Tag Archives: russian economy

Economic Darkness Descends on Putin’s Russia

Panic is sweeping Russia. Half of all Russian people believe they’ll lose their jobs in the next three months.  Nice work, Mr. Putin. Time magazine reports:

The friend giving me a ride swapped just a couple of grim words with his wife on his cell phone, then turned to me. “They fired her,” he said sadly. “There go our plans.” The wife, who had enjoyed a cushy bank job, then joined the tens of thousands of Russia’s new middle class who have found themselves newly unemployed.

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Another Original LR Translation: Milov on the Crisis

A word from the translator:  Having translated both Milov/Nemtsov white papers, I have developed a respect for Milov’s way of thinking and am always on the look-out for more from him. This exposition of his appeared in Novaya Gazeta last week and is, as always, interesting and self-evidently right. The sad thing, of course, is that what is self-evidently right to LR readers and anyone with an inkling of good sense, is a тёмный лес (dark wood) to most Russians. It seems to me that if we could discover the reason why this is the case, we would be able to “cure” Russia instantly. Dream on.

We Will Be Last In Line

Why Russia will not be able to rise up from its knees
without help from Western capital

by Vladimir Milov

Novaya Gazeta 

October 31, 2008

Translated from the Russian by Dave Essel

It is quite evident that the growth model followed by Russia in recent years has now collapsed and that there is nothing around that can take its place, at least in the foreseeable future. Because the 7-8% GDP growth of the last four years derived exclusively from the inflow of foreign capital.

Bear in mind that, unlike the three other countries forming the BRIC [Brazil, Russia, India, China], where capital inflow consisted in the main of direct foreign investment, the money that came into Russia was mostly in the form of foreign loans. These were the engine of our development to an even greater extent that oil and gas were. And these loans were not ‘our money’ coming back home, as some assert, but real foreign money. And then, this money was not spent on modernising the country in any way but was instead mostly frittered away: for example, most of the borrowing by the Russian companies which held IPOs in the last few years was spent on buying shares and real estate while only 20-30% went into the implementation of genuine development projects.

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EDITORIAL: What about that Economy, Mr. Putin?

EDITORIAL

What about that Economy, Mr. Putin?

If Vladimir Putin were brave enough to be interviewed by the editors of this blog — he’s certainly not, preferring to hobnob with brown-nosed idiots like Larry King and bought-and-paid for stooges at the Valdai convention — the first question we’d ask him would be: 

Why, after nearly ten years of ruling Russia, have you not freed your national budget from dependence on the price of crude oil as established by foreign markets?

Putin’s own deputy finance minister admits that if crude oil prices do not average $60/barrel in 2009 — and they currently stand at $56.80 — then Russia’s budget for 2010 will not be balanced and will have to be “reconsidered.”  And there is no “fat” to cut in that budget. Russians live in squalid poverty and don’t rank in the top 100 nations of the world for male adult lifespan.  So the Kremlin will either go into massive .

The bad news rolls in like a tsunami.  Russia had a shocking $140 billion in capital flight in just August and September of this year (that’s a stunning $1,000 for every man, woman and child in the country, equivalent to a full month’s average wages for each one) and the Kremlin itself now admits it expects consumer price inflation to ring in at a whopping 13% by year’s end, nearly 20% higher than the Kremlin had predicted.  Russia’s foreign reserves have plunged below $500 billion, down $31 billion in just the third week of October as the government flushed away the national savings propping up the stock market and the ruble.  Large firms are imposing massive layoffs.  Russia is even moving to take the draconian step of criminalizing non-payment of debt, a measure civilized nations abandoned centuries ago. And this catastrophe was caused mostly by the fact that the price of crude oil plummeted over the space of a few months by more than half in price, and because the Putin administration has totally failed to build anything remotely like a real economy that could insulate the country from the random choices of world petroleum markets.

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The Putin Economic Ship, Foundering

Stratfor reports:

The U.S. Dollar, Soaring in Putinic Russia

The U.S. Dollar, Soaring in Putinic Russia

Standard & Poor’s rating service lowered Russian long-term sovereign credit rating outlook to negative Oct. 23 because of projections that Moscow will need to inject more credit into the faltering Russian banking sector. A credit rating indicates the agency’s estimation of a state’s ability to maintain debt payments, so in this case S&P believes that ongoing efforts to address the financial crisis could overtax the Russian government. The cut in debt rating comes as the yield on Russian government 20-year bonds has increased eight basis points (a 0.08 percent rise in yield) to 10.94 percent, indicating that the foreign appetite for Russian bonds is quickly dropping as credit becomes scarce and investors seek investments they feel are more secure. The bond yield of Russia’s largest company, natural gas behemoth Gazprom — which is also the single greatest source of Russian total external debt — has thus skyrocketed, and it now stands at almost 700 basis points above emerging sovereign debt. Meanwhile, the Russian stock exchange closed below 550 on Oct. 24, wrapping up a precipitous fall that has destroyed 80 percent of its value since May.

A comprehensive flight of investor capital is occurring in Russia for a number of reasons. This situation is placing great pressure on the Kremlin to use its capital reserves — the third largest in the world — to prop up the Russian banking sector and the main engines of the Russian economy: the energy and mineral sectors. In the short run, Moscow’s massive capital reserves will allow it to weather the global liquidity crisis and increase government control over all sectors of the economy. In the long run, however, Russia might face a dearth of capital as it drains its coffers trying to pump cash into the system, putting vital capital expenditure projects (such as improving infrastructure, improving oil and natural gas field development, and military spending) on hold to the detriment of its ability to face off with the West. The result will be an economy that has far more in common with the Soviet Union than with post-Soviet Russia — even post-Soviet Russia under Vladimir Putin. And that will affect Russia’s bid to reassert itself globally.

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