Yulia Latynina, writing in the Moscow Times:
At the World Policy Conference in Evian, France, President Dmitry Medvedev laid out his vision for overcoming the global financial crisis. The president called on Europe to create a new world order in which the role of the United States would be reduced to a minimum.
While Russian analysts were commenting on how skillfully Medvedev was driving a wedge between Europe and the United States, an interesting little incident occurred. At precisely 7 a.m. in Washington, the U.S. Federal Reserve and all European central banks simultaneously lowered their bank discount rate. Russia learned about this coordinated action from the daily news.
At about the same time, Prime Minister Vladimir Putin said, “Faith in the United States as the leader of the free world and the market economy and faith in Wall Street as the center of that trust has been undermined forever.”
Following this statement — as if to spite Putin — the dollar immediately gained sharply against the ruble. This clearly shows that, although Russians trust Putin much more than they do U.S. President George W. Bush, they — and the rest of the world — still have much more faith in the dollar than in the ruble.
For some years now, Kremlin leaders have been dying to dig into the huge cookie jar containing the nation’s hard-currency reserves and stabilization fund. Up until recently, though, Finance Minister Alexei Kudrin did everything he could to prevent these funds from being spent domestically.
But this all changed in mid-September, when KIT Finance, Russia’s “bedrock bank,” collapsed. The word “bedrock” carries a special meaning in Russia. In the United States, for example, Merrill Lynch was until recently a bedrock financial institution; with a nearly 100-year history, this financial-services titan was a pillar of the economy — until it ran into some serious problems with subprime mortgage and was sold in a fire sale last month to Bank of America.
In the West, when a bedrock bank fails, this causes the entire financial system to suffer a heart attack. In Russia, when a bedrock bank like KIT Finance fails, it also causes a heart attack — not to the financial system, but to the top bureaucrats who are connected to it. In the case of KIT Finance, Kudrin suffered some severe chest pain when the bank was on the verge of collapse.
It is thus no surprise that KIT Finance was one of the first banks to be saved by the government. But after that, other Russian banks naturally cried “Hey, what about us?” The government then allowed the Central Bank to extend credit to banks on generous terms — even without collateral.
Once banks started receiving these handouts, hordes of lobbyists clambered over one another to get into the Kremlin — from deeply debt-burdened developers to deeply debt-burdened exporters. What’s more, energy companies asked for $50 billion to pump into their investment program that had run aground because of the problem in Western markets. Putin announced that the agricultural sector would receive 10 billion rubles ($383 million) and that the army would get 20 billion rubles ($686 million) to build housing for military personnel.
If state-owned Vneshekonombank, which received $50 billion to pay off foreign debts accumulated by Russian companies, gives funds to companies and receives shares in return, that is called nationalization. If the bank gives them credit without taking shares in return — that is called corruption.
The nature of the crisis in the West and in Russia is more or less the same. In both cases, it is a crisis of liquidity resulting from major blunders and oversights by regulators. But what is most important is how a country responds to its crisis. Russia’s bailout plan proves that the difference between our economic system and the one in the West is like night and day.