Market Watch reports that last week Russia’s foreign currency reserves fell to less than $440 billion, down nearly $20 billion for the week. In just the past four months Russia’s reserves have fallen nearly $150 billion, about one-quarter of their total and an average of almost $40 billion per month. At that rate, Russia’s reserves will be totally exhausted before 2009 is over.
And even though the reason for the tumbling reserves is the Kremlin’s furious attempt to create artificial value for the ruble and control inflation of imported goods, upon which which the country’s anemic economy is utterly dependent, the ruble continued to slide. On Thursday the ruble lost another 1% of its value, the fifth time this month its has experienced devaluation. Russia cannot hold its currency in place no matter how much is spent if the price of Russian oil stays below $40 per barrel or goes even lower, as it may well do. To do so would place Russian oil at a competitive disadvantage, and the Kremlin canno unduly inhibit its sale, since it depends on that vital revenue. Yet, the Kremlin cannot allow the ruble to enter freefall, since its reputation in the Russian population is heavily dependent on the notion of stability. In other words, the Kremlin is between a very big rock and a very hard place.
Lars Rasmussen, an analyst at Danske Bank, intoned an ominous warning: “Foreign exchange reserves are now below the private sector’s gross external liabilities, and a further draining would jeopardize the creditworthiness of the Russian economy.” And that rating is already flirting with junk status, as Standard & Poors downgraded Russia’s rating just days ago.
Filled with blind panic, Russia once again began speaking of joining OPEC, seeming to forget that not being a member of OPEC was its chief entry to European society. Is Russia really prepared to become fully Islamic, even as its population is doing? Perhaps the Chechen rebels will have the last laugh after all!
Dark, dark clouds hang over Russia. Is this the beginning of the end for Russia as we know it?