Russia's Stock Market, long known to be the playground for the nation's oligarchs, have suffered immensely as a result of the global financial meltdown started in the US. However, the overall economy of the Russian Federation, jump started several years ago by petrodollars, continues to perform well.
Arevordi
***
October, 2008
The financial crisis has irreparably damaged the image of the U.S. as the leader of the free world and the global economy, Russian Prime Minister Vladimir Putin said Thursday. Putin's remarks during a Communist Party meeting were the latest Russian attack singling out the U.S. as the chief culprit in the global financial turmoil. "Trust in the United States as the leader of the free world and the free economy, and confidence in Wall Street as the center of that trust, has been damaged, I believe, forever," Putin said. "There will be no return to the previous situation." Putin and President Dmitry Medvedev have repeatedly accused the U.S. of responsibility for the crisis and called for changes in the world financial system. Finance ministers of the G-7 — the United States, Canada, Britain, France, Germany, Italy and Japan — meet beginning Friday in Washington. When Russia joins the group for political discussions, it becomes the G-8.
Source: http://ap.google.com/article/ALeqM5h...SeI4AD93N6OBG1
Russian Economy Has Very Strong Foundation
PricewaterhouseCoopers (PwC) believes the current situation in the Russian economy differs from what is taking place in the West, Peter Gerendasi, PwC general director and managing partner in Russia, told journalists in Kazan on Thursday. PwC feels the economic foundation in Russia is very strong and the only problem that needs to be resolved quickly is an increase in liquidity in the banking system, he said. The current share prices on the Russian market are very low - speculatively low - and do not reflect the actual value of the companies, he said. Gerendasi said PwC supports the steps the Russian government is taking to bolster liquidity and hopes they will produce a positive effect. All the actions and changes the government plans to make need to be done quickly to receive the most positive effect possible, he said. It is difficult to predict how the situation will unfold further, he said. Gerendasi said he thinks the turbulence will continue on the market for a while longer, but said he is hoping to see some positive changes within a year. Gerendasi and Tatarstan Prime Minister Rustam Minnikhanov signed an agreement on cooperation between PwC and the republic in Kazan on Thursday.
Source: http://www.istockanalyst.com/article...d_2695543.html
Budget Surplus Tops 2 Trillion Rubles
The surplus in the Russian federal budget from January to September exceeded 2.5 trillion rubles (8.1 percent of the GDP), RIA Novosti reports, citing Finance Ministry data. A year ago at the same time, the surplus was slightly over 1.6 trillion rubles. Income to the Russian budget was 7.2 trillion rubles in that period this year, which is almost 80 percent of the plan for the entire year. Expenditure reached 4.6 trillion rubles, or 61.1 percent of plan. The consolidated budget, that is the combined federal and regional budgets, topped 2.5 trillion rubles in surplus at the beginning of September. It was also notable that the biggest expense in the first half of the year was defense. Russia receives is main income from the Federal Tax Service, which put 3.2 trillion rubles in state coffers, and the Federal Customs Service, which contributed 3.5 trillion rubles.
Source: http://www.kommersant.com/p-13385/fe...udget_surplus/
Russian Firms to Get up to $50 bln to Refinance Foreign Debt
Russia's government is to allocate up to $50 billion for companies to refinance their foreign debt, Prime Minister Vladimir Putin said on Friday. "Up to $50 billion is being earmarked to refinance borrowings made by Russian companies abroad," Putin told a cabinet meeting. He said the state-run VEB bank would broker the transactions. Putin also said the government had decided to place up to 175 billion rubles ($6.7 billion) in Russian securities in 2008 and the same sum in 2009, with VEB being the operator. The Russian premier said the government was drafting a bill to provide subordinated loans of up to 950 billion rubles ($36 billion) to banks for 10 years. "These funds will be used to increase banks' capitalization and to solve liquidity problems," Putin said at a cabinet session. On October 7, President Dmitry Medvedev said at an economic conference that the government would issue banks a $36 billion subordinated loan for at least five years. Russia's financial system has been affected by a global credit crunch which started in the U.S. and quickly spread to Asia and Europe leading to record losses on Russia's financial markets, rising interest rates and a liquidity shortage.
Source: http://en.rian.ru/business/20081010/117663950.html
Russian Economy in Difficulty, Not Crisis
The Russian economy is in difficulty, not crisis, stated Russian Prime Minister Vladimir Putin today in a conversation at a public reception in Novosibirsk sponsored by the United Russia Party, of which Putin is head. “There are difficulties in world finances,” Putin said, “and there really is a crisis there. Here, thank God, there is difficulty, not crisis.” He expressed hope that a crisis did not develop and emphasized that the Russian government was taking definite measures to counteract its negative effects on the economy. Much is succeeding but much remains to be done, Putin said. Putin also commented on government support for small business at that meeting. He promised that the Russian government would dramatically increase that support, mentioning that 3.4 billion rubles was spent for that purpose from the 2008 federal budget. Funds would be distributed through Sberbank, he said, adding that the issue is being actively discussed in the government. Putin was also asked about the transition to the insurance fee system for small and medium-size business. “In this connection, we will stipulate measures that should, as a whole, balance the tax burden on the economy and most of all on small and medium-size business,” the prime minister replied. He emphasized that those measures would affect enterprises working in the sphere of innovative and high technology. “They will take advantage of those benefits, just as agriculture will,” Putin said. When asked if increased taxes will lead to increased tax evasion, Putin replied, “We assume not.”
Source: http://www.kommersant.com/p-13431/financial_crisis/
Central Bank Spends Reserves on Ruble
The Central Bank of Russia continues to prop up the national currency, selling dollars from its international reserves to prevent the ruble from falling sharply. It sold $2 billion yesterday as authorities continue pouring billions of rubles into the banking system to keep it liquid. The fluctuations in the exchange rate of the ruble to the currency basket moved into its second day yesterday. It dropped from 30.35 at Monday’s closing to 30.36 yesterday morning, then rose to 30.27 and dropped to 30.40 – the level it was at at the beginning of the month. That was when the Central Bank started selling its dollars. About $540 billion remain in the reserves. The ruble lost 30 kopecks against the dollar yesterday, reaching 26.59 rubles to the dollar. The euro lost 12.4 kopecks against the ruble, for 35.10 rubles to the euro. On Monday, the euro had gained 22 kopecks. Part of the reason for the dollar’s gain was that banks spent part of the money they received from the Finance Ministry at deposit auctions to buy dollars. The public was also buying dollars because of lingering rumors of the ruble’s devaluation, and the high demand drove the American currency up to between 26.90 and 27.50 rubles at money changers. Interest on interbank crediting also spent its second day in turmoil. It was 15-17 percent in the morning, 7-8 percent later and finally 3-5 percent. Dealers say top rung banks had been paying 8-9 percent, and yesterday’s low represents pre-crisis rates. The Central Bank finally found it necessary to issue a statement denying there were plans for the devaluation of the ruble. “Currency speculators will be very disappointed,” Finance Minister Alexey Kudrin warned.
Source: http://www.kommersant.com/p1045370/c...xchange_rates/
Russian Public Unalarmed by Crisis
The majority of the public in Russia considers the financial crisis in the country a result of the world crisis and a “temporary phenomenon,” and so is not frightened by it, Levada Center pollsters have found. Fourteen percent of the population does not even know anything about the crisis. Another 14 percent has heard of it, but is unable to say anything specific about it. Forty-two percent felt little concern over the crisis and do not think that it will “reach the bases of our economy” and “the situation in the country will soon stabilize.” Nonetheless, a significant part of the public is concerned. Thirty-one percent are worried that “serious financial disturbances await the country’s economy.” The 40-55 age group was the most pessimistic (35%) and 18-25 was the least pessimistic (26%). The younger group also had a high percentage of those who “haven’t heard anything about the crisis” (20%). Village dwellers’ indicators were similar to the youths. Only 23 percent of respondent in villages expected financial disturbances, and 23 percent had not heard of the crisis. Residents of cities with populations over 500,000 were the best informed and most perturbed. Among them, 37 percent expected financial shakeup and only 40 percent thought it was a passing phenomenon. Moscow is an exception, however. There 57 percent think the crisis will be fleeting, and 28 percent are concerned about financial disturbance. The pollsters note that Moscow has always been more stable and prosperous than the rest of the country. Fifty-four percent of all respondents consider the crisis in Russia a consequence of the world financial crisis (72% in Moscow). Eleven percent consider it completely a result of “the economic policy of the Russian leadership in recent years” (5% in Moscow). Twenty-three percent consider it the fault of the Russian leadership “to a significant degree” (19% in Moscow) and 19 percent of the country does not consider Russian economic policy the cause of the crisis at all (31% in Moscow).
Source: http://www.kommersant.com/p1045311/p...ancial_crisis/
In related news:
Iceland Turns to Russia For Bailout
Russia has agreed to bail out Iceland by granting this small island state a huge stabilization loan at an unbelievably low interest rate. Is it an act of wanton generosity, or a far-sighted geopolitical step? And in general, four billion euros, is it a lot or a little? The fate of Iceland has until recently not concerned Russia one bit. Now only a lazy person is not discussing the incredible sum the "island of stability" is going to inject into the economy of a sinking island of geysers. Europe has meanwhile been discussing Iceland for a long time. Hedge-fund country, an example of liberal economic regulation and a model of a rapidly developing economy, Iceland was the first in the world to feel the impact of a full-bodied economic crisis. This happened at the end of 2007. Since this year began, Iceland's currency - the krona - has lost one-third of its value against the euro. Iceland's leading banks - Kaupthing, Glitnir and Landsbanki - have been marauded by international financial sharks. At the end of September, the country's authorities bought out (read, nationalized) Glitnir bank, and on October 7 Landsbanki, while on the same day Kaupthing bank received a 500 million euro loan from Iceland's National Bank. By the autumn of 2008 it had become clear Iceland might become the world's first country to suffer a default.
Why is the bubble of Iceland's economy bursting so loudly? It ballooned too rapidly, the IMF believes. In 2003-2007, the country's GDP had risen by 25%, with this robust growth fed mainly by outside borrowing. To attract foreign investments, the authorities strengthened the currency and ratcheted up interest rates (by the beginning of 2008, they were the highest in Europe - 15.5% per annum). The result was a monstrous misbalance: a modest GDP, on the one hand, and immense financial assets and tremendous liabilities, on the other. According to 2007 figures, Iceland's GDP was $16 billion, while its financial assets stood at 1,000% of GDP and an external debt of 550% of GDP. With Iceland teetering on the brink of default, Russia's stabilization loan of four billion euros is a lifebelt, and a very sizeable one (on the evening of October 7, Finance Minister Alexei Kudrin acknowledged Russia's readiness to pay, although previously he had denied such claims by Iceland's National Bank). Judge for yourself: when, in May 2008, Iceland was drowning, the central banks of three Scandinavian countries - Sweden, Denmark and Norway - set up a special $2.3 billion rescue fund for Iceland. Now Russia alone is ready to fork over two and a half times as much for the same purpose. In other words, four billion euros by Iceland's standards is substantial.
In Russian eyes, it is a vast sum, too. And one pledged at a very fair rate. To judge from a release issued by Iceland's National Bank, Russia promised it at LIBOR+(0.3-0.5)%. This compares with LIBOR+1% at which the Russian Central Bank wants to offer loans to Russia's Vnesheconombank. At a time when Russian authorities hold crisis emergency meetings almost daily, this looks strange, to say the least. The man in the street would say this is no time for liberal loans when one's own existence is at stake. This man's response would not be quite right, in my opinion. There are several reasons why Russia should agree to issue the loan to Iceland. The first and overwhelming one is geo-economic. Leaders in many countries are gradually beginning to understand that a world caught in the maelstrom of a financial crisis could be saved only by cooperative efforts. This was a theme running through a three-day world policy conference in Evian; it will certainly be taken up at an annual meeting of the International Monetary Fund and World Bank.
WB chief Robert Zoellick only recently proposed that the G8 also include BRIC countries (Brazil, Russia, India and China), Mexico, Saudi Arabia and South Africa. World leaders more and more often speak of the need to shelve personal ambitions, put away political squabbles and do something. To come to the aid of Iceland at such a time has been for Russia a decision prompted by stark necessity. Russia has a rich war chest of windfall oil money. By the end of September, its Central Bank had $566 billion in international reserves, and $32-plus billion in the National Welfare Fund and the Reserve Fund. Of course, Russia could sit it out on its "island of stability" and fight the crisis within its four walls. But in this case Russia risks suddenly discovering that the global financial storm whipped up even further by Iceland's hurricane has wiped out all its stockpiled reserves. Most of Iceland's lenders are European banks. Should Iceland declare a default, the whole of Europe would go into a spin, and would drag Russia after it, which now has a chance to scrape its way out of the crisis the cheap way. It emerges that by saving Iceland, Russia is saving itself first. Other considerations are less global and more pragmatic. Crises come and go, but allies (sometimes) remain.
Iceland, a rapidly developing economy and a happy hunting ground for businessmen from many European countries, is certain to remember this gesture and take more kindly to Russian investments in the future. So far, Russia-Iceland trade has been $100 million per year. And it was only shortly before the crisis that Russian business (represented by Roman Abramovich and Oleg Deripaska) began exploring the country's investment possibilities. Now the price for entering Iceland's economy could prove very low. Besides, it makes a good staging post for flights to Latin America.
Why is the bubble of Iceland's economy bursting so loudly? It ballooned too rapidly, the IMF believes. In 2003-2007, the country's GDP had risen by 25%, with this robust growth fed mainly by outside borrowing. To attract foreign investments, the authorities strengthened the currency and ratcheted up interest rates (by the beginning of 2008, they were the highest in Europe - 15.5% per annum). The result was a monstrous misbalance: a modest GDP, on the one hand, and immense financial assets and tremendous liabilities, on the other. According to 2007 figures, Iceland's GDP was $16 billion, while its financial assets stood at 1,000% of GDP and an external debt of 550% of GDP. With Iceland teetering on the brink of default, Russia's stabilization loan of four billion euros is a lifebelt, and a very sizeable one (on the evening of October 7, Finance Minister Alexei Kudrin acknowledged Russia's readiness to pay, although previously he had denied such claims by Iceland's National Bank). Judge for yourself: when, in May 2008, Iceland was drowning, the central banks of three Scandinavian countries - Sweden, Denmark and Norway - set up a special $2.3 billion rescue fund for Iceland. Now Russia alone is ready to fork over two and a half times as much for the same purpose. In other words, four billion euros by Iceland's standards is substantial.
In Russian eyes, it is a vast sum, too. And one pledged at a very fair rate. To judge from a release issued by Iceland's National Bank, Russia promised it at LIBOR+(0.3-0.5)%. This compares with LIBOR+1% at which the Russian Central Bank wants to offer loans to Russia's Vnesheconombank. At a time when Russian authorities hold crisis emergency meetings almost daily, this looks strange, to say the least. The man in the street would say this is no time for liberal loans when one's own existence is at stake. This man's response would not be quite right, in my opinion. There are several reasons why Russia should agree to issue the loan to Iceland. The first and overwhelming one is geo-economic. Leaders in many countries are gradually beginning to understand that a world caught in the maelstrom of a financial crisis could be saved only by cooperative efforts. This was a theme running through a three-day world policy conference in Evian; it will certainly be taken up at an annual meeting of the International Monetary Fund and World Bank.
WB chief Robert Zoellick only recently proposed that the G8 also include BRIC countries (Brazil, Russia, India and China), Mexico, Saudi Arabia and South Africa. World leaders more and more often speak of the need to shelve personal ambitions, put away political squabbles and do something. To come to the aid of Iceland at such a time has been for Russia a decision prompted by stark necessity. Russia has a rich war chest of windfall oil money. By the end of September, its Central Bank had $566 billion in international reserves, and $32-plus billion in the National Welfare Fund and the Reserve Fund. Of course, Russia could sit it out on its "island of stability" and fight the crisis within its four walls. But in this case Russia risks suddenly discovering that the global financial storm whipped up even further by Iceland's hurricane has wiped out all its stockpiled reserves. Most of Iceland's lenders are European banks. Should Iceland declare a default, the whole of Europe would go into a spin, and would drag Russia after it, which now has a chance to scrape its way out of the crisis the cheap way. It emerges that by saving Iceland, Russia is saving itself first. Other considerations are less global and more pragmatic. Crises come and go, but allies (sometimes) remain.
Iceland, a rapidly developing economy and a happy hunting ground for businessmen from many European countries, is certain to remember this gesture and take more kindly to Russian investments in the future. So far, Russia-Iceland trade has been $100 million per year. And it was only shortly before the crisis that Russian business (represented by Roman Abramovich and Oleg Deripaska) began exploring the country's investment possibilities. Now the price for entering Iceland's economy could prove very low. Besides, it makes a good staging post for flights to Latin America.
Source: http://en.rian.ru/analysis/20081010/117659587.html
Nightmare on Wall Street as U.S. Debt Hits Record High
The United States has the highest level of foreign debt in the world, which has nearly doubled during the Presidency of George W. Bush. The country’s national debt has also just reached its ultimate high. A debt clock was put up in a New York street in 1989. Then the figure was around 2.7 trillion dollars. Nearly 20 years later, that number has increased almost fivefold and exceeded the expectations of the clock’s designers. Just a few weeks ago, the clock ran out of space. When the figure hit 10 trillion it forced the dollar sign out of its allocated space. A re-design is underway, with enough space for a quadrillion - a number so obscure that few could imagine what it amounts to. Manhattan's Times Square is a favourite tourist hotspot. Now, more and more Americans come to take photos of the frightening figure - because even though the economy is taking a kicking, this clock just keeps on ticking. Very few U.S. citizens can say they are free of the credit vice - and who can blame them? Low rates, alluring deals - and all you ever wanted, but couldn't afford, suddenly becomes possible. But this American Dream is turning into a nightmare. Wall Street is likely to take most of the blame. “During the age of Reagan Wall Street was immune to that kind of criticism and political attention,” says historian Steven Fraser. “Now we can see enormous widespread anger. I think in the foreseeable future Wall Street will be the object of great scrutiny, supervision, anger and suspicion.” Fraser has been fascinated by the enigma of Wall Street for years. History repeats itself in many ways, but the scenario right now reminded him of another famous figure. “They created a Frankenstein. Nobody knows what is going on, that’s what makes the moment so frightening,” he said. It seems history has presented this crisis in a new light. Ever since the end of WW2, national debt decreased with every Democratic administration. After the presidency of Ronald Reagan, every Republican term has seen a steep rise in debt. When George W Bush took office, the figure stood at 5.7 trillion dollars. But the fact that figure has nearly doubled has led to accusations he’s used the nation as an AmEx Black card. His time is about to run out, but someone else will have to pick up the tab.
Source: http://www.russiatoday.com/news/news/31727
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