Something smells fishy to me. ” your judgment. has obviously failed you.

    To assume that I’m angry with you for not being able to answer is more amusing than your other idea that Russia’s GDP will shrink. I assure you I’m quite calm. Nobody would get angry or pouch in a corner over you but just wait for you to be proved wrong over the course of time.

  24. I will let other readers judge who provided the best information. However, I do find it interesting that Cathy says she is not going to say anything else, and immediately you appear.

    Also, I did not say necessarily that the GDP would shrink. I reported that the Russian governor’s are already planning on having less money. I am predicting that if low prices stay low, then the Russian state will have deficits, especially since they have promised to spend so far 200 billion dollars to support banks and Russian industry. According to Russian newspapers, this is equal to two-thirds of the Russian budget. You can’t have a reduction in revenues and an increase in expenses and have budget surpluses.

    With regards to the Russian GDP, I expect that the rate of growth will slow (as it is already doing) and if oil drops to $50 a barrel, the growth in Russian GDP will stop and if you have an extended recession that lasts more than 1 year, then the Russian GDP risks going into negative numbers.

    Let’s see in a year from now, who will be right.

  25. “However, I do find it interesting that Cathy says she is not going to say anything else, and immediately you appear.”

    1)If your assumptions about Russia’s GDP is anything to go by with regards to your judgment well I’d rather have somebody who wears purple pants and a green t-shirt tell me how to dress.
    2) Why do you automatically assume me and Cathy are connected because I posted after she stopped, we could have continued posting in interaction. Do you believe there is only one person who disagrees with you?
    3) Yes, indeed they will have to choose between some ranting on economics 101, rumors and cliches on the one hand and serious argumentation, a clear rational backed by numbers- which Cathy asked to be confirmed or not, although you conveniently avoided mentioning anything about numbers- on the other. They will have to choose between common sense and someone who attacks the other’s sources for being about a year old and attempts to distort them. They will have to choose between civility and personal abuse and sarcasm.

    “Also, I did not say necessarily … who will be right”
    1)That’s exactly what was implied and as soon as you realized there was no serious source to support such an unfounded idea you moderated it to a potential or to slowdown (from an economy that was overheated anyway!)that again no financial institution has advocated (and yes they have updated there forecasts over the lat few weeks).
    2) How is it possible that governors will have less money IN NOMINAL TERMS for them to be cutting spending?
    3) Russia still has about $530bn in foreing reserves and about another $180bn from the stability fund which at a price of $50 a barrel for oil equals 3,6bn barrels. If Russia produces about 9,5-10 million barrels a day then this works out at about 3 bn barrels a year. So I think you can see how much money Russia has got aside for “rainy days”. it would have been nice if you had noticed Cathy’s citation of The Telegraph in which it says “According to UBS, a fall in the oil price to an average of $40 this year would still see Russia’s GDP growing at 6pc a year”. This is just one of the many points you fail to adrress.
    4) Moreover Russia will be giving 200billion for its banks while it still has a surplus. If this will lead to deficit what about the USA with 700billion and a deficit already? If what you argue had any truth as a rationale why wouldd the Sates do the smae?

  26. “However, I do find it interesting that Cathy says she is not going to say anything else, and immediately you appear.”

    1)If your assumptions about Russia’s GDP is anything to go by with regards to your judgment well I’d rather have somebody who wears purple pants and a green t-shirt tell me how to dress.
    2) Why do you automatically assume me and Cathy are connected because I posted after she stopped, we could have continued posting in interaction. Do you believe there is only one person who disagrees with you?
    3) Yes, indeed they will have to choose between some ranting on economics 101, rumors and cliches on the one hand and serious argumentation, a clear rational backed by numbers- which Cathy asked to be confirmed or not, although you conveniently avoided mentioning anything about numbers- on the other. They will have to choose between common sense and someone who attacks the other’s sources for being about a year old and attempts to distort them. They will have to choose between civility and personal abuse and sarcasm.

    “Also, I did not say necessarily … who will be right”
    1)That’s exactly what was implied and as soon as you realized there was no serious source to support such an unfounded idea you moderated it to a potential or to slowdown (from an economy that was overheated anyway!)that again no financial institution has advocated (and yes they have updated there forecasts over the lat few weeks).
    2) How is it possible that governors will have less money IN NOMINAL TERMS for them to be cutting spending?
    3) Russia still has about $530bn in foreing reserves and about another $180bn from the stability fund which at a price of $50 a barrel for oil equals 3,6bn barrels. If Russia produces about 9,5-10 million barrels a day then this works out at about 3 bn barrels a year. So I think you can see how much money Russia has got aside for “rainy days”. it would have been nice if you had noticed Cathy’s citation of The Telegraph in which it says “According to UBS, a fall in the oil price to an average of $40 this year would still see Russia’s GDP growing at 6pc a year”. This is just one of the many points you fail to adrress.
    4) Moreover Russia will be giving 200billion for its banks while it still has a surplus. If this will lead to deficit what about the USA with 700billion and a deficit already? If what you argue had any truth as a rationale why would the Sates do the same?

    LR please erase the previous comment it contains typograpical errors

    LA RUSSOPHOBE RESPONDS:

    Would you care to explain why you posted the same comment as both “Cathy” and “Angry Citizen” from the same IP number? Why are you engaging in impersonation?

  27. LOL. I was right, Cathy and Angry_Citizen are the same person. It is a sad statement of course.

    As for the rest of your post, I refer you the the Aslund article that was published today in the Moscow Times and posted here by the La Russophobe. It explains quite nicely why the Russian GDP is likely to fall next year in spite of what the IMF is reporting. I concur with everything that Aslund has written, so feel free to try and rebut his article.

  28. Michel,
    anybody that knows who Anders Aslund is would just laugh. Taking into consideration his past role in Russia it goes without saying he has every reason to be biased and to express wishful thinking not some argument to taken seriously.
    But OK, let’s say his view is a serious and justified one. What about all other bodies and institutions that make no such forecasts. Are they all untrustworthy? Give me a break!
    Oh, nice to see you have come back to the “ingenious” idea that Russia’s GDP will decline. Hadn’t you abandoned that in your previous post?
    As for my post you tragically ignore all points ( in fact all points made in all posts more or less) and make reference to a source that contradicts every respected financial institution.
    Did you also predict the Ukraine’s need for an extra $16bn from the IMF, while busy predicting Russia’s fall?

  29. Dear Cathy/Angry_citizen,

    If you don’t find Aslund reputable enough, then I encourage you to read the Financial Times and their analysis piece entitled “Onward to 1998: Russia” (http://www.ft.com/cms/s/0/2f081936-a379-11dd-942c-000077b07658.html?nclick_check=1) or the Russian analysis in gazeta.ru (http://gazeta.ru/comments/2008/10/24_a_2864133.shtml). Both are warning of the imminent default/financial crisis in Russia.

    As for the IMF and Ukraine, you are not really helping your case by bringing this up. The IMF was predicting strong GDP growth for both Russia and Ukraine in April (see: http://www.imf.org/external/pubs/ft/weo/2008/01/weodata/weorept.aspx?sy=2006&ey=2013&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=63&pr1.y=12&c=922%2C926&s=NGDP_RPCH%2CNGDPD%2CNGDPDPC%2CPCPIPCH%2CLP&grp=0&a=). Ukraine’s GDP was to grow in 2008 by 5.5% according to the IMF in April (the same rate that the IMF estimates in October that Russia’s GDP will grow). So, the IMF predicted a growing GDP, yet Ukraine as you point out is now facing a financial crisis? Well, that tells me that Russia can go through a crisis in spite of rosy IMF predictions concerning GDP growth.

    As for my predicting what will happen in Ukraine, I don’t do that because, unlike naive Russophiles, I limit myself to talking about countries where I have actually lived and to those countries where I actually speak the language.

  30. Dear Michel,
    I have a problem with taking what Mr Aslund says seriously and most important uncritically for the reasons I mentioned above. Furthermore I am not the only one to question Aslund, there is an interesting piece in The Moscow Times from Gaddy and Ickes who openly disputed his prediction that the Russian GDP will decline. They write hat “[s]ome of the other signs of economic slowdown he offers also appear exaggerated” an “offering a different interpretation of recent events and their impact on Russia’s economy right now” they imply that Aslund is “jumping to conclusions about impending economic collapse in Russia”. For them a slowdown is still just a potential while the idea of contraction is not even mentioned. Yet another source that doesn’t confirm your predictions.
    http://www.themoscowtimes.com/article/1016/42/371992.htm

    The FT’s article is based on oligarchs and businessmen who have lost out due to the crisis (it mentions comparisons to 1998) and still doesn’t explicitly talk of the possibility of default or collapse (please find the relevant points!)
    By the way there is a subtle (yet inconvenient for you) difference between default and financial crisis. The article is crisis-oriented you use to draw the conclusion that the Russian state will default it would seem.

    My comment about you and the Ukraine was a hint about the validity of your own predictions.
    The IMF still remains an institution with credibility.

    “Ukraine’s GDP was to grow in 2008 by 5.5% according to the IMF in April (the same rate that the IMF estimates in October that Russia’s GDP will grow)”
    Yes but that was in April prior to the crisis. The 5,5% growth prediction for Russia was published in October 2008 during the crisis. If you have this weird idea that what happens in the Ukraine will happen in Russia after a few months, then this is some type of superstition not rational thought. What this tells me and should tell you is that Russia has achieved “rossy” growth (still over 5% according to Gaddy and Ickes for September 2008) despite the crisis.

    “As for my predicting what will happen in Ukraine, I don’t do that because, unlike naive Russophiles.”
    Are Gaddy and Ickes naive or Russophiles? Do they live in Russia? Probably not if one is teaching in Pennsylvania. But does that make them less aware of what’s going on in Russia or their predictions less credible and accurate than yours.

    “I limit myself to talking about countries where I have actually lived and to those countries where I actually speak the language.”
    What is that supposed to mean? That if you ask someone living in Bournemouth about the situation in Manchester that we should consider him/her an expert?

  31. Cathy/Angry_citizen,

    You don’t seem to read the very sources that you cite. Read to the end of the Gaddy and Ickes article. You cite one passage that sort of supports your perspective and ignore everything else. Yes Gaddy and Ickes disagree with Aslund to an extent, but they also highlight that Russia has a dysfunctional financial system that is now in crisis. This is what they write in their conclusion:

    “With a frozen global system and no Western financial intermediation to roll over old corporate debts, Russia is itself in an acute crisis without any way out on its own. Think of the extra cash that was being transferred from Western consumers to Russia as a steady flow of air feeding into a pump — the Western financial system. The pump sent the air back into the Russian corporate sector. What now has happened is a double whammy for those end recipients of the flow. First, the steady flow of fresh air into the pump has stopped as a result of the collapse of oil prices. Second, the pump has broken down as a result of the paralysis in the global financial system.

    It is the second problem — the broken pump — that is Russia’s real problem today. After all, although the flow of air has stopped, there still is a big reserve tank — foreign exchange reserves and the stabilization fund — that could continue to feed the pump. But there is no backup pump at home. The only thing Russia has is an old jerry-rigged, incredibly leaky Soviet model that doesn’t work either. The Kremlin has no choice but to use its own pump, but the more it does, the more of its reserve air just leaks away.

    The necessity to recycle its huge oil windfall has made Russia heavily dependent on a functioning global financial system. Its dilemma is that it can do very little to help restore the health of the international system. Nor is there much it can do at home in the near term to fix the real problem — its dysfunctional financial system. Бslund’s advice to push ahead with “liberal market reform” may be fine for the country’s long-term development, but it is no answer to the immediate crisis. In this critical period, Russia will be, as so often before, largely at the mercy of forces outside its own borders.”

    This is hardly an optimistic analysis of Russia’s economic standing at the moment. They may not agree with Aslund’s prescription as to what can be done, but they are hardly arguing that Russia has a healthy economy.

    Cathy, when I brought forward the IMF data, I did it to highlight the following: rosy IMF forecasts are no guarantee that a country won’t be beset by a financial crisis within a year if there are deep structural problems in that country’s economy. Where did I say that “weird idea that what happens in the Ukraine will happen in Russia after a few months, then this is some type of superstition not rational thought.” The point I was making, which you clearly cannot understand, is that IMF predictions of future GDP growth are not an accurate indicator of the whether or not a country is prone to a financial crisis. Rather than putting words into my mouth, perhaps you should address this issue.

    As for my comment about limiting myself to talking about what I know, it is based on the observation that many of the russophiles, and likely you, have at best visited Russia as tourists and most don’t speak any Russian. As such, most have a very limited understanding of Russia. You then only read sources that support your world-view which compounds the problem.

    Michel

    PS – You never did tell us why you had to resort to creating an alter ego.

  32. Michel,
    I have read the sources I site. How anybody could argue Gaddy and Ickes agree with Aslund is beyond me.
    They say:
    1)”we would offer a different interpretation of recent events and their impact on Russia’s economy right now. ”
    2)”This means that we do have to see what happens with the world oil price before jumping to conclusions about impending economic collapse in Russia.”
    3)”Surely, the growth rate has been falling, but it still has a way to go before reaching zero. ”
    4)”Perhaps Russia’s economy is in for a major slowdown, but there is as yet little evidence of this in the data. ”
    5)”Some of the other signs of economic slowdown he offers also appear exaggerated.”
    The people are contradicting his information, using numerous times “but” and “however” and agree with him on one point:”We do, however, agree completely with the premise that if the flow of oil wealth into Russia contracts, there will be a slowdown.” which is merely the obvious. If anybody has any doubts they can read the article and judge for themselves what Gaddy and Ickes’s stand is towards Aslund. The point they make about Russia’s dependence on foreign money as a type of pump is something Aslund has never mentioned. Even there they are far from as critical as you would like them to be. They say “China has made the same choice”, “[w]hile it might seem regrettable, in view of the monumental mistakes committed by the Western financial institutions, the Kremlin had little choice but to follow this strategy” and that this policy of financial intermediation was based on ” using market principles rather than connections and corrupt practices.” If anybody believes this article is essentially in support of Mr Aslund’s assumptions, then they might as well believe that the article states that the credit crunch has not effected the USA, no seriously!

    I understand that you are desperate seeing that nobody will support your wacky and unfounded theories that reflect wishful thinking and when they are they are debunked by experts who are hardly motivated to support the Kremlin. Nonetheless it is rather unnecessary, although amusing, to try and debate the obvious in a source. I mean, come on, you can do better than that! By the way next time don’t copy paste half the text to make it seem that you have so much to say.
    Gaddy and Ickes’s analysis is not the most optimistic one for the Russian economy but it hardly predicts the doom and gloom you would like. They rely on factual evidence and give credit where credit is due unlike you and Mr Aslund and still leave room for something much brighter than you and Mr Aslund would hope for.

    Moreover you point about my one concerning the IMF is typical of you avoiding the point. You quite conveniently forgot that the IMF’s predictions for the Ukraine were prior to the crisis not during it. And had it not been for the crisis, the Ukraine would have probably developed at a rate of 5%. Not that it hasn’t been wrong but overall it has some validity at least enough not to justify your questioning it. You also forget that no bank or financial institution or anyone serious has talked of a decline. Are they all wrong? Just face the facts: at present there is nothing to indicate a decline in the Russian economy as you fantasize!

    “limiting myself to talking about what I know, it is based on the observation”
    well Mr Aslund has also lived in Russia but that doesn’t stop his work from being questioned by Gaddy and Ickes. If your judgment is anything like Mr Aslund’s and you live in Russia then I recommend you move to another country. You’ll spare yourself the cold weather and still know equally as much/little about the country.

    “You then only read sources that support your world-view which compounds the problem. ”
    What compounds the problem in this case is that you have made an assumption that Russia’s GDP will decline and are willing to accept that no source has supported anything of the sort.Perhaps it would be better if YOU started reading sources that DON’T support your world view.

    P.S. Some points from long ago again unanswered. Oh well, but at least I got another ad hominem…

  33. Cathy/Angry_citizen: “I understand that you are desperate seeing that nobody will support your wacky and unfounded theories”

    This from the woman who created an alter ego to to support herself. LOL.

  34. Not quite as funny as you hoping against hope that evasion, irrelevance and ad hominems will change the fact that there is evidence for anything I claim and nothing to support what you claim. Nor does it sya anything about my arguments or sources but it does say ample about your (typically russophobic) tactics.

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