View Full Version : The Russian economy (catch all)
Moderator's Note
This thread was requested (21st may 2014) to cover the position of the Russian economy and its international transactions. A large number of posts have been moved from the Ukraine thread.
As will be clear the Russian economy is fragile, largely due to the dependence on gas & oil and to a lesser extent gold exports.
There are a number of current, seperate threads on Russia covering politics, the military and more. I then found there was an old thread on the Russian economy, so that was merged in too (ends).
10 Reasons Why the Economy Will Falter
03 September 2008
By Anders Aslund
In short, Russia is set for a sudden and sharp fall in its economic growth. It is difficult to assess the impact of each of these 10 factors, but they are all potent and negative. A sudden, zero growth would not be surprising, and leaders like Putin are not prepared to face reality. Russia's economic situation looks ugly. For how long can Russia afford such an expensive prime minister?http://www.themoscowtimes.com/article/600/42/370643.htm
The Market Will Punish Putinism
By JUDY SHELTON
September 3, 2008; Page A23
http://online.wsj.com/public/article_print/SB122039907604792875.html
Hey Kaur !
From an economist's standpoint, all 10 of these "reasons" appear logical. But, in an abnormal place like Russia... what exactly is then normal or logical?
We have seen so many examples of "rock bottom" and yet 10 years later, still not hitting rock bottom. In the end, Russia's resources won't save the country, but going back to the Red Army days will. Putin is old school and intent on surviving, and President Medvedev would rather step down than piss off Vlad.
They've demonstrated just how easy it would be to return to yesteryear, and the majority of the older population is already begging for a return.
How's life in you neck of the woods?
Terv, Stan
Watcher In The Middle
09-04-2008, 12:07 AM
It's going to turn into a really wild ride, because so many of the past investors in Russia aren't just pulling out all the stops to extract their Russian investments, but even maintenance credit flow into Russia is just flat out evaporating. Russia is all of the sudden coming across as an investment of last, worst resort - and that's only if you are ready to lose 100% of your capital. If "preservation of capital" is a primary goal, Russia is fast getting a reputation as a place to avoid.
And this isn't being driven by Western governments either - this is virtually all market driven. It certainly isn't helping any that the liquidity crisis in Western financial markets is happening, because much of that capital coming out of Russia, or not being invested there, is instead going into recapitalizing Western financial institutions. They (the money people) think the money is safer going into Western financial institutions, rather than into the Russian economy. Not sure I'd necessarily agree with that (I'd be looking hard for "Door Number 3", personally), but it's their money.
And with oil heading down to the $100 a Bbl. basis, even more of an impact. One of the real tipoffs on how Russian business is going are the occupancy levels at Moscow area hotels. Prior to Georgia, the higher end Moscow area hotels were booked solid, right at/around 100% of the listed price (literally for months). If you were spending an extended period of time in Russia, it was easier and less expensive to rent than get extended hotel stays.
Article on the Russian Hospitality Market (http://www.mnweekly.ru/business/20080410/55322385.html)
Let's just say that Western hotel expansion plans for Russia have hit a very abrupt wall, in the financing area.
Rule 1: Do not go out of your way to make the capital markets skittish - there's a lesson here for a lot of nations, including the US.
Jedburgh
09-06-2008, 02:55 PM
FIIA, 1 Sep 08: The Sustainability of Russia's Resurgence (http://www.upi-fiia.fi/en/publication/50/)
Summary
- In recent years, Russia’s resurgence has been driven by favourable conditions rather than solid foundations.
- Despite the favourable conditions, Russia’s resurgence has only achieved mixed results. Buoyed by economic growth, Russia has become wealthy, assertive and confident; but the country has also alienated and provoked its neighbours and the West.
- Sustaining these conditions is unlikely due to problems resulting from Russia’s internal structural weaknesses and assertive foreign policy.
- Without change, these problems are likely to worsen. Energy exports – the cornerstone of Russia’s resurgence – are set to decline. The end of this boom threatens Russia’s domestic stability and ability to tackle other long-term threats as external resistance to Russia hardens.
Culpeper
09-06-2008, 03:42 PM
I did my small part to help out the Russian economy. I bought a really cool knife made in Zlatoust. The sheath was cheap but the knife is of excellent quality and steel. It's a monster. The sheath in the picture was custom made by Bluff Creek Outfitters in Texas. That is an 8.4" blade. Russian knives made and sold be real Russians!
http://www.myculpeper.com/photos/shep1.jpg
Putin And Gazprom
Gazprom is a unique phenomenon in the Russian political and business life. In 2007 proceeds by Gazprom amounted over $93 Bn, which is 7% of the Russian GDP. This is 2.5 times as much as our defense spending. Gazprom’s share in the industrial production is over 12% and in the cost structure of the Russian export is about 16%. The company makes about 43% of the Russian production of primary energy carriers and has similar share within the structure of the national consuming the energy resources. Gas supplies by Gazprom secure up to 40% of production of electric energy in the country. In fact, Gazprom is an energy core of the Russian economy. Stability and prospects of our economy depend greatly on effective and reliable working by the Company.
http://en.novayagazeta.ru/data/2008/63/00.html
Watcher In The Middle
09-14-2008, 12:45 AM
Oil prices sustaining Russian aggression
Oil is still trading above $100 a barrel, but the recent trend is sharply downward from the July peak of $140.
By Martin Hutchinson
Russia’s central bank intervened to support the rouble last week, as foreign analysts estimated $21 billion had been pulled out of Russian securities following its incursion into Georgia.
The central bank sold $3.5-4 billion in reserves to stop further depreciation of the rouble. With nearly $600 billion of currency reserves, Russia can afford to support the rouble. It can ignore foreign bleating in the short term. Once oil prices drop, life will become tougher for Russian consumers. That’s when the West will have some leverage.
Moscow’s stock market has fallen 25% since July. Since less than 1% of Russians own stocks, this may not matter domestically. As a result, so long as oil prices remain high, Russia’s aggressive foreign policy and poor governance record have few economic, or political costs.
Link To Article (http://www.livemint.com/2008/09/08224946/Oil-prices-sustaining-Russian.html)
What's even more interesting is Russia's "breakeven point" on oil prices. They don't get top dollar for their crude (it's not "sweet" enough), so their overall 'bundle' price is likely under $100 a Bbl., and their "break even price" is probably above $60 a Bbl. by now, so they don't have enough to go around (increasing consumer spending, increased government spending, and greatly reduced access to external capital), with the result that spending on infrastructure has to stagnate, because there's just not enough capital - they will be tapped out. And if oil production falls, which appears to be happening, they'll be in a world of serious hurt.
The marketplace is extremely unforgiving, particularly these days.
Ask yourself a question - Putin is one very, very smart operator. Methinks he can do the math as well as anybody, and better than most. He's got a society which has a full stomach of rising economic expectations, and so far the meal's been pretty good. Now they are expecting the main course - where's it going to come from? Maybe his "stepping down" was a classic example of being "Time to get out when the getting's good."
Thoughts?
Ron Humphrey
09-14-2008, 12:51 AM
Link To Article (http://www.livemint.com/2008/09/08224946/Oil-prices-sustaining-Russian.html)
What's even more interesting is Russia's "breakeven point" on oil prices. They don't get top dollar for their crude (it's not "sweet" enough), so their overall 'bundle' price is likely under $100 a Bbl., and their "break even price" is probably above $60 a Bbl. by now, so they don't have enough to go around (increasing consumer spending, increased government spending, and greatly reduced access to external capital), with the result that spending on infrastructure has to stagnate, because there's just not enough capital - they will be tapped out. And if oil production falls, which appears to be happening, they'll be in a world of serious hurt.
The marketplace is extremely unforgiving, particularly these days.
Ask yourself a question - Putin is one very, very smart operator. Methinks he can do the math as well as anybody, and better than most. He's got a society which has a full stomach of rising economic expectations, and so far the meal's been pretty good. Now they are expecting the main course - where's it going to come from? Maybe his "stepping down" was a classic example of being "Time to get out when the getting's good."
Thoughts?
I'd been hoping to see,but dont count out him being able to pin it on Med and come out smellin like roses
Watcher In The Middle
09-15-2008, 01:28 AM
Russia's Stock Markets Tumble To Lowest Levels in Two Years
Falling Oil Prices, Political Tensions Erode Confidence
By ANDREW OSBORN Dated: September 10, 2008
MOSCOW -- Russia's stock markets slumped to their lowest levels in more than two years as falling oil prices and geopolitical tension sapped confidence.
Moscow's ruble-denominated MICEX index tumbled 9.1%, its worst showing since June 2006, while the dollar-denominated RTS index skidded 7.5%.
Investors and analysts said the drop didn't appear to be driven by news developments so much as worries about Russia's economic and political outlook amid weak markets around the world.
"The political-risk premium is high, and we'll have to live with that," said Marcus Svedberg, chief economist at Stockholm fund manager East Capital, which has about $3 billion invested in Russia. "There seems to be a lot of forced selling."
Link to Article (http://online.wsj.com/article/SB122098224325915563.html?mod=googlenews_wsj)
Here's the two nuggets that caught my eye:
The Economy Ministry predicts inflation will top 11.8% this year. The government's budget is based on a price of $82 a barrel of Russian Urals crude at a time when it has fallen to less than $100. It closed Tuesday at $97.76.
The Economy Ministry forecasts 7.8% growth this year, while the central bank is holding reserves valued at almost $582 billion.
These budget numbers can work for this year ($82 per Bbl. budget), assuming that forecast production levels are met. But the per Bbl. average yearly yield for this year is probably high enough, so unless it's a big shortfall, they'll be ok. But for next year's budget, that's a real issue. There's certainly going to be no level of tax reform on hydrocarbon production, not with those $80+++ a Bbl. budget costs, and likely increases on top of that.
No wonder Western investors (like BP) are moving their money out of Russian investments. The numbers tell you that it's pretty obvious who's next in line to be clipped.
Watcher In The Middle
09-17-2008, 12:22 AM
Russia halts trading after 17% share price fall
By Catherine Belton and Charles Clover in Moscow and Rachel Morarjee in London
Published: September 16 2008
Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.
The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.
Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.
Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments.
Link to Article (http://www.ft.com/cms/s/0/6ff9306c-83f1-11dd-bf00-000077b07658.html)
Wow. The investor class in the Russian markets (limited as it is) just moved "en masse" to the exits. No doubt about this one. And the biggest problem is that the Russian government's got no cards to throw out there, because nobody trusts them. And for a bigger hit, oil prices today (Light, sweet crude for October, 2008 delivery settled at $91.15 a Bbl.), with Ural crude normally running $4-6 a Bbl. cheaper, so Russia's getting close to facing some serious economic problems.
Right about now, Russia should contact the Western powers and tell them that for $300 billion, continued G8 membership, and guaranteed WTO membership in 2 years, they'll pull totally out of Georgia (including the 2 disputed provinces) and sign a ten (10) year peace treaty type deal with Georgia, and for that matter, the Ukraine also. For Russia, this type of deal (a) Gets you additional financial resources before you actually hit crisis time; (b) Get both territorial issues out of your hair - they are costing you scarce resources you don't have to spare; & (c) Re-creates a working geopolitical and economic environment and gets you out of this "Mexican Standoff" environment you are in right now. Will this cause political problems at home - you bet, but guess what, you're already there.
Now's the time to get creative, because if you are Russia, your biggest threat you have to deal with is that there is a complete lack of both confidence and trust on any basis at all. Your neighbors, business partners, the markets, and virtually all other nations - virtually nobody's in your corner. You've got to get them back, and the longer you wait, the deal's only going to get you less.
There's a lesson to be learned from Lehman Brothers - don't wait, tomorrow it will only get worse, and the deal gets worse.
Ok, this is my "Hopelessly Optimistic" post of the day.:eek:
Schmedlap
09-17-2008, 01:46 AM
All 10 of those reasons are explanations for why Russia will not restore its former stature as a great power through economic growth. While some of those issues are pertinent to Russia's current strategy, I think the big picture concept is off base. Russia is not attempting to embark upon economic revitalization. Russia is seeking to regain power and reassert itself. Economic growth is one way to do that, but Russia knows that such a strategy will not work due to its corruption and negative population growth. That is why it is attempting to grab resources, assert influence in the Caspian, and establish relations with countries like Iran. It needs streams of income from petrodollars, from countries who will give economic assistance in return for security assistance, and to blackmail other countries over issues like gas pipelines and waterways.
Russia is a country that thinks it SHOULD be great, but it isn't. That is frustrating. It WANTS to be great, but won't be and can't be so long as it suffers from negative population growth. They know the clock is ticking. Because of Russia's negative population growth and the primitiveness of its institutions, the tried and true method of restoring a country's economic health is not compatible with achieving great power status in this generation. It only has the time and resources to do one or the other. It can reform or it can gamble on a belligerent foreign policy to try to rewin its perceived rightful place in the world. So what to do? Fearing that negative population growth will win out before education of its people and reform of its primitive institutions can run their courses, it apparently is opting to go all-in with a belligerent foreign policy designed to stoke nationalist sentiment through regain of lost satellite countries and to fund the state with the capture of natural resources, influence over strategic corridors, and relations with rogue states who need Russian assistance.
This is a desperate, cornered animal that will one day lash out when its gambles inevitably fail to pay off. The sad thing is that we have no incentive to help Russia succeed in its current misguided course and we also have no incentive to hasten its disintegration because we're not ready to deal with that many loose nukes. Contrary to the view that we are making Russia feel corned by way of NATO expansion, Russia is making itself feel cornered by not facing up the reality of its lost superpower status. Russia sees its current mediocre status as the walls closing in around it, rather than recognizing that the size of the room hasn't changed - it's just that the country's stature is shrinking. It's no longer an enigma in a riddle or vice versa. It's just a giant delusion with a lot of nukes and some leaders with a taste for imprudent risks and brinksmanship.
The more willing (NATO) allies and the better (SDI) defenses we have prepared, the better off we will be when this time bomb finally detonates.
Ken White
09-17-2008, 02:58 AM
Vlad says he's going to increase the Russian Defense budget by 27% next year. Deja vu all over again indeed...
'Worst Is Yet To Come' For Russian Financial Sector
September 16, 2008
Aslund: Of course, you have a multiple impact. So you can say that the overall causes of the decline in Russia that we have seen on the stock market is first the general economic slowdown, including the [global] financial crisis; the second is the falling oil price; the third is Putin's attack on [mining and metals company] Mechel, which sharply took down the Russian stock market; and then the war in Georgia. These are the four direct causes if you look at the stock market specifically.
http://www.rferl.org/content/Worst_Russian_Financial_Sector/1200407.html
For now, the Kremlin is desperately spending down the hundreds of billions of dollars in reserves that it put away in good times, all the while trying to quell comparisons to Russia’s economic meltdown in 1998, when the government, under Boris Yeltsin, defaulted on its debt. Mr. Putin, the current prime minister and former president, and his protégé, President Dmitri A. Medvedev, try to assure the public that they are addressing its pain. Yet Mr. Putin has created a government so highly centralized and so resistant to criticism that it is unclear whether it can respond adeptly to rising dissatisfaction.
http://www.nytimes.com/2009/02/01/weekinreview/01levy.html?_r=1&ref=europe
Protesters rallied in several Russian cities at the weekend against a worsening economy and deteriorating human rights situation – a sign that Russia’s financial crisis might yet challenge the Kremlin’s hold on political stability.
Numbers were sparse at some of the events – which organisers called a national day of protest – as temperatures plunged to -15ºC in Moscow. Authorities, however, seem aware that the turnout could swell if the economic situation does not improve by the March thaws.
http://www.ft.com/cms/s/0/ada0dca8-f08e-11dd-972c-0000779fd2ac.html
The Kremlin's rule is beginning to look much shakier than at any time since Vladimir Putin came to power, after a series of protests in cities across its vast landmass this weekend by Russians disgruntled about the economy. And as the country starts to feel the effects of the global credit crunch, there are also signs of a growing rift between Prime Minister Putin, and his hand-picked successor as President, Dmitry Medvedev.
http://www.independent.co.uk/news/world/europe/dissent-beginning-to-spread-across-russia-as-crisis-bites-1522983.html
Beelzebubalicious
02-02-2009, 09:18 PM
Wow. Just read today about how Slovakia is jumping into bed with one of the fat boys (http://www.jamestown.org/programs/edm/single/?tx_ttnews%5Btt_news%5D=34444&tx_ttnews%5BbackPid%5D=27&cHash=1a4969287c). It appears to be a fairly desperate move by the Slovakian govt to avoid getting gas from Ukraine. Ukraine really blew it recently with their recent actions and now it looks like they may pay a heavy price.
I've seen speculation that Ukraine could be next in line for a little Russian aggression. Russian interests have been buying up Crimea. If Russia actually took back Crimea, the Russian population would be supportive. they think it's theirs, anyway.
It appears to be a fairly desperate move by the Slovakian govt to avoid getting gas from Ukraine. Ukraine really blew it recently with their recent actions and now it looks like they may pay a heavy price.
It really will be a desperate move on Slovakia's part. If they would only read this para, the rest will no longer be a mystery.
If Fico imagines that his country's interests are best served by Gazprom, then he would have to believe that Slovaks could actually control Gazprom in a common enterprise.
I've seen speculation that Ukraine could be next in line for a little Russian aggression. Russian interests have been buying up Crimea. If Russia actually took back Crimea, the Russian population would be supportive. they think it's theirs, anyway.
With Georgia slightly at bay and licking wounds, and, the USG offering anyone a million cool for MANPADS (The Ukraine has literally tons of those), someone was bound to go and start slappin those pesky former Russian States. :wry:
Eric, does The Ukraine still produce military arms and supplies and compete with the Russian industry? Jeez, hope they don't need gas to produce that Sierra !
The 460 single company towns in the Russian Federation have been hit particularly hard by the economic crisis. Many of the 25 million people who live in them are now unemployed and angry. And they are now organizing protests and beginning to link up with others in a similar fix, according to a leading Moscow business weekly.
http://windowoneurasia.blogspot.com/2009/02/window-on-eurasia-depressed-company.html
Beelzebubalicious
02-03-2009, 04:44 PM
I don't know to what extent Ukraine competes with Russia on military arms and supplies that they produce in Ukraine. They do compete in the global arms market and as you know, it's big business.
How many MANPADS does a million $ buy?
As for the economic desperation in Russia, it is also happening in Ukraine. Ukrainians are slow to protest, unless paid and organized to do so, but there are plenty in Ukraine who would benefit from this discontent. In Russia, it seems less straightforward as the opposition doesn't seem to have much room to maneuver.
I don't know to what extent Ukraine competes with Russia on military arms and supplies that they produce in Ukraine. They do compete in the global arms market and as you know, it's big business.
How many MANPADS does a million $ buy?
We used to think that The Ukraine was inept at adopting an armament program (something most would develop and be prepared to fight) as early as 95. Turns out, they were more interested in business and copying Russian Sierra to sell elsewhere :eek: I recall more than 30% GNP was dedicated to defense, but for the purposes of selling, not remotely interested in defending the Mother Land !
There are literally hundreds of sites regarding this, although none go right out with a price per "article". The going price (backwards that is) is a cool M for at least three each. The offer BTW still stands I am told.
Some links to ponder (light reading if you will :D )
MANPADS duties (http://www.state.gov/t/pm/wra/)
Do a little digging - you'll get there
Support Anti-Terrorism (http://www.tcuec.com/manpads.html)
This one leads to just about anywhere
Ukrainians are slow to protest, unless paid and organized to do so, but there are plenty in Ukraine who would benefit from this discontent. In Russia, it seems less straightforward as the opposition doesn't seem to have much room to maneuver.
It took place here, but not to the extent most feared. Glad to say that era for Estonia is dead and gone. Take no Sierra (God forbid I ever make it to Parliamentary status) ;)
Beelzebubalicious
02-03-2009, 09:34 PM
By the way, Stan, some of the things on this list (http://lovefrommisha.blogspot.com/2005/12/youve-been-in-russia-too-long.html) might be applicable to you. I was only 2 years in Ukraine, but a lot of them applied to me....
Surferbeetle
02-08-2009, 07:20 PM
From the Moscow Times: Millionaire's Crisis Plan: Return to Bartering (http://www.themoscowtimes.com/article/600/42/373902.htm)
While the global economic crisis didn't sweep into Russia until September, Sterligov said he sensed that trouble was looming in August and got to work.
"I decided that barter trade would be the right choice for the world in times of liquidity problems and payment delays," he said in a recent interview.
So from August to November, computer programmers hired by Sterligov created an interactive database allowing the barter of debt and goods worldwide.
Sterligov illustrated a possible barter deal with a real-life example: Magnitogorsk Iron & Steel Works' estimated debt of 1 billion rubles ($30.4 million) to Mechel for coal supplies.
"Mechel could put information about MMK's nonpayment in our system and then add which products it needs itself," Sterligov said.
MMK, in turn, would put 1 billion rubles of steel into the system, he said. At some point, a company would surface that wanted steel and had a product needed by Mechel, and the deal would be completed.
"For this to work, you have to have thousands of bids in the system," Sterligov said, adding that debt would probably become the most popular item for barter.
Mechel and MMK declined to comment about their possible participation in such a system.
Barter trade was widespread in Russia in the 1990s, when economic turmoil following the Soviet collapse prompted companies to pay employees and creditors with the products they produced — anything from bricks to vegetable oil.
From the NY Times: Have Car, Need Briefs? In Russia, Barter Is Back (http://www.nytimes.com/2009/02/08/world/europe/08barter.html?em)
All this evokes a bit of déjà vu. In the mid-1990s, barter transactions in Russia accounted for an astonishing 50 percent of sales for midsize enterprises and 75 percent for large ones.
The practice kept businesses afloat for years but also allowed them to defer some fundamental changes needed to make them more competitive, like layoffs and price reductions. It also hurt tax revenues.
The comeback is on a small scale so far. The most recent statistics available, from November, showed that barter deals made up about 3 to 4 percent of total sales, according to the Russian Economic Barometer, an independent bulletin. Nevertheless, economists are taking note.
From BBC German Sterligov: The oligarch who gave it all up (http://news.bbc.co.uk/2/hi/europe/5148132.stm)
A man who became Russia's second official millionaire following the collapse of communism has abandoned his wealth to live as a peasant in a remote part of the country.
Beelzebubalicious
02-08-2009, 08:40 PM
Return to bartering? I don't know if they ever left....I posted this report before, but it's worth posting again. It's a good explanation of Russia's virtual economy, (http://www.brookings.edu/articles/2008/02_virtual_economy_gaddy.aspx) including the role of bartering.
"Abstract: The virtual economy was the system of informal rent-distribution that arose in post-Soviet Russia in the 1990s as nonviable Soviet-era manufacturing industries sought to protect themselves from the discipline of the market. Enterprise directors and their allies throughout the economy (including government officials) colluded to use nonmarket prices and various forms of nonmonetary exchange such as barter to transfer value from resource sectors to manufacturing industry. The article discusses the system’s historical roots, describes some of its characteristic phenomena, and outlines a model for behavior of enterprises."
Beelzebubalicious
02-10-2009, 08:04 PM
This was in today's Eurasia Daily Monitor:
Russia Preparing to Buy Allies Through Anti-Crisis Assistance (http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=34484&tx_ttnews%5BbackPid%5D=7&cHash=8028bc2638)
"Moscow's anti-crisis subsidies are targeted selectively and geared for sphere-of-influence building. Russia is rewarding allied Armenia; it has precipitated Kyrgyzstan's threat to remove the U.S.-led military presence from that country; and it induced a reluctant Belarus to accept Russia's demand to turn the joint air defense system into a unified system."
The author of the article also questions whether Russia will be able to actually disburse these funds...
US/European Donors pledges billions for Georgia...and Russia responds. Do any of the players actually have the cards or are they bluffing? My answer is high-stakes bluffing.
US/European Donors pledges billions for Georgia...and Russia responds. Do any of the players actually have the cards or are they bluffing? My answer is high-stakes bluffing.
Hey Eric !
No bluff on the NATO/US/EU part. FY08 and 09 funds are definitely there (note that some monies from previous FYs are good for 2 to 5 years).
Have you had a chance to peruse the EUMM (http://www.consilium.europa.eu/showPage.aspx?id=1512&lang=en) site? Lots of bluffing going on there as the EU get's Georgia to back off the demarcation line and asks the Russians to do the same :rolleyes:
Now that's major bluffing :D
Regards, Stan
So far the blood has only run in the stock market, with the Russia RTS losing around 10%.
https://pbs.twimg.com/media/Bhyf41RIIAEzG4W.jpg
Of course the other European markets suffered also but 'only' around 2%. This actually means that more capital was 'burnt' in the West, but of course it is far easier to absorb those losses.
More important then the Russian Market Crash was the fate suffered by the ruble:
https://pbs.twimg.com/media/BhysykiCIAE_ZWc.png
http://static.guim.co.uk/sys-images/Guardian/Pix/pictures/2014/3/3/1393836270586/6c056731-e226-4a91-b26f-47345b52a122-460x266.png
Perhaps the most telling aspect of the rumbling was that it happened despite two powerful actions by the Russian Central Bank. They used both major tools to support the own currency. Still it got rumbled pretty badly.
1. Russia’s central bank has announced an emergency interest rate hike this morning, raising its key borrowing rate from 5.5% to 7% after seeing the ruble crash to new record lows against the euro and dollar. (copy&past from the Guardian)
Paweł Morski @Pawelmorski
Follow
150bps rate hikes on an economy that was already as sick as a dog. Crimea not looking like an easy victory from here. #Russia
8:21 AM - 3 Mar 2014
2. They did also try to directly bolster the ruble at the tune of over $10Bn
Steve Collins @TradeDesk_Steve 2 Std.
Russian C.Bank has sold over $10Bn to support
So far the war was not cheap and that after all that money thrown at Sotchi.
LukeReuters 24 Min.
What with the cost of the Sochi Olympics and efforts to prop up the rouble, #Russia has spent about 3 pct of its GDP ($61 bln)
The rise in interest rates may be the bigger problem for now for most people.
@jmm99: Thanks, I will try to understand a bit more the Russian economy and the damage it may take from a longer conflict with the West. I will leave the legal side to you :wry:
--------
First of all it is important to quote Rumsfeld:
Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know that we know. There are known unknowns; that is to say, there are things that we now know we don't know. But there are also unknown unknowns – there are things we do not know we don't know.
I will first try to to get some basic facts about the economy. Keep in mind that it is harder to find the right linkable thing then the right thing alone...
1. The Federal budget of Russia
It depends mostly on oil and gas revenues (http://www.eia.gov/countries/analysisbriefs/Russia/russia.pdf). As much of service sector is obviously strongly linked to the commodity sector the 52% number underestimates this dependence. Think Gulf states.
http://i46.tinypic.com/mm8jgi.jpg
http://3.bp.blogspot.com/-QbUw442k3X8/UWXNLiSyiyI/AAAAAAAANbI/iKIpDVE9lK0/s400/Receipts+and+Outlays.jpg
The Finnish Central Bank (http://www.suomenpankki.fi/bofit/tutkimus/tutkimusjulkaisut/online/Documents/2013/bon0913.pdf) has an interesting study about Russia's revenue problem which is highly likely to become worse in the long run.
2. Russias trade
a) Balance of trade
http://www.tradingeconomics.com/charts/russia-balance-of-trade.png?s=rutbal&d1=20040101&d2=20141231
b) Exports
The only surprise is just how much of the export comes from commodities...
http://upload.wikimedia.org/wikipedia/commons/c/cd/Russian_Export_Treemap_%282011%29.png
c) Partners
The EU and the Urkaine hardly worth to mention, I guess...
http://topforeignstocks.com/wp-content/uploads/2011/11/Russia-2012-Trade-Partners.jpg
Russia on the other hand is the most important one for the EU, surely:
http://epp.eurostat.ec.europa.eu/statistics_explained/images/thumb/2/26/Trade_in_goods%2C_2011%2C_%28EUR_billion%29.png/800px-Trade_in_goods%2C_2011%2C_%28EUR_billion%29.png
A snapshot:
Let us combine those four basic points:
1. Russias federal budgets depends over 50% on commodity revenues
2. Most of it's commodities get exported, making up the vast majority of the exports
3. The Western World + Ukraine import roughly 80% or those
4. Russia trade share of the the EU+USA is closer to 5 then 10%
Clearly Russia is economically absolutely impervious to any trade actions of the G7 or discouting Japan, the US + EU while the latter have to shudder in fear of the Russian economic might.
This sounds pretty simplistic but is an excellent anchor from which to look at some of the interesting details...
@Fuchs: A good entry. So far:
1) Putin should not forgot that turning the valves will stop a large part of the revenues financing his budget and his invasion.
2) In the long run such threads incentives the substitution from other geographical and energy sources.
3) Russia needs Europe a lot more then the other side around.
----
P.S: I'm actually no longer sure if freezing the assets of specific Russians around the warmonger is the smartest way for now after looking at the desperate attempts of the Russian Central Bank to reduced the rumbling of the rouble. As written before the already 10 billions, 2-3% of their reserves to dampen the fall and increased the interest rates by 150 points in a weak economy.
Operators of privately run exchange booths in Russia said they were not prepared for the higher demand for the US dollar.
An employee at a small exchange said that her booth, which is open 24 hours a day, ran out of dollars by Sunday morning.
"We were not ready for this, we have not stocked up," she said.
So what are the best ways to help the Russian Central Bank to burn through it's reserves? Promoting capital flight into the € and the $ away from the rouble is certainly one of it. :wry:
AmericanPride
03-03-2014, 10:00 PM
Firn,
Thanks for the economic data. However, I think we should consider that (1) short-term economic losses in the financial market can be quickly restored once stability is perceived to return and (2) economies as systems tend to be far more resilient during conflict than generally assumed. Interestingly, the combination of falling ruble value and increased prices for oil and natural gas can work to Moscow's advantage as far as cash balance is concerned.
From oilprice.com:
Stocks are taking a beating, but investors are pouring money into commodities on the expectation that supplies could be cut off. Russia rounds out the top three oil producers in the world (along with the United States and Saudi Arabia), so the prospect of a Russian ground war in Ukraine is causing some serious jitters in oil markets. Crude oil (Brent) was up more than 2.2% to $111 per barrel in morning trading on March 3.
As you highlighted, the Russian economy is largely centered on commodity exports.
From the same article:
Europe imports 34% of its natural gas imports from Russia via Ukraine. Supply fundamentals appear to be normal, and thus far there are no reports of disruptions. Citigroup says it does not believe supplies will be “materially affected,” as reported by Bloomberg. But the markets are not so convinced.
Again, the key unknown here is how Kiev will resolve it's own cash problems, the deadline for which is approaching in several weeks. IMF loans conditioned on austerity measures, which will no doubt cut the natural gas subsidies in Ukraine, could escalate the domestic political crisis in the country. What then?
1. About the Russian gas weapon
I wrote earlier:
1) Putin should not forgot that turning the valves will stop a large part of the revenues financing his budget and his invasion.
2) In the long run such threads incentives the substitution from other geographical and energy sources.
3) Russia needs Europe a lot more then the other side around.
I can not look into the mind of the governments of the Central Europe and don't know what they know and think. Maybe some truly ignore that in the short and the long run Russia needs Europe money far more then Europe needs Russias gas. See the Federal Clay Budget of Russia, the reliance on European demand to finance their state, the full NG reserves in Europe, the time of year, etc.
Re sanctions:
In the medium (10 years) or long term (>20 years) timeframe the Russian position is not strong when we consider decreasing demand for NG and oil in Europe, the increasing global LNG capacities, lack of Russian LNG capacity, and the structure of the Russian (export) economy. Most of the NG is used in central Europe for heating of buildings. Fortunately, these buildings have an poor insulation level. :-)
The best answer is to build one or two more LNG facilities in the Netherlands, UK and Germany, to ramp-up refitting programs for buildings (KfW) and simply wait. The goal is to compensate for decline of UK and Norwegian NG production with more non-Russian LNG imports, at the same time, efficiency gains will reduce demand for Russian NG.
As the economy of Ukraine is a mess - it is even worse than the Russian economy - an occupation of more territory than the Crim does not improve the Russian strategic position IMHO.
This article (http://www.theguardian.com/world/2014/mar/03/europes-gas-supply-ukraine-crisis-russsia-pipelines) supports that take on the gas front. Lower demand through mostly higher efficiency and some alternative energy will hit the Russian state revenues hard in the long run.
For starters, we are not now in early January but in March, considered the final month of the continental European heating season, when demand is likely to be highest. Moreover, this has been a particularly mild winter – the mildest since 2008 – and higher than normal temperatures are forecast to continue for several weeks yet, significantly reducing demand for gas and leaving prices at their lowest for two years. Energy market analysts at the French bank Société Générale said in a briefing note last month that European gas demand in 2013 was at its lowest level since 1999. In the UK, gas consumption is currently approaching a 12-year low.
Partly as a result of weaker demand, but also because since the first "gas war" of 2006, many European countries have made huge efforts to increase their gas storage capacity and stocks are high. Some countries, such as Bulgaria, Slovakia and Moldova, which lack large storage capacity and depend heavily on gas supplies via Ukraine, would certainly suffer from any disruption in supplies. But Gas Infrastructure Europe (GIE), which represents the gas infrastucture industry, estimated that in late February European gas storage was 10 percentage points higher than this time last year and about half full; the National Grid puts Britain's stocks at about 25 percentage points above the average for the time of year.
"The conflict won't have any impact at all" on prices, a Frankfurt-based analyst told Bloomberg News. "The gas price is currently influenced by temperatures and storage levels, and both don't favour demand right now." Prices of gas for delivery next month have risen around 10%, but that reflects insecurities in the market about a possible military confrontation between Russia and Ukraine rather than worries about fundamental shortages of supply were Gazprom to turn off the taps, the analyst told the agency.
2. About the financial markets
The Russian market rallied today, gaining back half of what he lost earlier. More importantly the Rouble recovered a similar amount. I would love if and then how Russian financial entities acted. One should keep in mind Ben Graham: “In the short run, the market is a voting machine but in the long run it is a weighing machine.”
In any case the sharp increase in interest rates, which are now arguably far too high for the weak Russian economy will work against it for the time being.
What I thought highly interesting that Putin decided to act today in a 'calming manner'. While most of the market gains happened earlier panic in the Russian financial markets is obviously no good.
Vladimir Putin has described the turmoil in the financial markets as a tactical and temporary state of affairs, during his ongoing press conference on Ukraine (live on Sky News channels now, and streamed here).
He also tried to pin some of the blame on America, saying that there was already a degree of nervousness due to certain US policies (ie, the slowing of the Federal Reserve’s huge stimulus programme).
I wonder when the last time was that he commented about the financial markets. That he tried to blame some of the crash somehow on the America was however not unexpected...
AdamG
03-05-2014, 09:26 AM
Moscow (AFP) - Russia could reduce to zero its economic dependency on the United States if Washington agreed sanctions against Moscow over Ukraine, a Kremlin aide said on Tuesday, warning that the American financial system faced a "crash" if this happened.
Glazyev has long been seen as among the most hawkish of the advisors to President Vladimir Putin but many observers have seen his hand in the apparent radicalisation of policy on Ukraine since the overthrow of president Viktor Yanukovych.
Economists have long mocked his apocalyptic and confrontational vision of global economics but also expressed concern that he appears to have grown in authority in recent months.
http://news.yahoo.com/russia-warns-could-reduce-zero-economic-dependency-us-083926261.html?vp=1
http://news.yahoo.com/russia-warns-could-reduce-zero-economic-dependency-us-083926261.html?vp=1
I truly hope for the Russian people that Putin does not listen to him, for Russia the economic game is already tough enough and scoring own goals is more likely to wreak economic havoc at home.
Bloomberg (http://www.bloomberg.com/news/2014-03-03/goldman-sees-russia-taming-ruble-losses-after-plunge-to-record.html), one of those nasty capitalist websites, reports:
Shrinking Reserves
Bank Rossii sold between $10.5 billion and $12 billion to support the ruble yesterday, Dmitry Polevoy, chief economist at ING in Moscow, wrote in an e-mailed note. The central bank is scheduled to release data on the size of the sales tomorrow, in accordance with its policy to post figures with a two-day lag.
Russia’s foreign reserves have fallen $40 billion since May to $493 billion, according to data through Feb. 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion. Allowing for funds to cover three months of imports, it shrinks to $150 billion, he said.
The central bank allows the ruble to float within a flexible corridor against its target dollar-euro basket. Bank Rossii said it will set the amount of market interventions it takes to shift the trading band on a daily basis, giving officials more flexibility in determining how many dollars it sells at a given price level before weakening the ruble’s trading band.
Yesterday, policy makers set the threshold at $1.5 billion, up from $350 million previously, according to the statement on Bank Rossii’s website.
I would love to hear if and how much money they used yesterday to keep the ruble afloat. However it is quite possible that the Russian Central Bank is already under orders to keep things as much as possible under wraps.
Some threats out of Russia from this Glazyev sound like really a parody (http://www.businessinsider.com/putin-aide-threats-2014-3), I had to laugh when I heard that he came up with the idea to drop the US dollar as a reserve currency.
From Reuters:
A Kremlin aide said on Tuesday that if the United States were to impose sanctions on Russia over Ukraine, Moscow might be forced to drop the dollar as a reserve currency and refuse to pay off any loans to U.S. banks.
Catch that? Glazyev is literally threatening to put his own companies into default. That's the opposite of a threat.
....
Glazyev probably thinks it sounds good domestically to make these threats and to imagine that they're of any significance. For everyone else they're just an amusement.
Well put, quite likely but then again he might believe his own nonsense.
Just short article (http://www.themoscowtimes.com/opinion/article/crimean-crisis-will-exacerbate-capital-flight/495611.html) at the Russian economy in terms of capital inflow or better capital flight.
In
The real potential damage to Russia's economic future is self-inflicted. The real fallout from a prolonged conflict in Ukraine, or even of a worsening of the already negative international perception of Moscow's role in the affairs of its neighbor, may be to radically slow the inflow of much-needed investment capital while capital outflows accelerate.
Last year, Russia scored a spectacular success in attracting $94 billion worth of foreign direct investment according to a report compiled by the United Nations and released in mid-February. That was a jump of 83 percent over the previous year and placed Russia third in the table behind China, which attracted $127 billion, and the U.S. with $159 billion. Some of the high figure was due to the BP investment into Rosneft as part of the deal to sell TNK. But the success of Russia's Direct Investment Fund, which attracted about $10 billion of fresh commitment in 2013, is also an important factor, The fund is well-placed to repeat that success in the coming years.
That money is critical if the country is to pull out of the current growth slump and achieve the targeted annual growth rate of 4 to 5 percent. Last year, the economy grew at just under 1.3 percent, and the macro data published for January suggests the annualized rate has slowed further, possibly to less than 1 percent. While some government officials are talking optimistically about a bounce in the economy from the spring or in the second half of the year, others are more realistic. Despite the fact that the weak ruble and high oil price are boosting the revenues of the federal budget, oil wealth is no longer capable of delivering higher growth. The combination is certainly helping to improve the national balance sheet, but it is definitely not a growth driver.
Out
But attracting foreign capital is only part of the story, of course. Russia also needs to persuade its own citizens to keep their money at home and to invest in their own country's future. Capital flight is a catch-all description that combines normal trade and capital flows with individuals' money being exported out of the country, which is estimated to be about one-quarter of total capital flight. In 2013, total capital flight was $62.7 billion. This means that about $15.5 billion, or 50 percent more than the Russia's Direct Investment Fund attracted from big investment funds in the Middle East and Asia, is money that individuals prefer to save or spend elsewhere rather than at home. Between 2008 and the end of 2013, capital flight totaled $420 billion. Applying the same formula suggests that more than $100 billion of that was from individuals.
Although only two months into 2014, this year is already shaping up to be another big one for capital flight. The total for January was $17 billion, or just greater than the $16.6 billion reported for the fourth quarter of 2013. Given the ruble's weakness and growing crisis in Ukraine, the total for February is expected to have been higher. March could be even worse if the Central Bank is unable to stabilize the currency and the standoff in Crimea escalates.
Good to seem some fresh numbers. I'm pretty sure many financial managers with Russian clients will be rather busy at the moment...
---
BTW the OCSE* storms an Ukrainian shop:
https://pbs.twimg.com/media/BiHwUgzCAAADiKB.jpg:large
*Minus some countries. I would love to know what the guys working in the shop were thinking....
To honest it is quite sad to see the Russian economy in it's state. In some ways it is worse then I imagined before I looked at the hard facts. For example I would have put the revenue share in the federal budget from commodities at most around 30-40%. A nation, an European nation with such a rich tradition in science and engineering which finances it's state almost like a Gulf country is a tragedy. It makes itself also very vulnerable in any serious economic dispute. Of course after the latest aggression it's neighbours might actually be happy that Putins Russia has big economic weaknesses.
@AmericanPride: I fear we have to disagree again in some areas, just like in the economic discussion :)
1. Yes Putin and his Russia did gain 'political leverage' by creating military facts on the ground. But at the price of creating great resistance and even hatred within the Ukrainian government and especially it's people. He might actually annex the occupied Crimea, given the current playbook, as bringing the peninsula 'back home' is very popular and might be seen as a longterm achievement. In this case it is also rather likely that the lost 40+ Ukrainians millions for a long time. The international and economic fallout is harder to judge but there will be a price, it is just the question how big it will be.
2. A week ago I would have mostly agreed with the neat (and pretty smart ;)) statement: "To be in this government is to commit political suicide,” he said. “And we need to be very frank and open". But now as an invader has come like a thief in the night this government will have a far easier time to do make reforms, even tough ones, and to get financial and legal aid from abroad.*
The billions from the West, mostly the EU do have strings attached but some of them containe little to none. The IMF has shown himself impressed and the rules of games are obviously not the same as before. The EU has done something very rare, accepting unilateral benifts for the other side (http://www.globalatlanta.com/article/26806/trade-commissioner-de-gucht-eu-to-enact-tariff-benefits-for-ukraine/). Good to see that he also found the graph I posted over a week ago. :wry:
3. I have already posted enough about the economic vulnerability of the Russian economy and it's elite. Of course Putin can go ahead an let his citiziens suffer greatly for his little invasion, his political positions seems secured well enough that he can show strong willpower against the West. The big question is not if the Western powers can inflict rather serious harm on the Russian economy and elite, the question is if they have the political willpower to pay the relative moderate price for doing so.
Slashing subventions important for the majority in such difficult economic times is almost always a massive blunder, but the winter is over and the natural gas comes from the invader so it might be possible. If it is wise is another question.
@AdamG: This might actually have facilitated the latest political decisions by Putin. Perhaps it is not that stupid to keep the door open for the big capital flight from Russia...
@Kaur: I will leave that area to better informed folk, personally I was just suprised by the ratio of suppressed weapons by some non-Russian Russian troops.
A timely piece (http://www.nytimes.com/2014/03/11/world/europe/russian-oligarchs-on-ukraine-crisis.html?smid=fb-share&_r=0) by the NYT.
Anxiety over possible economic fallout has begun to radiate from business circles, and some wondered whether Mr. Putin had been warned clearly about the magnitude of the possible damage to the economy. One analyst described their mind-set as one of “cognitive dissonance.”
“I’ve seen 10 people from the Forbes list in the recent few days. They’re pale; they don’t understand,” said Aleksandr Y. Lebedev, a prominent banker who sold most of his Russian assets after public disputes with Mr. Putin. But the oligarchs realize, he said, that their interests carry no weight in this situation, especially if they, like Mr. Lebedev himself, own property outside Russia.
“It’s those who are here who will take the burden,” said Mr. Lebedev, speaking from Moscow. “They all keep their mouths shut.”
There is no doubt that Putin has been able to concentrate much of the power on his person. The rules of the game have changed a lot in this regard since the years after the SU fall.
“Of course they’re upset, but it doesn’t mean they are prepared to challenge Russia’s foreign policy,” said Mikhail E. Dmitriyev, an economist whose research group, the Center for Strategic Research, was originally founded to shape Mr. Putin’s economic platform. “This is a new reality. Even if somebody has reservations with regard to the policy’s effectiveness, I strongly doubt they would express it. This is a policy which, for the moment, is backed by the vast majority of the public. It’s not an exaggeration.”
In private conversations, though, several people described high anxiety within corporations, especially about the prospect of any sanctions’ affecting banks. Large Russian corporations have significantly increased foreign borrowing in recent years, and 10 were negotiating loans when the crisis boiled over, said Ben Aris, the editor and publisher of Business New Europe. Financial sanctions could set off a chain reaction of blocked transactions, frozen accounts and bank closings. “Those oligarchs who are already having trouble would be completely cut off,” he said.
It certainly could hardly happen to a nicer bunch. Liquidity could indeed become a massive problem if the West decides to implement harsh sanctions. Freezing and blocking Russian capital could have devastating effects on the oligarchs and the Russian economy as a whole.
P.S: Interestingly today the ruble has lost far more against the Euro vs the USD then the €/$ exchange rate explains. We know that the Bank Rossii has tried to defend the ruble by selling lots of USD which became hard to come by and got perhaps controlled. So perhaps now much demand has shifted to the Euro. This is obviously a quick speculation, the thing just catched my attention.
Firn:
That is very finely written. I am officially jealous.
Thanks, but I really should check my posts at least twice, it should have been 'guys'. :wry:
A look at Russia:
'A kick into the teeth' (http://www.themoscowtimes.com/news/article/deputies-submit-bill-abolishing-mayoral-elections/496055.html) of the Russian people:
Lawmakers from pro-Kremlin parties United Russia and LDPR have submitted to the State Duma a bill abolishing popular elections of mayors and city councils in major cities.
Analysts said the legislation represents an attempt to increase the dependence of municipal authorities on the Kremlin and effectively liquidate their self-government. Some observers also interpreted the proposed measure as part of a Kremlin effort to consolidate power in reaction to the political crisis in neighboring Ukraine.
The reform would apply to 67 large cities, including 56 regional capitals. The mayors of affected cities would be elected by city councils from among their members, while the city councils would consist of deputies delegated by newly created assemblies of city districts.
City governments would be headed by city managers — executives appointed by commissions, half of which would be chosen by governors and the other half by city councils.
The bill's sponsors argued that the bill would help fulfill an order by President Vladimir Putin
Sadly this is just the acceleration of a long term trend in which more and more power within Russia gets centralized and concentrated. The 'Russian Federation' seems increasingly to be so only in name.
This grab of power was not restricted to the political landscape but was particularly severe in the one of the media. There are lots of recent examples, like the one made only yesterday (http://www.themoscowtimes.com/news/article/lentaru-editor-replaced-after-extremism-warning/496023.html):
The longtime editor-in-chief of news agency Lenta.ru has been replaced by the former editor of a Kremlin-friendly online publication, prompting an uproar among many journalists who say the move is just the latest nail in the coffin of Russia's independent media.
Alexander Mamut, head of the Russian Internet news service's parent company Afish-Rambler-SUP, said Galina Timchenko had resigned from her post, but the Lenta.ru editoral staff released a statement saying she had been forced out.
It is deeply tragic for the vast majority that at a critical junction of Russia's history, in a time of political and economic instability a Mr. Putin was able to grasp the reigns of power. After almost 15 years he doesn't seem willing to let them go and his long consolidation has made it very difficult to see change coming. The bad luck of Russia was compounded by the boom of the commodities, especially the energy ones:
http://www.sec.gov/Archives/edgar/data/729153/000095010312005697/ps25.jpg
This has allowed the state to rather easily get it's hands on the by far dominant revenue stream and to support it's internal (and external) political agenda. The Kremlin could increasingly use all that money to achieve it's (short term) goals. The Russian economy has become an extractive one in every sense of the world and increasingly unable to get much sustainable growth in other sectors, especially those in need of high human capital. For the leadership this tight leash on economy has been quite beneficial in the short term but it is aweful for the Russian economy in the long run.
I generally don't advise people to try too hard to find connections between two graphs, but it is quite interesting if we consider the almost Gulf State-like Russian dependency on (energy) commodity revenues outlined earlier. Needless to say that the commodity index should be portrayed as a moving average.
http://upload.wikimedia.org/wikipedia/commons/0/06/Russian_economy_since_fall_of_Soviet_Union.PNG
It is important to look at the long term development of the index, not the often wild swings which can often get pretty smoothed out by the automatic stabilizers within an economy and fiscal policies. The weak performance of the Russian economy in the last year and it's bad outlook already before the crisis should not come at a surprise.
I really don't know if those troops will invade Eastern Ukraine. However there is in my opinion the danger that Mr. Putin thinks the following: If Russia faces increasingly tough sanctions over the annexation of the Crimea anyway why don't add two-three other Ukrainian oblasts to the motherland?
Donetsk and Luhansk have a relative large amount of ethnic Russians and could provide some useful local speratists. They have been already invaded by payed Russian thugs. It gets even better. Today we hear reports (http://www.telegraph.co.uk/news/worldnews/europe/ukraine/10698221/Moscow-uses-death-of-protester-to-argue-for-protection-of-ethnic-Russians-in-Ukraine.html)that Russia is using the killings by it's thugs to remind the world of it's 'duty' to 'protect' it's 'compatriots' in the political turmoil Russia itself is creating. Amazing stuff, as a Western FM I would have a very hard time not to laugh into Lavrovs face.
----
A quick look at the situation of the Ruble. According to this site (http://www.vedomosti.ru/finance/news/23996301/kurs-evro-prevysil-51-rubl) (translated by google) the Bank Rossii has used another $ 6bn to row against the flow and still it got overall pushed back against it's currency basket. This makes at least $ 21 bn + a 150 points interest rate hike in two weeks and the ruble goes from all-time low to all-time low despite over a 600 points premium against the Euro and USD.
Roughly two weeks ago:
Russia’s foreign reserves have fallen $40 billion since May to $493 billion, according to data through Feb. 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion. Allowing for funds to cover three months of imports, it shrinks to $150 billion, he said.
I have no time to calculate the exact numbers but here is no doubt that although the war chest is relatively large it is under considerable pressure and liquidity is flowing out. I would not be surprised if tries to sell some securities of the SWF and gold to get more cash, and there is of course the interesting question what and at which cost the fund did buy. If the carry the investments at market price it is likely that those will have gone down, reducing the size of the war chest.
The falling ruble will cause the price of the imported goods to increase which will not go down well among the Russian population. I don't know how the volume will do. In any case it is plain how foolish the Russians will be to cut their own cash flow by stopping it's exports. In a relative short time, perhaps a couple of months or even less they could not longer cover the imports. And that will get the attention of a large share of of the Russians, especially those at the very top...
Find it interesting that the leader of the Jewish community in Kiev stated recently that they have had no problems with neo right radicals and or neo Nazi's and that they the Jewish community Kiev were also fighting in the Maidan just as was the neo right.
Really thought the use of the fear of "Nazi's" had died with Stalin.
But I guess old habits of the KGB die hard.
Reading the NYT Lede blog (http://thelede.blogs.nytimes.com/2014/03/14/witnesses-share-video-and-accounts-of-deadly-attack-on-anti-war-rally-in-eastern-ukraine-by-russian-separatists/?_php=true&_type=blogs&_php=true&_type=blogs&smid=tw-thelede&seid=auto&_r=1&), watching a couple of minutes of videos and seeing the Kremlins reaction is really a chilling experience. I would have dismissed it as far too simplistic a couple of weeks ago, but the current actions of Putins regime have indeed KGB all written over it.
Indeed it is not a single action or the combination of some, it is brazen depth and vast width of the whole package which cries KGB, KGB, KGB. That inner circles seems to completely disregard the diplomatic,legal and economic consequences of their deeds, looking almost only through those KGB glasses at the world.
The good thing is that with tiny sanctions the EU and USA have already triggered a great flight out of the ruble and nice burning of foreign reserves. I think it is high time that they ratchet up the effort, perhaps ideally each couple of days to keep the Russian market nervous and to let the capital flee. If the Russian retaliate economically, all the better, as they will hurt themselves the most and the West can easily match it to inflicht further pain. As stated before, cutting off the gas supply into the EU by themselves would be ideally harmful, if there is a little bit of political willpower on the European side.
Of course a week ruble would decrease the prices of their industrial products and services, making their goods more competitive but exactly what goods? What are they able to sell in a meaningful number to make up the lost revenues? To which non-Western country? :o
A bit more on the Russian gold reserves. They should have achieved overall a net gain in markte price over cost. 2011 and 2012 hurt of course.
http://goldminersreport.com/wp-content/uploads/2013/11/Russian_Official_Gold_Holdings_2006_to_2013.png
http://goldsilverworlds.com/wp-content/uploads/2014/03/gold_price_2006_2014.gif
At market price they have roughly $ 50bn in gold. Keep in mind that they went through almost half of that in cash in only two weeks and just slowed the fall of the ruble. :eek:
The three sovereign wealth funds combined had in 2012 roughly a captial of $ 190bn. $ 10bn was ideally allocated (http://www.cnbc.com/id/101264840) into risk-free Russian assets. :wry:
Kirill Dmitriev is on a one-man mission to change Russia's image in the eyes of world investors. The 38-year-old graduate of Harvard and Stanford runs Russia's newest sovereign wealth fund—the $10 billion Russian Direct Investment Fund.
....
"Many people have misperceptions about Russia, and they feel the risk is greater than it really is," Dmitriev told CNBC. "So we put the (Russian) government's money alongside other investors' to make sure they are comfortable and understand that Russia can be an attractive investment destination."
I'm pretty sure that the last weeks have been pretty tense in the Bank Rossii and the SWF. It is pretty likely that they moved already (http://www.bloomberg.com/news/2014-03-14/fed-custody-holdings-record-decline-fuels-russia-speculation.html) most of the US treasuries out of the US.
Maybe they have already started to sell at a steady pace...
Firn---the Russian Foreign Ministry claimed late last week they could hold up under sanctions as they had over 500B in foreign currencies---any evidence of that?
They would say that wouldn't they? ;)
I think it is important to grasp the basic concepts of a central bank and it's relations to the economy. In general in very rough terms the central bank is there to:
a) help keeping the economy of your country on track
b) handle the technical trade stuff to allow the goods to flow
There is a rather long list of things a country and the central bank itself can do to keep going and to lessen the fall of it's currency. However the further down you go that list and the more forceful some of those actions are the more you tend to hurt your economy.
It seems for example the Bank Rossii has shifted most of it's US gov bonds (treasuries) out of the US and might have already started to sell to get some USD in cash, which they likely need after suffering a cash outflow of $ 21+ bn. As of December the had almost $ 140 bn of them deposited at the Fed. This has per se no effect at all on the Russian economy, but without enough reserves Russia will be no longer able to pay it's many imports. They burned so far through their cash at a surprising rate. Thus the Russian Central Bank, anticipating some of trouble coming it's way has used a two-pronged strategy, selling $ reserves and increasing interest rates.
However raising those rates by the considerable amount of 150 bp does reduce demand in an already weak economy. Now they stated if I recall that the won't go up further but this of course depends on how their ruble and their asset side of the balance sheet is doing. If they have to sell too much $ too quickly they might impose capital controls and increase the rates. So instead of having a central bank doing it's thing to help the economy the economy has now increasingly to pay to keep the central bank (and thus itself) going. :wry:
So the key question is how much damange do they have to inflict on their economy to avoid a meltdown of their balance sheet?
P.S: Earlier I ridiculed the idea of some Russian nationalist who imagined that he could inflict some damage on the Western economies by eliminating the dollar as their foreign reserve. Predictably the Crimean Crisis has led to money going into the safe havens (http://www.bloomberg.com/news/2014-03-13/diam-with-sumitomo-mitsui-trust-see-ukraine-driving-treasury-bid.html), or gov. bonds of Western countries like the US, Germany, UK and so on.
“Treasuries, bunds and gilts lead in this kind of move,” Steven Major, head of global fixed-income research at HSBC Holdings Plc, said in an interview on Bloomberg Television’s “Countdown” with Mark Barton and Anna Edwards. “It’s very difficult to imagine a scenario whereby everyone just kind of kisses and makes up, so on Monday morning it’s not going to be a case of everything’s fine. It’s either going to be very very bad, or very bad.”
German 10-year bund yields fell as much as four basis points to 1.50 percent, the lowest since July, and U.K. 10-year gilt yields dropped as much as five basis points to 2.64 percent.
So at the same time that the Russian Central Bankers have to damage their economy and sell their reserves to slow the fall of Ruble their important Western counterparts are 'forced' to sell their bonds more dearly as so much money is wanting to buy them. :D
It is the old problem of Russia, if the big money wants security it isn't coming in, it's leaving. And it even does decrease the price it's rivals have to pay for their debt....
At the end of the week the FT run a good story about Russian companies bringing their capital back home:
Russian companies are pulling billions out of western banks, fearful that any US sanctions over the Crimean crisis could lead to an asset freeze, according to bankers in Moscow.
Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US. VTB has also cancelled a planned US investor summit next month, according to bankers.
This mirrors the very likely pull of a $ 100bn by the Bank Rossii out of the US. The article rightly talks about the fear of asset freezes, but there is in my opion more to it and this refers to the balance sheet of the Bank Rossii, the state control/influence over big Russian companies and the fall of the Ruble.
A flow out of assets in the West to Russia does increase demand of the Ruble and help the Bank Rossii to get strenghten it's balance sheet with western currencies. So it is supported it's currency policy in two ways. Personally I think the key issue here is how much the Ruble did fall, despite the rate rise, despite the $ 21+ bn thrown into the market and despite that large capital pull by partly state-owned companies.
Traders and bankers said US banks had been particularly heavy sellers of Russian bonds. According to data from the Bank for International Settlements, US banks and asset managers between them have about $75bn of exposure to Russia.
Joseph Dayan, head of markets at BCS, one of Russia’s largest brokers said: “It’s been quite an ugly picture in Russian bonds the last few days and some of it has to do with international banks reducing exposure.”
Indeed it wasn't pretty:
http://www.tradingeconomics.com/charts/russia-government-bond-yield.png?s=ruge10y&d1=20110101&d2=20141231&type=line
I think there is still a lot of room left for bond yields to increase if the situation just stays the same. Generally the longer the crisis last the harder it will be for the Russian economy. There are of course some Western companies who already built plants and bought much property, but there is still a great deal of capital which can rather easily flow out.
It is interesting to take a look at the last 14 years:
http://www.tradingeconomics.com/charts/russia-government-bond-yield.png?s=ruge10y&d1=20000101&d2=20141231&type=line
@Outlaw 09: I asked the same poster twice for sources and arguments to make his case but he didn't deliver. So I wasn't surprised to see much of the same happening to you...
A bit more on the capital flight (http://www.themoscowtimes.com/article/496228.html) from Russia, which looks like to be considerably higher then the capital inflow. Keep in mind that due to the accounting logic of the Balance of Payment some capital will naturally flow out as long as Russia continues to run a trade surplus (the other factors canceling each other out).
LONDON — Capital flight from Russia has risen sharply since the start of this year to $45 billion to $50 billion, Goldman said, predicting full-year outflows could be as much as $130 billion, or double 2013 levels.
Goldman said its calculations show capital outflows have jumped 60 percent from year-ago levels as the economy slows and the threat of Western sanctions bites. It also slashed its forecast for Russian economic growth this year to 1 percent.
Interesting to note that roughly 2/3 of the overall sum of BR's interventions was spent in the last two weeks. BTW you can see the accounting logic at work:
Goldman based its capital flight calculations on estimates of a $25 billion current account surplus in the first three months of the year and around $30 billion in foreign exchange interventions by the central bank.
On the Russian macro front (http://www.themoscowtimes.com/article/496231.html):
Regardless of whether the Kremlin is irrational or simply uninformed, its policy in Crimea sends an unmistakable signal to investors: Russia's political leaders are impossible to predict. This will further undermine Russian and foreign investors' confidence and increase capital flight, which could not come at a worse time. With credit-fueled consumer spending, the engine driving GDP growth since 2010, now running out of steam, the economy is stagnating.
It is very hard to see how the Russian government can avoid a (deep) recession if the crisis continues for (months) weeks. Lots of shocks hitting the economy at the same time just as the monetary policy is forced to move into the wrong direction and fiscal policy will very likely be quite costly to finance...
mirhond
03-16-2014, 09:25 PM
It is very hard to see how the Russian government can avoid a (deep) recession if the crisis continues for (months) weeks. Lots of shocks hitting the economy at the same time just as the monetary policy is forced to move into the wrong direction and fiscal policy will very likely be quite costly to finance...
Poor us. :rolleyes:
You are still deliberately ignoring the fact that we have lived with ####ed-up economy for 15 years. Almost everyone out there understand that all this burgeous pleasantries are temporary, almost everyone either have Plan B if things become hairy, or just don't care about future. We are tempered with endless economic fails, inferior governance and suffocating aura of lies. Even the food, water and electricity rationing won't destroy this system.
OUTLAW 09
03-17-2014, 12:21 PM
Firn---in comments yesterday by a former Russian Finance Minister the Russian budget this year was targeting a growth rate of 3.5% and if sanctions are imposed he is saying the growth rate may in fact be 0% and the Crimea costs were not factored in and approved for this year.
Average Russian taxpayer will be carrying the Crimea burden for years to come.
He indicated that there is talk of 80-90M USD per month in just support to keep the Crimea running and the Crimean's felt that with joining Russia their individual salaries would be going to Russian levels (was posted on placards around the cities) which is also not in the budget that was approved so he is estimating an annual cost of 20B USD per year just to do a steady state.
Reference an economic embargo---he feels it will not happen but worse for Russia is they the EU knows exactly where to place "specific targeted sanctions" against specific business types and products that will in a relatively short period hurt the economy baldy and they will do it as they feel the entire world community condemns what Russia has done and Russia is in effective politically isolated and has to take the hits.
His comment was interesting---the EU understands our economy better than we do.
OUTLAW 09
03-17-2014, 12:41 PM
Firn---check the outflow of Russian capital to western banks for repayment of debt---in Jan it was some say over 17B and for this quarter they are talking about well over 50B---outstanding bank debt to be repaid seems to be in the 608B range.
https://pbs.twimg.com/media/BjKHbKNIAAA7CXh.jpg:large
Financial Times
@FT: 2% of London's luxury house buyers are Russian. So UK will find imposing sanctions tough: http://on.ft.com/1nFLV9e pic.twitter.com/infrAjTBwP
Is this 'tough' ironic or are you kidding me? 2%? Of the luxury market, of London? Make it 20% and it still at most 0,1%something of the UK housing market alone...
OUTLAW 09
03-20-2014, 07:07 PM
Interesting Russian news take on the latest round of US sanctions from Interfax.com.
20:32
KREMLIN SAYS CAN'T ACCEPT SANCTIONS LIST PRACTICE IN PRINCIPLE
20:30
KREMLIN SAYS RUSSIA WON'T TAKE LONG TO REACT TO U.S. SANCTIONS
20:29
MOSCOW STUDYING U.S. SANCTIONS LISTS, BEWILDERED BY SEVERAL NAMES - PESKOV
20:26
NATION CLAIMING TO BE DEMOCRATIC IMPOSES SANCTIONS FOR HONEST POSITION, HONEST STATEMENTS - RZD CHIEF YAKUNIN
OUTLAW 09
03-21-2014, 04:51 PM
Firn---something that came out of the EU meeting yesterday night and I must thank Putin for it---the EU is starting the analysis on reducing Russian gas and oil purchases starting already in 2014.
They made that public enough for Russia to understand.
Putin got the EU to wake up and realize that if they shared their own gas/oil abilities across their individual borders which they can as they have built a massive distribution system since 2009 they could 1) reduce Russia purchases/dependency, and 2) actually reduce gas and oil prices for EU citizens across the board making it a win win thing.
Great that Putin is going to lower my yearly gas bill----
Can Europe survive without Russian gas?
- replacing 130 bcm of natural gas imports from Russia within a year would be a significant challenge, but not impossible
by Georg Zachmann on 21st March 2014
http://www.bruegel.org/nc/blog/detail/article/1283-can-europe-survive-without-russian-gas/
OUTLAW 09
03-24-2014, 07:00 PM
Firn---here is an indication that the sanctions are slowly winding it's way through the Russian economy when just one bank is initially hit.
Interfax:
21:27 Fitch revises Gazprom's, Russian Railways' issuer default rating to "negative"
Just a quick thought herein.
Vova doesn't give a Sierra about his own and anyone that has been to Moscow will immediately see that.
If we think he feels some remorse with Russian Railway ratings (http://www.interfax.com/news.asp), then think again.
In 2007 he decided to show Estonia just how far he would go by shutting down rail transit to the Muuga Harbor (http://www.ts.ee/muuga-sadam). He can cut off 97% of all rail which will effectively slam shut business here and trash his profits.
Western mindset will not get the West anywhere.
OUTLAW 09
03-24-2014, 08:42 PM
Stan---maybe this is something Firn will like---look at the bank that was hit with sanctions---Rossija Bank---held a large number of Gazprom accounts as well as the Rail company companies but I am assuming Gazprom fronted for a number of bank loans to the Rail company as that is a typical Russian mob move to scram money off of bank lines of credit.
On Interfax the initial Gazprom reaction to the bank being sanctioned indicated that nothing would effect their accounts.
If one understands that the US federal financial law now on the books literally dictates what US banks with federal sanctions notices have to do --they have honed their skills on Iranian banks. Anything or anyone tied to the bank and or the individuals named can be chased.
What the Russians initially assumed was that the sanctions would only affect one if the individual owned more the 30% of something---under US law that is not the case---thus the Fitch downgrading to negative which will hurt bank credit lines from foreign banks which is the center of gravity for Russian companies.
Rossija today made the announcement that recommended none of their clients should make or withdraw any foreign currency--think now they fully understand that the US banks will chase the money via the money trail.
Interfax: 12:44 Bank Rossiya asking clients to refrain from making foreign currency payments
@stan: I have no doubt that in Vladiromics great scheme the ratings of railway bonds count not that much. Still economic turmoil in Russia will get his attention.
Also, with all due respect to the Estonian port, it's economic impact pales with the numbers currently at stake.
@Outlaw09: We will have to see how deep and broad financial sanctions will become, but I'm sure that those are interesting days for wealth managers in Russia. Perhaps the Bank Rosija also wants to keep it's foreign reserves close at it doubt that it will be easy for it to get more.
This German interview (http://www.daserste.de/information/politik-weltgeschehen/morgenmagazin/politik/treier-fuerchtet-Rueckgang-der-Investitionen-in-Russland-100.html) with the vice CEO of the DHIK (http://www.dihk.de/en) is in my opinion quite revealing about the mood of German investors in Russia. In the past it has almost always been 'business first', but now he talks rather resigned about the primacy of politics. I'm looks like that behind the scenes the German leaderhip has made it pretty clear to the business community that this time it is different. Investments have been delayed and some binned, partly because German banks see more risks. This means at best higher interests which will make some investments questionable and others less attractive. I'm pretty sure that most German investments are mostly financed by German not Russian banks.
An article with a handy graph (http://www.faz.net/aktuell/wirtschaft/wirtschaftspolitik/krim-krise-das-who-s-who-der-deutschen-russland-investoren-12861619.html)about the companies with the highest percentage of their revenue coming from Russia.
The closer the ranks between the industrial powerhouses on sanctions are the more difficult it will to play, let us say Siemens against Bombardiers. Reducing the flow of knowhow and capital into the Russian economy will hurt a lot.
Capital controls feared in Russia (http://www.telegraph.co.uk/finance/economics/10720226/Capital-controls-feared-in-Russia-after-70bn-flight.html).
Capital flight from Russia has spiked dramatically since President Vladimir Putin first sent troops into Crimea and may reach $70bn (£42bn) over the first quarter of the year, prompting fears that the country may soon have to impose capital controls to stem the loss.
...
“It is shocking,” said Bartosz Pawlowski from BNP Paribas. “Markets have been extremely complacent, fooling themselves that Russia is invulnerable because it has almost half a trillion in foreign reserves. But reserves can become almost irrelevant in this sort of crisis.”
Lars Christensen from Danske Bank said the authorities may resort to some form of financial coercion to lock down funds in Russia. “Capital controls are a serious risk, and should not be discounted. Whatever now happens, there has been permanent damage to the Russian economy because investors are not going to forget this lightly.”
Capital controls are one of the last lines of defense for your foreign currency reserves and for very good reasons as the slap considerable costs on your economy. The more open the economy is, the higher they become. There are of course some situations were capital controls are a must, like in Iceland in it's banking meltdown.
To get a grasp of the dimensions we are talking about it is important to remind us that Russia is a $ 2,000bn economy with a $ 200bn trade surplus in goods.
http://www10.iadb.org/intal/cartamensual/Cartas/Imagenes/192/192_i_PRG2_img1-01.png
Keep the accounting logic in mind I explained before. I would not be surprised anyway that we will see a capital flight north of $ 150bn if the crisis continues.
The scale of capital outflows leaves the Russian government in a quandary. The central bank has already raised interest rates by 150 basis points to prevent a collapse of the rouble, but this is choking the economy.
“If rates stay this high for another two or three months, there will be serious trouble,” said Mr Pawlowski. “There is no free-lunch. You can defend your currency, but if you do that you wreck your economy,” said Mr Pawlowski.
I just quoted it because Mr Pawlowski repeats a key problem for Russia which I mentioned earlier. In normal times the central bank does it's monetary policy to help the economy. Now the economy has to suffer to help the central bank to defend it's reserves...
OUTLAW 09
03-26-2014, 01:10 PM
Although Russians seem to think the sanctions will not hurt Interfax carried today nothing but economic PRs---there seems to be an apparent disconnect within their nationalism among the general public vs the business elites.
13:29 Russians do not fear Western sanctions - poll
15:30 Shuvalov: Russian gov't has plan of action in the event of strong economic decline
15:28 World Bank sees capital outflow from Russia at $85 bln this year, but $150 bln possible (Part 2)
15:24 World Bank: Russian bank sector sanitization welcome; Central Bank needs clear criteria
15:21 Bashneft minority shareholders offer buy-out at 26.4 bln rubles, company may buy up a third less
15:06 World Bank cuts Russian growth forecast, sees GDP decline in 'shock' scenario
15:04 No ban on buying foreign software, but cos should chose partners carefully – ministry
14:39 S&P downgrades Atomenergoprom 'BBB' rating outlook to 'negative'
The Soviet Collapse (http://www.aei.org/issue/foreign-and-defense-policy/regional/europe/the-soviet-collapse/), an article in 2007 by Yegor Gaidar.
Yegor Gaidar is director of the Institute for Economies in Transition in Moscow. Between 1991 and 1994, he was acting prime minister of Russia, minister of economy, and first deputy prime minister. Between 1993 and 2003, Gaidar was a founder and a co-chairman of the Russia's Choice and the Union of Rightist Forces Parties, and a deputy of the State Duma.
That second part of that quoted text caught my eye immediatly:
There were several factors which pushed me to write this book. The first was the rise in oil prices, which in real terms have started to approach the level of the late Brezhnev period. The second was the disturbing tendency to mythologize the late Soviet period in current Russian society and popular culture. These myths include the belief that, despite its problems, the Soviet Union was a dynamically developing world superpower until usurpers initiated disastrous reforms. At least 80 percent of Russians are convinced of this flawed interpretation of history.
Historically, such myths have a dangerous precedent--namely, Germany between World War I and World War II. Then, the legend went that Germany was never defeated in the war, but "stabbed in the back" by the Jews and the Socialists. To some degree, the responsible party was the democratic German government, as it was unprepared to publish materials about what really happened before and after World War I.
The notion that the high hard income from the oil shock prices set bad incentives far higher public spending, the Afghan adventure and misallocated investment sounds plausible. This imperial overspending made the whole system inreasingly vulnerable to low revenue due to higher production costs and lower market price.
In 1985 the idea that the Soviet Union would begin bargaining for money in exchange for political concessions would have sounded absolutely preposterous to the Soviet leadership. In 1989 it became a reality, and Gorbachev understood the need for at least $100 billion from the West to prop up the oil-dependent Soviet economy. According to chairman of the State Planning Committee Yury Maslyukov:
We understand that the only source of hard currency is, of course, the source of oil. . . . If we do not make all the necessary decisions now, next year may turn out to be beyond our worst nightmares. . . . As for the socialist countries, they may all end up in a most critical situation. All this will lead us to a veritable collapse, and not only us, but our whole system.[7]
History doesn't repeat itself in the same manner but the patterns seem to emerge in a strinkingly similar fashion. So far the commodity prices are still high, and the Europeans are still buying Russian gas.
http://www.economywatch.com/userfiles/figure6-fsu-oil-production-and-price.png
It seems that the 'Russians' had recently the tendency to invade non-aligned countries right after another all-time high oil prices. 1979, 2008, 2014... :wry:
OUTLAW 09
03-26-2014, 02:26 PM
This is an interesting PR as there were some who said that prior to sanctions the economy might not break over 0% GDP for this year if the sanctions came in which hurts badly the general population as the economy has been struggling in a recession for the last year. Inflation was also anticipated to be in the 5-6% range.
16:44 HSBC cuts Russian GDP growth forecast to 0.6% in 2014, to 1.2% in 2015
Rossija today made the announcement that recommended none of their clients should make or withdraw any foreign currency--think now they fully understand that the US banks will chase the money via the money trail.
Interfax: 12:44 Bank Rossiya asking clients to refrain from making foreign currency payments
Outlaw,
Imagine who would want all those Rubles :rolleyes:
Furthermore, according to this Reuters article (http://uk.reuters.com/article/2014/03/24/ukraine-crisis-russia-bankrossiya-idUKL5N0ML1LH20140324):
Kovalchuk said in a television interview on Sunday the sanctions had backfired by helping him win new clients among patriotic Russians. Russian President Vladimir Putin said last week that he would open an account at the bank.
@stan: I have no doubt that in Vladiromics great scheme the ratings of railway bonds count not that much. Still economic turmoil in Russia will get his attention.
Also, with all due respect to the Estonian port, it's economic impact pales with the numbers currently at stake.
Firn,
Russia has been buying up Europe and Africa for years ("http://www.politico.com/magazine/story/2014/03/russia-vladimir-putin-the-west-104134). I've been here for 20 years and in Africa for 12 years.
We are not talking big money. But very big money. None other than Putin’s Central Bank has estimated that two thirds of the $56 billion exiting Russia in 2012 might be traceable to illegal activities. Crimes like kickbacks, drug money or tax fraud. This is the money that posh English bankers are rolling out the red carpet for in London.
Estonia is but a minuscule means of showing what Vova can do to tiny little countries that get in the way. But, chocking off these so-called countries is a mess for their economic development and an even bigger mess for the EU when it comes to supporting them.
Regards, Stan
Stan
I agree with the article up to the final words. There is no doubt in my mind that this long experience and the 'business' interactions of all sorts helped to great a vision of the Western World which might at best bark a lot and do nothing which hampers it's monetary interests. Siemens CEO is a good example (http://www.faz.net/aktuell/wirtschaft/wirtschaftspolitik/siemens-chef-kaeser-sagt-putin-langfristige-investitionen-zu-12865289.html)*. There is a lot of truth in that view but Putin might stepped a little too far with his annexion and the way he set it up. He might still think that he will get cheaply away with it, but I'm not that sure anymore. Time will tell.
Right now the Russians are almost all cheering for him and his noble deed. We will see how loud their voices will be in a couple of years and what they cry.
Regards, Firn
*I'm pretty sure it was never easier to get a meeting with Putin.
OUTLAW 09
03-26-2014, 08:23 PM
This Interfax PR is showing all of a sudden Russian fears---namely that the EU could in fact draw gas from alternative sources until US gas came online coupled with green technologies will at some point replace Russian gas.
As a two raw resource country that is a nightmare long term.
The Russians somehow have not registered that the US has gained the edge as the leading gas producer for awhile to come---maybe that is why they are getting into fracking themselves.
March 26, 2014 21:58
"Gas war" from West regarding Russia is political fantasy - Russia's rep to EU Chizhov
MOSCOW/BRUSSELS. March 26 (Interfax) - The talks about a "gas war" the West declared regarding Russia are a political fantasy, Russia's Permanent Representative to the European Union, Vladimir Chizhov said.
"This is not even political 'horror stories,' this does not even reach a political 'horror story.' I would say that these are political fantasies," Chizhov told Interfax on Wednesday when commenting on the information that the United States is ready to permit natural gas exports in the volumes Europe consumes per day.
Ilja Ponomarjow (http://www.zeit.de/politik/ausland/2014-03/ilja-ponomarjow-interview-russland-krim-duma), the only member of Duma who voted against the annexation of the Crimea interviewed by the German Zeit.
ZEIT ONLINE: Herr Ponomarjow, warum haben Sie gegen die Annexion der Krim gestimmt?
Ilja Ponomarjow: Ich bin gegen Krieg. Mit dieser Abstimmung haben wir die Ukraine verloren. Die Ukrainer haben angefangen, ueber die Russen als ihre Feinde zu denken. Dabei sind wir Brueder, unsere Sprache ist fast dieselbe, wir haben eine gemeinsame Kultur. Wir haben Jahrzehnte in einem Staat zusammengelebt. Die Grenzen zwischen uns sind kuenstlich, so wie die damals zwischen Ost- und Westdeutschland.
Ilja: I'm against war. With this voting we have lost Ukraine. The Ukrainians have started to think of the Russians as their enemies. Despite being brothers ...
ZEIT ONLINE: Und wie soll der Westen reagieren? Sind Sanktionen ntig?
Ponomarjow: Ich bin gegen Sanktionen, die versuchen, das ganze Land zu bestrafen. Sie unterstuetzen Putin. Auch ohne das, was in der Ukraine und auf der Krim passiert ist, finde ich, dass die korrupten Menschen, die ihr Geld in den Westen schaffen, verhaftet werden sollen. Wenn die Krim der Anlass ist, diese Leute, die Russland ausbeuten, zu verhaften und ihre Geschaefte zu bestrafen, dann ist es gut so. Wichtig aber ist, dass die Skalierung gro genug ist. Die Abgeordneten in der Duma verstehen nicht, dass auch sie Verantwortung tragen. Sie glauben, dass Putin die Entscheidung allein getroffen hat und nur er dafr verantwortlich ist, aber das ist nicht richtig. Die erfolgreichsten Sanktionen sind die von Visa und Mastercard gegen die Banken, die die russische Regierung untersttzen. Davor haben diese Leute wirklich viel Angst. Da geht es um Geld, und das ist sehr wichtig.
Interesting views on the scale and type of the sanctions. I'm pretty sure that this interview will not endear him to the wise Russian leadership, he is right now indeed a rather lonely man. It must have taken considerably moral strenght a lonely sort of courage, which is often the most difficult one to muster.
Outlaw
I would advise you to take a closer look at the article of Yegor Gaidar, the collapse of the SU. I think that the Russian leadership is right to be nervous, if , and this is a big if, the political willpower in the EU is strong enough. Their picture of the Europeans, which has lots of truth in it, might be the reason why we see such disbelief about a big economic fallout, perhaps over gas.
Firn,
Agree. In the end, perhaps painful for the Russian lower and middle class.
However, here most of the Russians are not affected and generally all transactions are under the table, regardless of the amounts.
Stan
I agree with the article up to the final words. There is no doubt in my mind that this long experience and the 'business' interactions of all sorts helped to great a vision of the Western World which might at best bark a lot and do nothing which hampers it's monetary interests. Siemens CEO is a good example (http://www.faz.net/aktuell/wirtschaft/wirtschaftspolitik/siemens-chef-kaeser-sagt-putin-langfristige-investitionen-zu-12865289.html)*. There is a lot of truth in that view but Putin might stepped a little too far with his annexion and the way he set it up. He might still think that he will get cheaply away with it, but I'm not that sure anymore. Time will tell.
Right now the Russians are almost all cheering for him and his noble deed. We will see how loud their voices will be in a couple of years and what they cry.
Regards, Firn
*I'm pretty sure it was never easier to get a meeting with Putin.
Ulenspiegel
03-27-2014, 09:37 AM
Ah the gas issue.
Perhaps now we can return to the earlier defence of Germany's strategic decision to place reliance on energy from Russia.
A massive strategic error. Who was responsible and whose heads should roll?
JMA, you cherrypick some aspects and simply ignore the the real factors that shaped some decisions:
1) Around 1990-95 there was a real danger that the Russian economy collapsed. The highest priority for Germany was, to stabilize the situation, NG pipelines and deeper integration of the Russian economy were obvious ideas and -in contrast to the NG discussion, finacial and technical support for pipeline construction around 1980- not really fought by the opposition.
The last thing Germany needed/needs at her backyard is a failed state with thousands of nukes. To assume one gets stability (clear advantage for Germany) without paying a price is naive.
2) Pipelines tie a producer to certain customers, the Russian side lose strategic freedom too. Russias economic situation improved because of rising crude prices (20 USD to 100 USD, nothing people assumed in 1995.
3) The real problems are in countries outside Germany: high demand for NG (for heating) in combination with very inefficient heating systems and low insulation level of the buildings.
4) And not unimportant. There was some kind of agreement that there is no integration of Ukraine into Nato and EU, this agreement was broken by western politicians, IMHO a stupid move.
Dayuhan
It is good and important to point out in which context the decisions were taken, especially in the 1990-2000 timeframe. The trade was a generally a win-win scenario, and still is in economic terms. The negative impact of Putins primacy of geopolitics* was becoming clearer since 2009, much has been done in the last years but for some projects, say Nabucco, the political support wasn't strong enough.
Ulenspiegel
I agree on all points apart from number four, and there to some extent.
*The political use of trade was deeply rooted in the SU, arguably much more then in the West.
What the Russian papers say: (http://www.themoscowtimes.com/news/article/what-the-papers-say-march-27-2014/496944.html)
Nezavisimaya Gazeta
1. Mikhail Sergeiev article headlined "World Bank names price of Ukrainian crisis for Russia" says the Russian economy is likely to lose $38 billion this year due to the Ukrainian crisis and the overall economic slowdown. Moreover, the Russian Central Bank has already spent $39 billion on currency market interventions; pp 1, 4 (713 words).
Those $ 40bn in interventions have been somewhat less then 10% of the total reserves. Given the great capital flight it is just natural that they are having a hard and cash-draining time to defend the ruble.
----
Sanctions Can't Force Foreign Companies Out of Russia, Medvedev Says (http://www.themoscowtimes.com/business/article/sanctions-cant-force-foreign-companies-out-of-russia-medvedev-says/496882.html)
This is quite interesting stuff. We initially heard all sorts of wild shouting and law-making about retaliating in kind against Western sanctions. A few here stated that this will cut far deeper into their own flesh. Now that:
"We have no restrictions [on business with foreigners], and we will continue all forms of cooperation with all the companies that are operating here," Medvedev said. "I'd like to reiterate — the choice is with those who are seeking to do business in our country."
One should not pay too much attention to the Kremlin's words but the rapid capital flight and potential economic damage might have caused it to backtrack. In economic terms there is no doubt that they are the far more vulnerable ones...
A new Oil and Gas Generation (http://www.themoscowtimes.com/business/article/a-new-oil-and-gas-generation/496864.html)
Talking about Russias need for Western know-how and human capital:
The modernization of the Russian refining and petrochemicals industry is putting unprecedented strain on the country's resources of individuals with project management and engineering skills.
Specialists remain in short supply and employers are stepping up the search for recruits, especially in engineering, procurement and construction.
"Russian oil companies need staff who are able to coordinate and interact with Western engineering companies," said Maxim Kaurov, executive director, head of oil & gas, energy, and industrial sectors, Staffwell. "The inability of the Russian market to manage its own resources is a serious problem for the oil industry.".
Russia wants to give the economy a stimulus package (http://www.themoscowtimes.com/business/article/minister-hatches-plan-to-protect-economy/497000.html), it seems. It is not described as such but reads like one. An interesting comment at the end:
Former Finance Minister Alexei Kudrin said at the forum that the further economic slowdown was the price for the country's independent foreign policy, and that people were so far willing to accept the cost.
"We are paying hundreds of billions of dollars for this, hundreds of billions, and we will see lower gross domestic product growth, investment and revenues," Kudrin said.
The Soviet Union broke because it went broken. Yegor Gaidars book, Collapse of an Empire: Lessons for Modern Russia (http://www.amazon.com/Collapse-Empire-Lessons-Modern-Russia/dp/0815731140/ref=sr_1_2?ie=UTF8&qid=1395954438&sr=8-2&keywords=yegor+gaidar) published in 2007 offers a brilliant account from the inside with excellent documentation. The Kremlin back then was also not interested in businessmen and had an especially deep disdain for the dull accounting and finance stuff. :D
I'm not fully through, but it is a great read. He also warned of the nationalistic tendencies in Russia partly rooted in the 'tragedy' of the lost empire. Interestingly the commodity exports back then were also increasingly used to fund imperial ambitions and to keep the inefficient system going. Time will tell what will happen to Putin's Russia.
The IMF announcement (http://www.imf.org/external/np/sec/pr/2014/pr14131.htm). It is worth to point out the focus on avoiding too high social costs, especially for the vulnerable. The current Ukrainians leadership has been dealt a terrible hand and has to play it's cards as least worst as possible.
”Fiscal policy will secure priority spending during the coming months and implement deeper fiscal adjustment over the medium-term. The initial stabilization in 2014 will be achieved through a mix of revenue and expenditure measures. For 2015-16, the program envisions a gradual expenditure-led fiscal adjustment—proceeding at a pace commensurate with the speed of economic recovery and protecting the vulnerable—aiming to reduce the fiscal deficit to around 2½ percent of GDP by 2016.
“Energy sector reforms will focus on reducing this sector’s fiscal drag, while attracting new investment and enhancing efficiency. A key step is the commitment to step by step energy reform to move retail gas and heating tariffs to full cost recovery, along with early action towards that goal. Importantly, this will be accompanied by scaled up social protection to mitigate the impact on the most vulnerable. Over time, the program will focus also on improving the transparency of Naftogaz’s accounts and restructuring of the company to reduce its costs and raise efficiency.
It is also not surprising that the IMF tends to get the blame as it usually comes in when the economy is in crisis, a thankless job indeed. There are still people in Italy praising Berlusconi for all the good he did. Sadly they forget that he was the funny guy at the bar inviting everyone to a drink only to disappear before the bill was due. A wallet or two also went missing...
Just a snippet from the paper roundup of the Moscow Times:
Darya Borisyak article headlined "State banks to save on dividends" says the Russian government is ready to support state banks that have been hit by U.S.-imposed sanctions; p 10 (400 words).
Liquidity has become increasingly important with all that captial flowing out of the country and Russias costly interventions on the currency markets.
Fuchs
03-28-2014, 01:19 PM
I note with some interest that where you have been a loud and vocal champion of International Law when it came to US / NATO involvement on Libya, Syria etc you are quiet on the Russian invasion of Crimea.
Also of course what comes to mind is your earlier defence of the German strategic decision to accept energy reliance on Russian oil/gas.
Have you changed your position on these issues?
I've been rather quiet on SWC for months actually.
There was a recent text on my blog equating the Western and Russian violations of IL and pointing out the recent hypocrisy. Legally the Russians have a pretty good case when they compare Western behaviour against Yugoslavia with their behaviour against Ukraine, except the violated guarantees. But treaties were violated by Western countries as well, so they can construct equivalent Western evilness by adding a few violations.
The West clearly was lacking self-discipline, and now it sees what happens when other great powers lose respect for rules, too.
The gas supply thing is still the same; Russians are even more dependent than Germans on the pipeline, and we've had natural gas trade with them since well into the Cold War. It's largely a non-issue. Even a complete cut-off would merely be a nuisance when compared to historical embargoes.
The "energy reliance" on natural gas makes up only 22.5% Germany's energy 'consumption' (http://www.crp-infotec.de/08spezi/energie/grafs_basics/deutschland_energiemix.gif) and the minority of its natural gas consumption is from Russia: 38% (http://tinyurl.com/o8q6ss4)
8.5%: Anybody who thinks Germany - the people whose parents and grandparents waged two world wars under total naval blockade - couldn't cope with a loss of this is a fool.
It would be painful, but more like a paper cut pain than like the pain of a submission technique.
Putin Pushes Untradeable Notes as Bond Sales Fail: Russia Credit (http://www.bloomberg.com/news/2014-03-27/putin-pushes-untradeable-notes-as-bond-sales-fail-russia-credit.html)
Axing Auctions
Russia has scrapped seven bond auctions this year, citing “unfavorable” market conditions. Investors fled emerging-market assets in January as the Federal Reserve reduced its bond-buying program. They continued their exodus from Russian markets as the crisis in Ukraine deepened, leading Standard & Poor’s and Fitch Ratings to cut the country’s credit outlook to negative this month.
Outflows were probably near $70 billion in the first three months, Deputy Economy Minister Andrey Klepach told reporters on March 24. That compares with $63 billion in all of 2013.
The government may refrain from selling $7 billion in Eurobonds and pare its 825 billion-ruble domestic-bond target, Finance Minister Anton Siluanov said March 21. The ministry has borrowed 37 billion rubles since the start of the year, data on its website show.
Of course it is not the first time, they did a similar thing to finance themselves less the two years ago. Russia is not shut out of the international financial market but it has to pay more to get access to it.
The longer the conflict goes the more damage it will inflict on the Russian economy, especially long-term. In the short run the balance sheet and revenue streams looks strong enough to weather some storms with little damage.
On the other side is no surprise that the IMF deal pushed down yields. Still I would not have expected a fall of 20%, which is quite amazing. Big news in not very liquid and relative small market, make it of course easier to get such wild swings compared to treasuries. As I said earlier if there is enough political willpower in the West, it easily has the financial firepower to make a big splash.
The IMF deal “unlocked the highly desired support of the EU and the U.S. to develop the Ukrainian economy and prevent default,” Alexander Valchyshen and Taras Kotovych, analysts at Investment Capital Ukraine in Kiev, said in an e-mailed note today. “If the Ukrainian parliament adopts other drafts of the law to improve the Ukrainian economic situation, yields should continue to decline further.”
The government signed a political pact with the European Union on March 21, after the ouster of President Viktor Yanukovych prompted Russia to stop lending to its former Soviet vassal state and annex the Crimea region.
The weakness of the Hryvnia is mostly a combination of a country in turmoil and the overvaluation achieved by the monetary interventions in the last year which was money thrown out to get lower inflation and maybe better personal deals abroad...
A bi tmore (http://www.faz.net/aktuell/politik/ausland/technik-aus-dem-westen-selbst-den-deutschen-traut-russland-nicht-mehr-12870201.html)about the Russian economy and it's interactions with Germany in particular:
In Russland herrscht Alarmstimmung. Nicht zuletzt bei den deutschen Unternehmern, die dort in den vergangenen Jahren meist gute Geschfte gemacht haben. Russland, das Land der groen Chancen, gilt ploetzlich als ganz unsicheres Gelaende. Viele deutsche Firmen, die noch im vergangenen Jahr in Russland investieren oder eigene Produktionssttten errichten wollten, haben diese Plaene jetzt aufgegeben oder zurckgestellt, sagt Bernd Hones, der in Moskau fr Germany Trade and Invest, die Gesellschaft fr Auenwirtschaft und Standortmarketing, arbeitet. Mancher Manager, der mhsam ein Millionenprojekt in Russland im deutschen Betrieb durchgesetzt hat, gert nun ins Schwitzen. Wenn das mal gutgeht, heit es. Vorsicht gilt im Russland-Geschft als das Gebot der Stunde, sagt Hones.
Dabei waren gerade die Deutschen die Musterknaben im Russland-Geschft. Kein anderes Land hat so viel in Russland investiert. Wenn es um direkte Investitionen geht, also um Fabriken, Betriebe und Anlagen, so rechnet sich der Anteil der Deutschen nach russischen Zahlen auf zwoelf Milliarden Dollar. Das ist mehr, als die Vereinigten Staaten, China, Japan, Grossbritannien, Frankreich und Italien zusammengenommen investiert haben. Und vor den Deutschen, ihrer Technik und ihren Marken hatten die Russen immer Hochachtung. Doch nun dreht sich der Wind. Die Praedikatspartner werden auf einmal skeptisch angeschaut. Deutsche Unternehmer, so berichtet Hones, htten heute den Eindruck, dass russische Industriekonzerne es gegenwaertig fuer politisch angebracht halten, nicht mit deutschen Firmen Geschaefte zu machen. Mit den Unterstuetzern des Umsturzes in der Ukraine will man lieber nicht zu eng verbunden sein.
This hurst of course German companies but is more disruptive for Russia. If the biggest investor, like others, does pushes or bins important projects like those plants it will harm the long term potential. The Russians have tried quite hard to get plants and other investments by various incentives and entry barriers for imports. The big Italian jump is mostly explained by the big $ 1bn win and a far smaller base.
The currrent trend to buy 'Russian' cuts both ways. On one hand it might be needed to give the generally uncompetitive Russian companies some breathing room on the other hand it will have a long term negative impact on the Russian economic surplus and it's federal budget.
Now to the more certain grounds of economics:
Playing Russian Roulette With Sanctions and Oil Prices (http://online.wsj.com/news/articles/SB10001424052702304688104579467420416766860?mg=ren o64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB1000 1424052702304688104579467420416766860.html)
Enacting sanctions against a country supplying 12% of the world's oil sounds like a one-way ticket to a price spike. But that ignores Russia's other role as an oil consumer.
Over the past five years, Russia has accounted for 11% of the world's growth in oil consumption. And sanctions look more likely to affect that than the supply side.
...
Meanwhile, Russia sustaining an oil embargo of its own looks untenable. Excluding oil revenue, its current-account and fiscal deficits would have both exceeded 10% of gross domestic product last year, according to the World Bank.
A short look at the Russian papers for interesting economic bits:
3. Alexei Shapovalov article headlined "They are united in consumption" says that Russians have begun spending their savings given the weakening ruble rate and a price hike; pp 1, 6 (754 words).
Higher inflation is of course on it's way so it sounds plausible that consumers try to consume now rather then later. This should give the economy a short-term demand boost, although it's size depends on how much of it is spent of goods from evil Western foreigners.
Dayuhan
03-31-2014, 01:41 PM
Russia does export significant volumes of oil and gas to Asia, though much less than it sends to Europe. Asian buyers are much less likely to participate in sanctions imposed over Russian actions in the Ukraine.
Russia can significantly increase sales to Asia, though there are serious infrastructure constraints and the shift will take time... just as it will take time for any prospective US exports to have any impact on European supply issues.
Some discussion of the question of the US supplying gas to Europe here:
http://www.platts.com/latest-news/natural-gas/moscow/us-lng-exports-pose-no-short-term-threat-to-russian-21392003
http://www.miamiherald.com/2014/03/24/4016163/energy-department-approves-natural.html
From second citation above:
Europe relies on Russia for nearly a third of its natural gas, a fact that Russian President Vladimir Putin uses to his political advantage. But it is questionable how much increased American exports could hurt Putin, since most are destined for Asia, not Europe, and are years from reality.
The global consulting firm IHS Energy said in a new report that U.S. exports of liquefied natural gas, known as LNG, “can have no real” impact on the Ukrainian crisis, a conclusion that echoes other analysts.
“Much attention has been focused in recent weeks on the potential for U.S. exports of LNG to help Europe offset its dependence on Russian gas,” the report said. “Although the United States is currently on track to become one of the world’s three major LNG exporters by 2020–22, IHS Energy expects the ultimate impact on European gas supply to be limited.”
Natural gas prices are far higher in Asia than Europe, so companies are more interested in exporting to the hungry Asian market. The European countries most dependent on Russian energy don’t even have terminals for receiving U.S. liquefied natural gas and receive their energy by pipeline.
I get the feeling that much of the talk of US gas addressing Europe's dependence is intended less to influence the situation in the Ukraine than to influence domestic debate on fracking and on the Keystone pipeline.
It is worth noting that right now the US has no LNG export capacity at all, something the Lituanians at least don't seem to realize:
http://www.bbc.co.uk/news/business-26724081
The terminal under construction at Sabine Pass, TX could export in 2015 or 2016, Freeport TX by 2017. Much of their output is already committed to Asian buyers. Most other proposed terminals are in the approval or early construction phases. US gas is not going to come rushing to Europe's rescue. There will be a displacement effect, as US imports are eliminated and eventually as US and Australian exports to Asia leave Middle Eastern gas looking for buyers... but that's not even close to being a short term solution.
http://online.wsj.com/news/articles/SB10001424127887324767004578489130300876450
Another fairly clear assessment:
http://www.forbes.com/sites/kensilverstein/2014/03/27/u-s-natural-gas-is-not-a-weapon-to-be-wielded-against-russia/
Good summary quote from the BBC link above:
"So, who is more reliant on whom? This has more to do with the exercise of political will rather than of economic leverage."
Gazprom raises gas prices for Ukraine by almost 50% (http://www.bloomberg.com/news/2014-04-01/gazprom-raises-gas-export-price-as-ukraine-looks-for-cash.html).
The government of ousted president Viktor Yanukovych had negotiated a discounted price last year as he grappled with protests after he dropped an association agreement with the European Union.
It “follows from Ukraine’s non-performance of obligations to repay the debt for gas supplies in 2013 and the lack of 100 percent payment for the current supplies,” Gazprom Chief Executive Officer Alexey Miller said. “The gas discount can no longer be used.”
This comes as no surprise. In any case the Ukrainian government might be well advised to declare with Western help the Russian loans 'odious' and just not pay a dime. Some informations about the legal aspects (http://ericposner.com/mitu-gulati-on-ukraines-odious-debts/), although it depends of course much on the Western political will and the take by the financial markets. The latter would likely go wild if this was done in a 'normal' situation, but I doubt that such a special case will have significant consequences.
The issue about Gazproms credit is of course more difficult from a legal point of view, as I understand it. Not paying them would make a great deal of sense but this has to be looked at in greater detail.
Gazprom raises gas prices for Ukraine by almost 50% (http://www.bloomberg.com/news/2014-04-01/gazprom-raises-gas-export-price-as-ukraine-looks-for-cash.html).
This comes as no surprise. In any case the Ukrainian government might be well advised to declare with Western help the Russian loans 'odious' and just not pay a dime. Some informations about the legal aspects (http://ericposner.com/mitu-gulati-on-ukraines-odious-debts/), although it depends of course much on the Western political will and the take by the financial markets. The latter would likely go wild if this was done in a 'normal' situation, but I doubt that such a special case will have significant consequences.
The issue about Gazproms credit is of course more difficult from a legal point of view, as I understand it. Not paying them would make a great deal of sense but this has to be looked at in greater detail.
Over and above the debt issue, one wonders about future loss of revenue to Gazprom. Econ 101 and price theory-- as price goes up demand goes down unless the demand is inelastic. Particularly with warmer weather coming to the region, how inelastic is Ukrainian natural gas demand?
Over and above the debt issue, one wonders about future loss of revenue to Gazprom. Econ 101 and price theory-- as price goes up demand goes down unless the demand is inelastic. Particularly with warmer weather coming to the region, how inelastic is Ukrainian natural gas demand?
That's a good question. We already a nice graph of the Ukrainian energy consumption:
http://www.euanmearns.com/wp-content/uploads/2014/03/ukraine_energy_consumption.png
Now I found a stunning graph showing the increasing spread between the gas import price and the price payed by private costumers. Needless to say that the subventions became an increasingly heavy burden for the Ukrainian budget...
http://burisma.com/wp-content/uploads/2013/10/Relative_-natural_gas_-prices_in-_Ukraine.png
A good short-term comparision with West European and US prices:
http://marketrealist.com/wp-content/uploads/2013/12/World-Natural-Gas-Price-616x440.png
Not much Russian favour for it's little brother under 'friendly' leadership...
Market prices for private costumers should more then double if you take into account the subvention cuts and the new Gazprom prices. Under such conditions demand will fall a lot. In the long run it is of course considerably more elastic then in the short term. The sommer months should help of course to tackle some issues. So far the industry seems responsible for most of the fall in demand since the fall of the SU, especially after 2005. A drastic case in point is the 2009 crash, prior to that the steel industry in the East did actually pretty well.
Gas contracts are an interesting topic of which I don't know much. In the past it seemed that Gazprom tried to protect it's long term revenue, cutting for example prices for E.ON IIRC from a higher contract one because it had it's margins squeezed there badly. This doesn't seem to be the case when the primancy of politics calls from Russia with love...
Outlaw, there is no doubt that Russia needs high commodity prices to finance it's budget. From it's production costs, especially in the future and it's budget position Russia is in a dangerous spot in the oil market.
http://energypolicyinfo.com/wp-content/uploads/2013/01/oil-prices-budget-breakeven.png
The big technical challenges force high investments with human capital, financial capital and technology for good reasons coming almost only from Western companies. So any disruption there will lower the future Russian output. Personally I think that an engineered negative (higher prices) supply shock is less likely because the many oil-rich countries have much higher budget expenditure due to (much) higher populations and higher standard of living. See a bit of the Saudi one (http://susris.com/wp-content/uploads//2013/12/131224-jadwa-budget-en.pdf).
Of course oil is just a part of the commodity picture. In the important natural gas market only lots of CAPEX will allow it to switch in the long run to other costumers.
OUTLAW 09
04-01-2014, 06:46 PM
Firn---More information concerning the recent SPR sell of 5M barrels of sour crude---the same quality as sold by the Russians from the Urals.
SPR oil put up for sale on the day Ukraine’s new chief is in town
By John Kingston | March 12, 2014 04:27 PM Comments (3)
One trader speaking to a Platts reporter had this to say about the decision by the Department of Energy today to sell 5 million barrels of oil from the Strategic Petroleum Reserve.
“The Gulf Coast market has plenty of barrels,” he said. “They should have done it a few weeks ago when the Gulf Coast was tight due to all the weather delays.”
A few weeks ago, however, Arseniy P. Yatsenyuk wasn’t in Washington. He’s the interim President of Ukraine, and he’s in DC today.
It almost defies logic to think there isn’t a link. (And White House press secretary Jay Carney said there isn’t one, when asked about it at the daily White House press briefing.)
But there is no reason to sell oil now. The reason given by the Department of Energy — a test sale to evaluate its ability to distribute oil in the event of an emergency — sounds very formal and entirely believable. But such a test hasn’t been done since 1990. Why now?
The “energy weapon” that has been discussed so vehemently since the Ukraine crisis began — using US LNG and crude oil exports to weaken world prices and steal Russia’s energy customers — always had a few flaws in it. First of all, even for the terminals where LNG exports have been approved, they aren’t ready to go. Second, US crude exports are still banned, despite lots of talk of changing that.
But selling oil out of the SPR, and specifying that it’s sour crude that’s for sale — the same type as Urals, Russia’s crude grade — can be done now. Next month, in fact, 5 million barrels of oil over 30 days, for an average of just over 165,000 b/d.
The 'energy weapon' is rather unwieldy as far as I can see. We discussed the postive changes which can be achieved on the own playing field. Driving down demand by increased energy efficieny, broader energy mix with more renewables and possibly some nuclear, LNG portals, more integrated piplines and grids, more strategic storage and 'battery' capacity. So the Western world can do a great deal with sound investments at home.
If you hear tough talk from guys like Maduro you should laugh at him or weep for the common folk. Oil at ~$ 75 per barrel for some years will be terrible hit in an already aweful economy...
The Russian budget is calculated using $ 95 as a baseline prediction IIRC. The Norwegians do so with $ 65.
OUTLAW 09
04-01-2014, 07:04 PM
Firn---have been watching both TASS and Interfax---especially Interfax as they do a massive lot of oil/gas PRs----not a single mention of the 5M sell of sour crude.
You have to admit it is a not to subtle shot across the oil front ----shows me that maybe someone in the WH has been thinking creatively which some in the media have bashed them for not doing.
Firn---checked the average price for landed crude in the US for 2013 was roughly 97 USD and refiners paid an average of 98 USD---sour crude is a major portion of US refinery abilities.
So if this is what US importers were on average paying ---it is really close to the Russian 95 USD needed for budgeting purposes.
Just to finish it off for the day, some graphics about various budget breakeven prices.
http://themoscownews.com/images/18894/61/188946126.jpg
http://3.bp.blogspot.com/-0o1cNF0y7Cg/T-Tg1bRjbEI/AAAAAAAAG_4/G0Pes3zibwM/s1600/Breakeven%2BBrent%2Bproduction.png
http://static.seekingalpha.com/uploads/2011/12/1/saupload_WorldEssentialOil-113011.png
The newest one...
http://wpmedia.business.financialpost.com/2012/07/breakeven-oilprice.jpg?w=300&h=650
Generally it is pretty bad position to be a high-cost producer of a commodity, especially one which needs large margins to finance the budget. The gas deliveries into the EU have been a very important anchor for Russias revenue.
Fuchs
04-01-2014, 09:27 PM
Such costs are not truly fixed and difficult to compare.
Some look more like marginal costs than average costs anyway.
OUTLAW 09
04-02-2014, 11:46 AM
Firn---looks like after what two weeks of sanctions the air is getting somewhat thin for some Russian small/middle businesses and Russian banks in general.
April 02, 2014 14:02
Nabiullina: CB to provide banks with more liquidity due to foreign financing problems (Part 2)
MOSCOW. April 2 (Interfax) - Russia's Central Bank will expand liquidity provided to Russian banks due to problems with foreign financing, Central Bank Chairman Elvira Nabiullina said at an Association of Russian Banks (ARB) congress.
"We understand the influence our decision could have on increasing rates. We are going forward with implementing a new tool that will allow [us] to refinance banks' secured investment loans for a longer term. This is alongside expanding experimentation and broadening loan refinancing for small and medium business," she said.
Political risks are significant now, and they will be particularly relevant if Russian banks and companies encounter limitations for refinancing on western markets, Nabiullina said, adding that this is also true if rating outlooks are reviewed and changed, or if the ratings themselves change. "This could negatively reflect on financial stability," she said.
"We in the Central Bank are now looking at how we can react to this, including from the standpoint of providing liquidity if need be," Nabiullina said.
OUTLAW 09
04-02-2014, 03:49 PM
Firn---this one is especially for you---check out the last sentence and tell me if you think they slipped and told the truth or is it a bad translation on their part?
Taken from Interfax today:
April 02, 2014 15:32 Russia should settle in rubles with all trade partners - Kostin
MOSCOW. April 2 (Interfax) - It would make sense for Russia to switch to settlements in rubles with all trade partners, Andrei Kostin, the head of VTB (MOEX: VTBR), said at the Congress of the Association of Russian Banks.
"It's an old topic, the broader transition to settlements in rubles with our trading partners. We need to start at once. Not just with settlements in the framework of the customs Union and CIS, but also in relations with trade partners like China and Western Europe," Kostin said.
He said the transition to ruble payments ought to be one of the key tasks for the banking system, Central Bank and government.
The euro zone and dollar zone currently account for half of Russia's export and less than half of the country's import, "and the United States as such just 2% of export and 5% of our import," Kostin said. He said exporters, particularly state ones, above all ought to make the switch.
"Aggregate exports by Gazprom (MOEX: GAZP), Rosneft (MOEX: ROSN) and Rosoboronexport are almost $230 billion a year, which is 44% of Russia's entire export, Kostin said.
He said the departure from settlements in dollars was long overdue and that the topic should be re-addressed now. "For a month now we have been hearing calls from senior figures in the West to isolate Russia after virtually destroying our banking sector, using the modern financial 'nuclear arsenal' of dollar settlements," Kostin said.
Firn---so a slip of the tongue or the truth?
Doubt seriously most EU or US companies would settle in Rubles and if they did the exchange rates would be a determent to Russia.
OUTLAW 09
04-02-2014, 04:12 PM
Firn---another one for you---this time I was happy to see a reference to the Ukrainian shale gas coming online as it has been reported that the Ukraine sits atop a massive dome which when producing will lower greatly their dependence on Gazprom---there were rumors that the Russian via Gazprom wanted to into that particular dome in order to get cheaper gas as their own pricing is actually on the high side when compare to world prices currently.
Soon, Buyers Will Use Gas as a Weapon
By Yulia Latynina
Apr. 01 2014 20:03
Last edited 20:04
Taken from The Moscow Times today:
Three weeks ago, just as Russia was in the early stages of annexing Crimea, I wrote in this space that the most strategic move the West could take against President Vladimir Putin would be to help lower world oil and gas prices. On Wednesday, U.S. President Barack Obama announced that Washington was prepared to supply gas to Europe in place of Russia.
After Russia unleashed its "gas war" against Ukraine in 2006, Europe realized that the Kremlin was an unreliable supplier and that it used gas as a weapon, not a commodity. Therefore, even before the advent of the shale gas revolution, Europe began making every effort to reduce its dependency on Russian gas. As a result, from 2006 to 2013, the share of Russian gas in Europe's overall consumption fell from 39 to 25 percent.
Actually, Russia's most hawkish patriots suggested that Moscow stop supplying Europe gas and sell it to China instead.
To get an idea of whether Russia could really make good on such a threat, consider the following: In 2013, China extracted only 200 million cubic meters of shale gas, but it expects to extract 6.5 billion cubic meters in 2015 and up to 60 billion to 100 billion cubic meters by 2020.
What's more, Beijing built a 6.4 thousand-#kilometer gas pipeline from Turkmenistan to China at a cost of $6.5 billion, or about $1 million per kilometer. By comparison, Gazprom built the Bovanenkovo-Ukhta pipeline at a cost of $18 million per kilometer, or 18 times higher than China's.
Shale gas production in the U.S. now costs from $100 to $130 per thousand cubic meters. Chinese extraction costs probably will not exceed that figure, even though its gas generally is located much deeper underground. Although the exact figure is a commercial secret, China probably pays Turkmenistan about $100 to $140 per thousand cubic meters of gas. In other words, between Turkmenistan and its own shale deposits, China has plenty of inexpensive gas to cover its needs.
Throughout recent years, Gazprom never reached an agreement on price to begin selling gas to China — and that was even before Beijing began exploiting its own shale gas and buying from Turkmenistan.
In other words, China is unlikely to agree to buy Gazprom gas for more than $100 to $120 per thousand cubic meters — that is, for less than it costs on the Russian domestic market.
The cruel irony is that ever since 2005, when officials signed the contracts for the Nord Stream project, the Kremlin's entire policy toward Europe has been based on gas — that is, on gas as a weapon.
Gas really is a weapon, but only in the hands of a highly sophisticated buyer, not in the hands of a "petrocrat" who exports oil and gas and imports everything else. In the end, the buyer can always find a new supplier for what has become a highly politicized commodity. But the seller — at least in the case of Russia — cannot even provide gas to its friend and ally, Venezuela.
I suspect that the Kremlin is trying to divide Ukraine primarily for fear that Ukrainian shale gas, which is scheduled to start production late this year, will weaken Russia's perceived gas weapon not only on the Ukrainian market, but even on the European market.
It seems that Putin's actions have actually helped hasten the very scenario that he had been scheming so hard to prevent.
Taken from Interfax today:
April 02, 2014 15:32 Russia should settle in rubles with all trade partners - Kostin
Outlaw,
Pretty simple, they have been frozen out of USD exchanges, but not Rubles.
Russia-Idaho-trading in limbo (http://www.idahostatesman.com/2014/03/28/3104864/russia-idaho-trading-in-limbo.html)
Russia was a promising destination for the trade mission. The U.S. exported nearly $11.8 billion in goods and services to the country in 2013. That made Russia only the 28th-leading destination for American exports, but the total was up 20 percent from 2012, when Russia joined the World Trade Organization.
Idaho exports to Russia remained flat at $20.5 million in 2013.
Russia appeared particularly ripe for the nine agriculture companies, including Heyburn's Double L, which makes potato harvesting and handling equipment.
More at the link
The intent and purpose of links, quotes, etc. is to back your posts and give credit to the authors that wrote this Sierra. It also provides readers with a place to go.
I'm from 5th, where are you from ?
Hmmm, far too much speculation for me at this point...
A Bad Start (http://www.forbes.com/sites/kenrapoza/2014/02/19/russias-rotting-ruble/)
Since mid-2011, industrial production growth in Russia has been weakening. In January, IP fell a further -0.2% year over year. The leading drivers of the softness in IP have been electricity and gas, two favorites of Russian equity investors.
Outlaw
First, this graph from 2012 by Russia's Federal Costum Service seems to indicated a higher trade share of the $ and € zones then Mr. Kostin suggests:
http://topforeignstocks.com/wp-content/uploads/2011/11/Russia-2012-Trade-Partners.jpg
Ukraine is of course also an important trade partner. Other Western countries plus Japan are also as a whole significant ones. So who's currency gets stored in those CB balance sheets?
http://upload.wikimedia.org/wikipedia/commons/a/a7/Global_Reserve_Currencies.png
Very little ruble in sight. Overall it should take a considerable amount of political pressure and incentives to push foreign companies from making their trade in the 'natural', most sensible hard currency.
Perhaps it is good to ask cui bono, Mr. Kostin of VTB?
Russias pipelines, obviously pretty dense in the relative densely populated West, with no transibirian one...
http://en.ria.ru/images/16816/70/168167065.jpg
Chinas network:
http://www.arcticgas.gov/sites/default/files/images/china-map-natural-gas-lng.png
As we discussed before connecting their pipelines can make sense, especially strategically, but is expensive. I have no idea how much return they will get on their investments, so many variables. Needless to say that the vast majority of Chinese lives quite 'close' to the coastline and this tendency should become more pronounced. Maybe LNG might be more competitive there, I don't know.
Global and Russian Energy Sector at the Crossroad: New Challenges (http://www.arcticgas.gov/sites/default/files/documents/Mitrova-Embassy-06-12-2013.pdf) by Dr. Tatiana Mitrova, the Head of Oil and Gas Department, Energy Research Institute of the Russian Academy of Sciences.
A very informative read, lost of great graphics. Just as I like it :D
Russias pipelines, obviously pretty dense in the relative densely populated West, with no transibirian one...
Firn,
How many of these pipe lines actually work (have been completed) ?
Nordstream is a long way from it's 1,224 kilometer journey.
Tons of investment and great websites, but which are actually producing revenues ?
The plan was to cut transit nations out of the picture. That has yet to happen here. Meaning, Nordstream has a ways to go.
Seems a bit premature to calculate something that does not exist other than in pie charts and on paper.
That's a good question for which I do not have a quick answer. Capacity would be nice to know as well.
Those maps gives you a nice snapshot about networks but those pesky 'details' are another matter. They also show longer term possibilites but it is a completely different question if it makes economic sense. Strategic projects have often the key downside that they haven't been done before for good 'non-strategic' reasons. :wry:
Considering the way Russia is run I wouldn't be surprised to see them burn a lot of Capex for their primacy of politics. We will have to see how things will flow.
Some news from the financial front: First April, first day (http://www.themoscowtimes.com/business/article/central-bank-marks-first-day-without-intervention-to-defend-ruble-in-5-months/497361.html) that the Bank Rossii didn't sell foreign currency in five months. That is pretty impressive if it isn't a joke.
The bank sells foreign currency to support the ruble when the ruble is within 1.95 rubles of the edge of a floating corridor against a dollar-euro basket, which has stretched from 36.25 to 43.25 rubles since March 28.
The absence of market interventions indicated that the ruble had strengthened to the non-intervention range near the middle of the corridor.
At 10.30 a.m. in Moscow on Thursday the ruble was trading at 41.57 against the basket, within the range where the central bank sells $200 million a day to support the ruble.
If you look at the last year it does sound believable, there was a strong downward pressure on the ruble. I didn't follow the amount spent on currency interventions, but I wouldn't be surprised to hear $ 45 bn, up from $ 39bn some time ago.
Economic Downturn [may] Forces State-Run Firms to Consider Dividend Cut (http://www.themoscowtimes.com/business/article/economic-downturn-forces-state-run-firms-to-consider-dividend-cut/497317.html)
Russia's government may allow state-controlled companies to cut their dividend payments by calculating them according to Russian accounting standards rather than international standards to help weather an economic downturn, Vedomosti reported Wednesday.
The newspaper, citing sources familiar with a draft proposal, said the State Property Agency and Economic Development Ministry would allow the companies to revert to old accounting ways, seen as less transparent than international reporting standards.
1) Cutting the dividends protects the liquidity, which is a pretty standard action if companies face worse income then expected and a free cash flow that isn't all that free.
2) To be honest I don't know why the should have to switch to Russian accounting standards to do so. Just cut them. Or do they operate with a fixed payout rate and want to hide something? Maybe a relative higher % reserved to the state? I have no idea.
Overall there seems to be considerable attention to avoid too much exposure to the credit markets. Increasing the cash reserves comes of course at a price with a generally lower return due to lack of investments etc but to get to the long term one must survive in the short run...
The state-owned Sberbank, the largest Russian bank IIRC, has stopped granting foreign currency loans (http://www.themoscowtimes.com/business/article/sberbank-stops-granting-retail-loans-in-foreign-currency/497348.html) to individuals 'because of the rubles high volatility'. Companies can still get them.
Guess where those Euros or USD would have to come from?
Lots of actions in many areas to make sure that the foreign currency reserves of Bank Rossii don't get depleted. I'm sure that the smart guys there don't like the pace at which the pile gets smaller...
P.S: Seems like they used a perceived tranquility to buy (http://online.wsj.com/article/BT-CO-20140402-701885.html#) some foreign reserves. We talk millions bought against billions sold on forex, and the ruble has weakened again.
Capital controls, what capital controls? The Russian Minister of Economic Development says njet (http://video.cnbc.com/gallery/?video=3000264018), at least he has now plans. Of course he wouldn't say so, wouldn't he? Capital controls are that kind of stuff you want to blitz the markets with. :wry:
He is of course right that Russia has not imposed any of that in the recent past, but the situation is of course unique, as the Russian economy shrinks, survey suggests (http://www.ft.com/intl/cms/s/0/f72431e6-bb08-11e3-948c-00144feabdc0.html#axzz2xqFsvKRh) and capital flight has reached record heights. (http://asia.nikkei.com/Politics-Economy/Economy/Russian-economy-sinking-into-stagnation-due-to-Crimea-crisis)
In the first quarter of this year, the net outflow of foreign capital from Russia has reached some $70 billion, according to an estimate announced March 24 by the Ministry of of Economic Development. That is already more than the $62.7 billion outflow for all of 2013.
As long as investors have to fear heavy economic sanctions and Russian reactions it is difficult to see how we don't end up north of a $ 150bn - in a $ 2000bn GDP economy. As some have already pointed out in this thread the key Russian figures are almost singing sweet songs now to foreign investors after rather gross initial reactions from the Duma floor. A couple of smart guys must have told them what was already clear in the first pages of the thread - if Russia hits foreign investors hard it cuts much deeper into it's own flesh...
It may be seen as a very unfair advantage of Western economic power, but a huge advantage it still is.
And as capital flees from Russia raising it's borrowing costs it flows to a large degree into Western treasuries reducing theirs. The irony. :D
Some good background music (http://www.youtube.com/watch?v=NWIZ1XA8f2s) from the bad old days.
OUTLAW 09
04-05-2014, 02:49 PM
Nobody knows what will happen in political terms in Russia if a recession or even a depression hits the economy. As you said in some instances you are puzzled just how bad things can go worse and worse. Perhaps Putin might endure all political attacks with the large power he has concentrated over the years and with the 'new' enemy at the gates as a culprit to target.
I don't doubt however that his bunch will gobble up their large share even if the whole cake shrinks, as long as they can...
Firn---have spent time going back over a large number of Interfax press releases concerning Russian economic development and their banks--if one looks at the math and compares their statements to western financial analyst statements one has a distinct feeling---their economic conditions currently are in serious straits---not even their own CB statements make financial math sense.
The oligarch's have been great at ripping off the system so what is the true foreign currency assets in 2014 of the CB? If 36B in foreign currency assets disappeared from the Ukraine overnight where did it go-which oligarch or Russian ministry got it?
Reason for asking---they are trying virtually every trick in the trade to make any form of money---check this article on Russia leaving the 1954 UN run TIR customs program which has been working great for Russia up to now---then suddenly they leave allowing them to take illegal border fees and additional customs also illegally---and the sum is not chum change.
By charging illegal fees it just drives up the Russian consumer pricing which in turn drives up inflation as well and it can on the long run even reduce consumer products as companies will refuse to ship products due to the extra hassle for the truckers.
So if they are having to do this just to make money the next question is why?
http://www.nytimes.com/reuters/2014/04/04/world/europe/04reuters-russia-customs.html?ref=world&_r=0
... check this article on Russia leaving the 1954 UN run TIR customs program which has been working great for Russia up to now---then suddenly they leave allowing them to take illegal border fees and additional customs also illegally---and the sum is not chum change.
There is anywhere from five to 10 miles of parked rigs enroute to the Russian border. Sufficiently enough in delays that drivers are going to Belarus to cross the border. The Russian Border Guards are no longer taking bribes and inspecting each and every truck.
Sadly, as you point out, the only people that will suffer from spoiled goods will be Russians.
OUTLAW 09
04-05-2014, 04:28 PM
Stan---Belarus is still in the TIR and can still cross into Russia with no issues---thus the trucker shifts to there.
What is interesting to me is the why----in the face of it being illegal why do they feel the need to come up with innovative ways to earn foreign currency when their own central bank is claiming of 500B in foreign currency assets.
OUTLAW 09
04-05-2014, 04:36 PM
Firn---there was an article today in the FT and I have to dig up the link that stated the rampant and massive corruption in Russia has virtually destroyed the local economy and that Russian activities lately have been pointed towards gaining new territory in order to contribute to the Russia economy.
Might in fact be true if one looks at the cheap products the SU would get through trade deals with say members of the Warsaw Pact ie Poland ,Hungary or the GDR especially the GDR which was still paying WW2 reparations up to 1989.
This TASS press release caught my attention and goes to these cheap product deals----wonder just why Russia would go to the WTO with complaints against the Ukraine if they leave the CIS and or join the EU which they already are getting EU preferences through no customs barriers.
Unless the former Ukrainian government had some on the side quiet cheap priced grain and meat products that Russia was getting that they see now as being threatened by the Ukraine getting world market prices for say their grain and meat via the EU thus the potential complaint to the WTO about none compliance with signed trade deals.
But on the other hand Russia is cancelling a number of signed Gazprom and Black Sea Fleet deals so I am not sure what they are up too.
http://en.itar-tass.com/russia/726633
The last sentence is telling---we will invest in the agriculture base "if" we have "additional financing" with a supposedly 500B foreign currency reserve one would think they have "additional financing" unless the actual foreign currency reserves are much lower due to corruption.
"It does not affect agrarian programmes. I emphasize once more all of them will be preserved, and when there is additional financing, we will channel it into state support," Medvedev assured.
Some news about the Russian budget (http://www.bloomberg.com/news/2014-03-20/u-s-cedes-top-spot-in-russian-reserves-to-france-for-first-time.html)
The government’s use of the sovereign funds would be separate from the 130 billion rubles allocated from the budget this year to raise state pensions and salaries in Crimea.
“Failing to observe the budget rules during stagnation is a strategic mistake,” Alexei Kudrin, a member of Putin’s economic council and a former finance minister, said by phone. “The government is tapping reserve funds instead of pursuing reforms. Augmenting the budget deficit at a time when we cannot borrow on the market is wrong.”
Russia was recently unable to sell it's bonds at it's conditions, as written earlier in this thread, the market is demanding a higher yield to compensate for the greatly increased risk. With considerably better offers it should be able to borrow on the market.
It is interesting to note that quite a few advocate against stimulating the weakening Russian economy, which seems to be heading towards a recession. The RCB is fighting a delaying action against the fall of the ruble with market interventions and the big interest raise and can hardly use the printing press to finance a defict if Putin wants one. With both the fiscal policy and the monetary seemingly tied up there is little support indeed available for the Russian economy.
Illegal vodka floods the Russian market (http://www.themoscowtimes.com/business/article/illegal-vodka-floods-alcohol-market-as-prices-rise/498073.html) seems to be a trivial aspect of the Russian economy, but that happened also in the 80s in the SU when the leadership tried to curb alcoholism by price hikes and laws. The revenue stream is this time of course not that important for the budget, but it shows that one's actions in a difficult social context can result in unintended, sometimes counterproductive outcomes.
OUTLAW 09
04-22-2014, 12:14 PM
Firn---thought you might like these economic press releases from Interfax today;
April 22, 2014 13:15 Govt will honor all social obligations despite economic problems - Medvedev
MOSCOW. April 22 (Interfax) - For all the economic difficulties, the Russian social sector will not be affected, and the government will honor all the social obligations, said Russian Prime Minister Dmitry Medvedev.
"I want to state as follows: whatever happens around our country, whatever the difficulties our economy experiences, we shall fully honor all the social obligations we've assumed," Medvedev told the State Duma while presenting a government report.
13:13 RUSSIA TO MINIMIZE CONSEQUENCES OF POSSIBLE EU SANCTIONS BY TURNING TO OTHER MARKETS – MEDVEDEV
April 22, 2014 13:06 Blacklists swap will lead Russia, West into deadlock - Medvedev (Part 3)
MOSCOW. April 22 (Interfax) - The continuation of exchange of blacklists in the wake of the incorporation of Crimea into Russia will result in an absolute deadlock, said Russian Prime Minister Dmitry Medvedev.
"Of course, we can continue swapping blacklists but I do not even consider it necessary to prove now that this is an absolute deadlock," he said while presenting a government report to the Duma on Tuesday.
Already Russians have experienced the restrictions, and not just in getting visas: foreign partners have removed certain Russian banks from international payment systems, the prime minister said.
"For us, it is an additional incentive to create a national payment system that would hardly depend on the international situation and operate smoothly on a nationwide scale," Medvedev said.
13:59 Russia must try to shift foreign trade to the ruble for ruble to become reserve currency – Medvedev
13:26 Russian GDP should grow in line with EU economies in 2014 - PM (Part 2)
14:02 Medvedev: 20%-40% of outflow was 'gray capital'
OUTLAW 09
04-24-2014, 11:16 AM
There are an interesting number of economic indicators that Russia is financially struggling and that might be the single reason Putin has not moved yet.
1. Russia attempted for the fourth time to sell Sovereign bonds yesterday at a 200M USD range ---not a single taker AND by the way not a single Interfax press release on the topic or as well in TASS
2. they announced that inflation was up to 3% but that it was not a problem which is interesting as European rates are sinking
3. and they pushed back on outside statements saying that in Q2 Russia was a full blown recession
And then this today in Interfax:
16:03 RUSSIAN CORPORATE PROFITS PLUMMET A THIRD IN JAN-FEB, MANUFACTURING POSTS LOSSES
Kaur,
President Ilves told the Ukrainians this months ago.
What a shame that our 2007 lesson, free of charge, fell on deaf ears.
Close the borders
Find the money
All Russian passports are suspicious
How difficult to follow ?
But, we don't have Russian sympathizers on our borders ;)
Hey, at least no sensible person can say anymore that the has been no little effort to 'understand' Putins position on the 'Russian necessities'. It seems that much of the energy spent on 'de-escalating' has served as a incentive to Vova to escalate further.* :wry:
In any case time isn't on the side of the Russian economy. We will see how things shape up around that key Russian weakness in the long run.
*As stated before I'm against military adventures but the US and EU could inflict considerable financial and economic costs on Russia at likely pretty cheap price. Others will hurt especially the EU more, but will hit Russia far harder. Needless to say the US could easily come up with a couple of additional billions to support Ukraine, helping to break a good deal of the economic leverage Russia enjoys over it's weak neighbour.
David, this energy firms aspect is wierd to read in situation, where 2 days ago Putin had to be arbiter between Gazprom and Rosneft in their dealing with Shell and Exxon. The fight is going on because of Sakhalin LNG project, which must be exproter to the Asia market. Diversification of energy routs from Europe to Asia with the help of western firms.
This seems to be good article.
Russia Is in No Economic Shape to Fight a War
By Anders slund Apr. 22 2014
http://www.themoscowtimes.com/article/498728.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+themoscowtimes%2Fopinion+%28T he+Moscow+Times+Opinion%29
Who would have thought that countries can even suffer from PTSD.
Interesting link and article:
http://www.newrepublic.com/article/117493/russia-suffering-post-traumatic-stress-disorder
Nice to see somebody else picking up Gaidars comments in his great book and expending on them.
Personally I would not be worried too much about NG demand for various reasons already outlined in this thread long ago. Btw I also gave the Austrian Verbund a closer look after it's long fall, and it is quite stunning how uncompetitive gas is also in the electricity sector in Austria. In the long run I doubt that the Russians will get as much for their stuff as today.
Firn---noticed today that Putin in a press released admitted the sanctions were causing damages ie increased lending costs, or no loans or financing being available due to bank questions caused by the sanctions.
Sounds like Putin is trying to prepare 'his' people for some economic sacrifice for the greater good and proper needs of Great Russia. The state's balance sheet is pretty strong but the foundations of the economy and it's prospects are quite shaky. We will see how the GDP will shrink according to neutral analysts.
OUTLAW 09
04-24-2014, 06:26 PM
Sounds like Putin is trying to prepare 'his' people for some economic sacrifice for the greater good and proper needs of Great Russia. The state's balance sheet is pretty strong but the foundations of the economy and it's prospects are quite shaky. We will see how the GDP will shrink according to neutral analysts.
Firn---yesterday they were again unable to place a 200M USD Bond offering and pulled it back---the fourth failed attempt in the last three months---risk rates were to high for their CB.
Even Without Sanctions, Russia's Economy Is Looking Sicklier Than Ever (http://www.businessweek.com/articles/2014-04-25/even-without-sanctions-russias-economy-is-looking-sicklier-than-ever)
“What we’re seeing now is a pretty permanent exodus from Russia, and it will be very difficult for the Russian central bank to fight it,” Lars Christensen, chief emerging-markets analyst at Danske Bank in Copenhagen, tells Bloomberg News. “The central bank is very much between a rock and a hard place. They frankly seem quite desperate in their actions.”
I wrote earlier that Russia might be forced to raise again it's interest rate and last week it did so. Higher inflation and (unofficially) pressure on it's foreign reserves are the two reasons. The RCB finds itself indeed between a rock and hard place and has to hurt demand and growth due to Putin's primacy of politics...
The Ruble has fallen quite a lot in the last year (http://www.bloomberg.com/quote/EURRUB:CUR) due to the economic woes in Russia and the strenght of the Euro and Dollar in the last years. It's large losses in the last months after Putins military adventures are especially impressive if one takes into account the 40+ bn USD spent on market interventions and the 200+ base points hike relative to the actions of the FED and ECB.
Firn,
I wrote earlier that Russia might be forced to raise again it's interest rate and last week it did so. Higher inflation and (unofficially) pressure on it's foreign reserves are the two reasons. The RCB finds itself indeed between a rock and hard place and has to hurt demand and growth due to Putin's primacy of politics...
Not sure I understand this chart (http://www.inflation.eu/inflation-rates/russia/historic-inflation/cpi-inflation-russia.aspx). Seems 2004 and 2005 were far worse.
Historic inflation Russia (CPI) - This page features an overview of the historic Russian inflation: CPI Russia. The inflation rate is based upon the consumer price index (CPI). Two overviews are being presented:
the annual inflation by year for Russia - comparing the december CPI to the december CPI of the year before and
the average inflation by year for Russia - the average of 12 monthly inflation rates of a calendar year
I don't do pie charts :D
Firn,
Not sure I understand this chart (http://www.inflation.eu/inflation-rates/russia/historic-inflation/cpi-inflation-russia.aspx). Seems 2004 and 2005 were far worse.
The target is 5% IIRC, now RCB's indicator seems to have hit 7.2% after 6.2% in Feb. The rate of change might have caused the RCB's reaction more then the absolute percentage...
The graph suffers from the start year with over 800%. Compared to that everything other seems inflationwise tiny :D
http://www.tradingeconomics.com/charts/russia-inflation-cpi.png?s=rucpiyoy&d1=20040101&d2=20141231
A better one. One has to keep in mind that wages, especially the public ones (I guess lots of bonuses for the FSB, Cossacks and so forth :eek:) have outstripped productivity growth (maybe not for the FSB&Co, sorry :wry:) for quite some time...
OUTLAW 09
04-29-2014, 08:16 PM
Firn---you will enjoy this article--in addition to this MC with it's cutting off card operations to two Russian banks is costing themselves 3-4B USD in lost Russian business per month but that translates into even more in lost internal Russian business sales. It is interesting that the Russians are arguing the card business is over 780B USD per year.
Russians are arguing that they need now their own rating agency but that is 10 years away and with Russian criminal activity no one would trust the agency so they are tied to the three US rating agencies forever so to speak.
http://www.themoscowtimes.com/business/article/standard--poors-bombards-russia-with-downgrades/499195.html
If one looks at this Interfax press release that just came out one wonders where Putin's mind is as it is the Russian oil industry that is dependent on critical specialized US oil industrial products, equipment and critical engineers---they cannot be in certain oil production areas substituted by other oil producing countries---so I am not sure just where the threat is to the US oil industry. One hears for the last three days out of Moscow the drumbeat that the sanctions are actually beneficial for us as we will and or must develop our own industries---but they forget to say at the same time just how long it will take they to build substitutions. IE for the military industrial base in the Ukraine will require up to 10 years to replicate in Russia.
04/29 23:25 PUTIN: IF EU'S, U.S.' SANCTIONS CONTINUE, WE WILL HAVE TO THINK ABOUT THEIR PRESENCE IN STRATEGIC SECTORS OF RUSSIA'S ECONOMY, PARTICULARLY IN ENERGY SECTOR
Hardly.
Besides, rating agencies are so very useless, nobody "needs" them - other than for rackets. It's about time we establish test runs to expose how useless the financial sector's judgement on risks is. I've seen it myself many times; flipping coins would be quicker, cheaper and in no way inferior to bankers deciding on business loan requests.
Partly true, but it does underestimate the mostly positive impact of ratings as a way to incentivize debtors to better their financial policies to get an easier and cheaper access on the market. It is only a tendency which comes at a price with plenty of counterexamples but it is a positive tendency.
For individuals on the investment side perhaps the best aspect is the ability to party shift responsability - at least you can shout that you bought only A+ or so. As most things this might have a negative impact on the mental effort to analyze the thing itself.
As the service of the rating agencies is relatively cheap compared to market volume I believe that they are worth it. In any case a bad rating might be unfair or plain wrong but it is still a real problem for the business, especially since the spread of tighter rules in entities like pension funds etc. A drop below 'investment grade' forces them to disinvest.
I found the official statement of the Bank Rossii (http://www.cbr.ru/eng/press/PR.aspx?file=25042014_1335371.htm) pretty downbeat. As it is an official document and quite informative I will quote it in full. I will underline some of most important stuff.
On the Bank of Russia key rate
On 25 April 2014 the Bank of Russia Board of Directors decided to raise the key rate to 7.5 percent per annum due to higher inflation risks. The probability of inflation exceeding the 5.0% target at the end of 2014 has increased substantially. This has been caused by more pronounced than expected pass-through effect of the exchange rate dynamics on consumer prices, the rise in inflation expectations, as well as unfavourable conditions in the markets for some goods. The Bank of Russia does not intend to lower the key rate in the coming months. The Bank of Russia estimates that the adopted decision would ensure the decline in inflation to no more than 6.0% by the end of 2014.
In March - April 2014, the year-on-year consumer price growth rate rose and stood at 7.2% as of 21 April 2014. Weekly inflation has persisted at 0.2%. Inflation acceleration has been mainly caused by the larger than expected impact of exchange rate dynamics. Unfavourable conditions in the markets for some goods, such as dairy products, sugar, pork, and petrol, also have contributed to higher inflation rates. Some additional inflationary pressure has come from a temporary surge in consumer demand for non-food goods amid the rise of inflation expectations. As a result, there was the increase in prices for a wide range of goods, including domestically produced goods, as well as services. In March 2014, core inflation accelerated to 6.0% from 5.6% in February.
The current economic slowdown is predominantly structural by nature and thus does not exert any noticeable downward pressure on inflation. Historically low unemployment rate constrains economic growth potential. Due to demographic trends the impact of this factor will persist in the long run. Utilisation of commercially viable production capacity remains relatively high. Labour productivity growth is sluggish, while fixed capital investment continues to contract because of declining profits in the real sector, limited access to long-term financing in both international and domestic markets, as well as low producer and consumer confidence. Uncertainty about international political situation also hampers production and investment. Besides, weak economic activity in most countries, which are Russia’s trading partners, restrains the economic growth of Russia. At the same time, persistently high oil prices have a stabilising effect on the domestic economy and public finance.
In March - April 2014, household rouble deposit rates began to grow. This was caused by the conversion of funds to foreign currency due to higher inflation expectations and by increasing bank funding costs, inter alia, as a result of the Bank of Russia’s decision to raise the key rate in March 2014. In addition, banks tighten lending conditions, in particular, by increasing loan rates. At the same time, weak economic activity restrains demand for loans and respectively curbs a rise of interest rates on loans.
According to the Bank of Russia projections, a year of 2014 will continue to witness a downward trend in economic growth. Boost to economy from the observed rouble depreciation will be limited. Amid economic uncertainty and declining producer confidence there is a strong probability of a reduction in fixed capital investment. Combination of slower growth in real wages and a decline in household lending growth rates will have a dampening effect on consumer activity.
Inflation will stay around the current level until the mid-2014. In the second half of the year, consumer price growth will decelerate as a result of lower planned hikes in administered prices and tariffs, falling inflation expectations, and the aggregate output of goods and services remaining below potential. Since monetary policy affects the economy with a lag, the probability of inflation exceeding the 5.0% target at end-2014 has increased substantially. The adopted decision on the key rate would ensure the decline in inflation to no more than 6.0% by the end of 2014 and help to maintain the appropriate balance of inflation risks and the risks of further economic slowdown. In the medium term the effect of factors behind the observed acceleration in consumer price growth will be exhausted and in the absence of any new shocks to the economy inflation will hit the target levels set in the Guidelines for the Single State Monetary Policy in 2014 and for 2015 and 2016.
The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for 16 June 2014. The press-release on the Bank of Russia Board of Directors’ decision is to be published at 13:30, Moscow time.
I underlined more then I wanted, but it is a highly condensed statement. Love the CentralBank-speak. Some of it is new, like the lower then planned adm. hikes of prices while a good deal has already been discussed here, like the limited boost (what industry, what services?) to the economy by the rouble deprecation. Points rightly to the demographic situation and the currently low unemployment as limiting further growth which I didn't take into account as much as I should have. I'm sceptical about inflation falling below 6%. If it does it will likely do so for bad reasons...
OUTLAW 09
04-30-2014, 11:45 AM
This doesn't surprise one, davidbfpo. Good stuff as usual kaur. Outlaw, a Russian rating agency will indeed carry little weight as most will (rightly) assume that it is, if not controlled, heavily influenced by Russia's leader.
In Slawjansk herrscht Terror (http://www.faz.net/aktuell/feuilleton/debatten/leben-und-ueberleben-in-slawjansk-in-der-ostukraine-12915986-p3.html) is an German article by a German Russian translator with ties to Slawjansk.
It talks about the terror spread by the speratist gunmen, some with criminal backgrounds like in Crimea, influenced by Moscow and it's crimes against civilians. A main target of it's criticism is the language used in main-stream German media which doesn't call the terrorists terrorists but pro-Russian activists.
Nothing new and surprising there. People were kidnapped, tortured and murdered by the former regime supported by Russia, people were kidnapped, tortured and sometimes murdered in Russian-controlled Crimea and people get kidnapped, tortured and murderd by terrorists supported by Russia in Eastern Ukraine. Almost business as usual.
We will see how which results this terrorist campaign waged by Putins minions will give in the long run.
Firn---IMF stated today as released by Interfax;
1. Russia is in a recession
2. capital outflow has hit the over 100B USD up in the last two weeks from 65B
3. GDP is estimated at right now .02% and sinking to potentially zero or lower if that is technically possible
Also notice not a single reverse sanction coming our of Moscow simply because they have not a single pressure point outside of US businesses doing business in the energy sectors---which Russia needs their actual help on so again no pressure points---so much for a superpower wantabe.
http://www.kyivpost.com/content/ukraine-abroad/euractivcom-russia-to-reconsider-western-energy-projects-345701.html
Don't listen to the spin, this the truth about Germany's policy towards Russian expansionism:
Ukraine crisis: Russia sanctions would hurt Germany's growth (http://www.telegraph.co.uk/news/worldnews/europe/ukraine/10820180/Ukraine-crisis-Russia-sanctions-would-hurt-Germanys-growth.html)
The classified report, prepared by the European Commission and leaked to a local magazine, warns that the sanctions could slash forecast growth for the German economy this year by almost one per cent, moving the country closer to a downturn, with grim implications for a weak eurozone.
A downturn? Rather sell out a few million people than have that.
Funny how it always takes the potential of economic pain for a nation's true colours to be exposed for all to see.
German export to Russia.
Impact on Germany is real, but limited
The DIHK says some 6,000 German firms are currently active in Russia. For the big, DAX-listed blue chips, Russia is just one market of many, and so the impact of the conflict over Ukraine is limited.
"Our Russia business is important, and in recent years our sales there have been growing faster than in most other markets, but it's not overwhelmingly big yet," says Tobias Baumann, a German Chamber of Industry and Commerce (DIHK) expert on Russia. He notes that German exports to Russia account for only about 3 percent of Germany's total experts. A Russia mired in recession wouldn't have dramatic consequences for German business. Leading economic think tanks estimate a 3-4 percent economic downturn in Russia would result in a mere 0.3-percent dip in Germany's gross domestic product (GDP).
http://www.dw.de/subdued-business-prospects-german-companies-in-russia/a-17635645?maca=en-rss-en-eu-2092-rdf
A long time ago I worte that the Russia economy and the Western political willpower are the central 'outside' elements in this current conflict which might go long. Obviously they are interwoven with many other aspects outside of Ukraine, such as the economic developments. Germany and Merkel play a key role in this conflict and the German economy is one most linked with Russia out of the big players.
After a couple of weeks I looked again at a live-blog, a sometimes pretty useful instrument, in this case from the Zeit (http://www.zeit.de/politik/ausland/2014-05/urkaine-live-blog-merkel-putin-beziehungen-russland)
(10:15) Die Ukraine-Krise kostet die deutsche Wirtschaft viel Geld. Im ersten Quartal 2014 brachen die Exporte nach Russland gegen den allgemeinen Trend um 13 Prozent ein. Damit wurden nur noch Waren im Wert von rund 7,6 Milliarden Euro dorthin geliefert, wie aus Daten des Statistischen Bundesamtes hervorgeht. Die gesamten Exporte waren von Januar bis Maerz dagegen um 3,1 Prozent gestiegen.
Damit verschaerft sich der im vergangenen Jahr begonnene Abwaertstrend erheblich: 2013 waren die Ausfuhren nach Russland bereits um fnf Prozent auf 36 Milliarden Euro gefallen. berdurchschnittlich stark leiden derzeit die Maschinen- und Autobauer. Die Lieferungen von Maschinen fielen um 17 Prozent auf 1,9 Milliarden Euro, die von Fahrzeugen um 18 Prozent auf ebenfalls 1,9 Milliarden.
Neben der Verunsicherung von Unternehmen und Verbrauchern durch die Ukraine-Krise drfte der Kursverfall des Rubel dabei eine wichtige Rolle gespielt haben. Er war im Februar und Mrz auf ein Rekordtief gefallen, nachdem Anleger massenhaft Geld aus dem Schwellenland abgezogen hatten. Das macht deutsche Waren teurer.
Noch staerker brachen die Exporte in die Ukraine ein, wenn auch auf deutlich niedrigerem Niveau. Sie gingen in den ersten drei Monaten um rund 26 Prozent auf 967 Millionen Euro zurck. Auch die Whrung Hrywnia war auf Tiefstnde gefallen.The German exports to Russia fell 13% in Q1, after a 5% reduction in the same timeframe in 2013. The weakness of the Ruble does in my opinion explain most of it, which in turn was caused by Putin's aggression. There is no doubt that the Russian economy is suffering increasingly from many problems outlined before.
Despite much of the media reporting and high amount of trading compared to the other large EU countries Russia is for Germany,compared to the EU, the US or China a small market and economy. This is reflected by the overall rise in export by 3% despite Russia's troubles.
davidbfpo
05-21-2014, 08:58 PM
This thread was requested to cover the position of the Russian economy and its international transactions. A large number of posts have been removed from the Ukraine thread.
As will be clear the Russian economy is fragile, largely due to the dependence on gas & oil and to a lesser extent gold exports.
There are a number of current, seperate threads on Russia covering politics, the military, terrorism, politics & power and more.
VTB Bank Chief Slams Law Penalizing Visa and MasterCard (http://www.themoscowtimes.com/news/article/vtb-bank-chief-slams-law-penalizing-visa-and-mastercard/500751.html), for good reasons. There are quite a few indications that Putins military adventures were initiated and are still controlled within a narrow circle of mostly ex-KGB men. Economic considerations had very little impact on the decision making, which clearly surprised many in the Western world which believed in the 'change by trade' or at least stabilization by economic integration.
Andrei Kostin, head of Russia's second largest bank VTB, on Friday branded a recent law that could push Visa and MasterCard out of the Russian market "excessive," and said Russia could not risk losing the two U.S. payment systems.
Visa and MasterCard, which together process about 90 percent of payments in Russia, "must stay and work here. We shouldn't fall into 'Ura!' patriotism," Kostin was quoted by Interfax as saying in a panel session of the St. Petersburg International Economic Forum.
Keep in mind that this was at the very least partly addressed at the international business community. Personally I think that whatever the intention, there is more then some truth in his words, especially after the latest numbers bv VTB which were rather grim (http://www.reuters.com/article/2014/05/27/russia-vtb-idUSL6N0OD1LG20140527).
VTB's shares fell 3 percent in Moscow.
The bank said its provision charge for bad loans more than doubled in the first quarter to 47.6 billion roubles ($1.4 billion), hitting net profit which fell to 400 million roubles - far below analysts' forecasts of 12.9 billion.
"They charged a lot (for provisions) and the cost of risk was far above our estimates," said Gazprombank analyst Andrei Klapko.
VTB's non-performing loan ratio jumped to 5.8 percent of gross customer loans from 4.7 percent three months earlier. Its retail bank VTB 24 has "considerably reduced approval rates for the riskiest customer segments", the bank added.
Return on equity (RoE) - a measure of a bank's profitability - sank to 0.2 percent from 8.1 percent a year earlier, putting it far below European peers.
I have no doubt that the Kremlin will indeed prop up VTB, as Putin promised, to avoid a big shock to the Russian economy. However with VTB reducing lending overall the economy will indeed suffer from capital, especially for the smaller private sector.
Russian President Vladimir Putin promised at an investment forum on Friday the government would help systemically-important banks by allowing them to convert subordinated loans to shares. That would boost their capital positions and free them up to lend more in support of economic growth.
"We are currently working with the government in relation to a potential conversion of subordinated debt provided in 2008-2009," VTB Chief Financial Officer Herbert Moos said on Tuesday. This would be converted into preferred shares.
"We expect that this conversion would materially improve our Tier One (capital) ratio and we expect that this conversion would be completed by end 2014," he said.
The CFO's name sounded interestingso I googled him (http://www.vtb.com/group/management/guide/moos/). Born in Russia, he graduated from Kviev university and worked for Lehman Brothers, getting a degree from the LBS. His quote from April 2013 looks a bit unfortunate now, for which I can't blame him:
Unlike European banks, which tend to raise capital to fill holes in their balance sheets or respond to regulatory requirements, we will use the new capital to fund growth.
VTB Bank Chief Slams Law Penalizing Visa and MasterCard (http://www.themoscowtimes.com/news/article/vtb-bank-chief-slams-law-penalizing-visa-and-mastercard/500751.html), for good reasons. There are quite a few indications that Putins military adventures were initiated and are still controlled within a narrow circle of mostly ex-KGB men. Economic considerations had very little impact on the decision making, which clearly surprised many in the Western world which believed in the 'change by trade' or at least stabilization by economic integration.
Considering the billions spent on 'intelligence gathering' by the US and western countries the failure to foresee an aggressive response from Russia supports the need to reform and restructure intelligence agencies. Does anyone think shutting down the CIA would have a negative impact?
Fuchs
05-28-2014, 11:04 PM
quoting myself (http://defense-and-freedom.blogspot.de/2014/05/economit-interdependence-and-war.html):
It's long overdue to recommend Krugman's blog post "Globalization
and Macroeconomics (http://krugman.blogs.nytimes.com/2013/06/18/globalization-and-macroeconomics/)". These days experience a high tide for remarks
about how very much connected certain counties are economically
and how this affects the risk of war.
The sad truth is, the European countries were trading very much
(despite tariffs) prior to 1914, and the Great War still happened.
@Fuchs: I have read it some time ago and it should be clear that trade interactions don't put an end to war.
Personally I feel that there might be a (strong) tendency that beneficial trade integrations does indeed lessen the dangers of war between two entities. Of course there is always the danger that the guy(s) in power care much more about their personal goals, which can work for some time.
--------
The Ukrainian thread is locked and Crimea is right now doubtlessy under control by Russia so I will post it here (http://www.themoscowtimes.com/business/article/crimean-prime-minister-ready-to-coerce-greedy-retailers/501344.html).
Faced with spiraling price inflation, Crimean Prime Minster Sergei Aksyonov threatened price-hiking retailers on the peninsula with "coercive measures" and canceled licenses.
Since Russia annexed Crimea from Ukraine in March, the price of many goods has doubled, the head of Crimea's Trade Union Federation, Vladimir Klychnikov, told Interfax.
Aksyonov said retailers of food and medicines would be first in line for authorities' attention.
In the other thread it became quickly obvious that Crimea with it's 2M people is difficult to supply if the trade routes to Ukraine are cut or disrupted. The harbours lack capacity. Inflation is inter alia the logical consequence. The loopsided nature of the brave new Crimean economy was also a pretty safe bet. Tourism has been hit even harder then I imagined due to Putins adventures in Eastern Ukraine. Some time ago the NCC water channel was said to have been cut, we will see how that develops....
Today it seems the KyivPost (http://www.kyivpost.com/content/ukraine/russias-hold-on-crimea-creating-hopeless-financial-disaster-for-farmers-on-parched-peninsula-350620.html) has a rather sad article on the impact the lack of irrigation water has on the Crimean agriculture. As we saw a long time ago Crimea depends on the rest of the Ukraine for it.
Saidablyayev’s potatoes, like everyone’s crops in Pervomaysk, rely on the North Crimea canal. This Soviet engineering project of the 1960s-70s delivers 1.8 billion cubic meters of water annually from the Dnipro River in Ukraine to Crimea, providing over 80 percent of the peninsula’s water. Usually the canal sluices are opened in March, in time for spring sowing. This year, following Russia’s occupation of Crimea in March, and a Russian law incorporating this Ukrainian territory into the Russian Federation, Ukraine instead reduced the flow to the lowest possible volume of just seven cubic meters per second. Crimea has few water sources of its own, particularly in the north and southeast. Farms throughout these regions are now completely deprived of water for irrigation.
It will hit the Crimean economy very hard, especially those in the North where mostly Ukrainians and Tartars live. The lack of tourism will be felt mostly Russian-speaking areas, although Russia-speakers have a far higher share of public workers and retirees.
After the specific look at Crimeas economy it is well worth to give a glance at Russia's economy as a whole.
Service and manufacturing are contracting (http://www.themoscowtimes.com/business/article/contraction-of-russias-services-sector-picked-up-pace-in-may--hsbc/501556.html)
SBC's Russia Services purchasing managers' index, or PMI — under which values above 50 signify growth, and below 50, contraction — fell to 46.1 in May from 46.8 in April.
The PMI figures — based on monthly polls of executives at 300 private companies — also showed that manufacturing output in Russia contracted for the fifth month running, though less swiftly than in the services sector, pulling the composite output index to a five-year low of 47.1.
Pension funds targeted to offset failed bond issues (http://www.themoscowtimes.com/business/article/finance-ministry-seeks-to-unshackle-russias-pension-fund-billions/501481.html)
State pension funds in Russia — where the greater part of the country's 2.5 trillion ruble ($71 billion) pensions pot is stored — have long been stoppered by laws that severely restrict their investment activities. But over the past year the wheels of reform have been turning, the Finance Ministry said, and the floodgates may be opened on Jan. 1, 2015.
The influx could relieve an economy on the edge of recession and with restricted access to overseas sources of finance in the aftermath of Russia's annexation of the Crimean peninsula from Ukraine in March.
Overall almost all of the economic news leads to the conclusion that Russias economy is growing at best slightly above zero. Personally I think that it is more likely that has already started a recession.
The longer Putin promotes terrorism against a neighbour, the more likely deeper economic damage at home will be.
An important statement by the Bank of Russia (http://www.cbr.ru/eng/dkp/print.aspx?file=standart_system/Nabiullina_16062014.htm), which obviously has to make lots of hard choices, trying to find the least bad path through the difficult economic ground.
The Bank of Russia Board of Directors has decided today to leave the key rate unchanged at 7.5%. We have taken this decision despite the persistently high inflation rate, which currently stands at 7.6% on an annual basis.
The decision is based on the analysis of trends in the economy and the financial sphere, as well as the medium-term macroeconomic forecast.
Considering time lags in the monetary policy transmission mechanism, the effect of the earlier increase in interest rates on inflation has not yet been exhausted. The policy of maintaining the rate at the current level in the coming months will suffice to attain the target for consumer price index in the medium term. Nevertheless, we emphasise the existence of considerable inflation risks at present, namely, the risks of inflation falling slower than required for the downward path to comply with the medium-term 4% target. If these risks materialise, the Bank of Russia will continue raising the key rate.
Our previous press conference was held in mid-February when the market participants’ attention was drawn to changes in the policy of the US Federal Reserve (the Fed) and their impact on emerging market economies (EME). However, it was actually immediately after the Bank of Russia’s February monetary policy decision that geopolitical factors came to the fore. The unconventional situation that had emerged required unconventional measures from the Bank of Russia. That is why I would like to explain in greater detail how we view the developments of the past period and how they influenced our forecasts and today’s decision.
The BoR has to set it's key rate with two big conflicting problems in mind, very weak growth and high inflation. It seems that the inflation target has the higher priority, perhaps not surprising if you consider the recent Soviet and Russian history.
The four factors outlined by the BoR are well worth repeating:
1) A sharp increase in pressure on the rouble in early March
2) The acceleration of inflation
3) The slower growth of deposits and the banks’ rising dependence on refinancing from the Bank of Russia amid the accelerating demand for loans.
4) The slowing economic growth.
The most important long-term problem is of course factor four. I agree with the Governors words on it's structural nature:
Let me note that unemployment remains low, despite a considerable economic slowdown, which we observe today. This suggests that growth acceleration is impeded by structural factors. The main problem is stagnating labour productivity amid unfavourable demographic trends. In this context, the Bank of Russia expects a slow economic growth recovery in the subsequent years to 0.9% in 2015 and 1.9% in 2016. The positive contribution of investment will be observed to recover, while the influence of net exports may fall to zero or slightly negative values.
The 'geopolitical factors' mentioned earlier are of course doing their considerable part to weaken the Russian economy.
Why Economic Growth Doesn't Matter in Russia (http://www.themoscowtimes.com/opinion/article/why-economic-growth-doesnt-matter-in-russia/502465.html) is the eye-catching title of an interesting piece by Vladislav Inozemtsev, professor of economics, director of the Moscow-based Center for Post-Industrial Studies and editor-in-chief of Svobodnaya Mysl. It is always interesting to get a look from different angle.
Today's Russia is not a normal country. A significant portion of people who can adequately assess the situation either left the country or are leaving it right now. Many entrepreneurs sold their businesses to bureaucrats and pulled money out of the country, realizing the futility of their labors.
But as long as energy resources can be exported and the prices for them are high, the Russian government does not need to worry about the economy. Special budget reserves exceed $175 billion; the public debt is less than 2.8 percent of GDP, the budget still runs a small surplus, and even if it dips into red it may easily be balanced by a soft devaluation of the ruble since the export duties on oil and gas are denominated in dollars.
Of course, the problems are piling up — so sometimes they will come out. But both the speciality of Russia's situation and its difference from these in democratic market economies lies in the fact that the first alarm signals will sound when it will be too late to react. We will probably see a repetition of the dramatic events of the late 1980s — but, of course, this may not happen for awhile. Time during which economic problems will not preoccupy the Russian president — leaving him free to surprise the world once and again with his political follies.
Perhaps the key statement matches to a good degree what I wrote earlier: The Russian balance sheets looks strong but the economic prospects don't, if Russia is unable to reform it's economy. So far there is little indication for the latter.
So while leading Russian in the long run towards an economic trap, Putin has also lots of time to harm his and other countries in other ways. As outlined before it is key to distinguish between Putin's goals and Russia's interests. There are certainly distinct, even if hard to treat as such with the great personal concentration of power Putin enjoys...
Some Russians are feeling the price (http://www.reuters.com/article/2014/07/06/us-ukraine-crisis-russia-economy-idUSKBN0FB0CU20140706) of Putins own success.
Patriotism spurred by President Vladimir Putin's annexation of Ukraine's Crimea still runs deep in Russia, but the cold reality of paying for the Black Sea region is setting in and threatens to test an economy brought low by Western sanctions.
In Tatyana's hometown of Taganrog, the request for hospital workers to sacrifice a day's pay was taken up by only a few - by those people, she says, who wanted to impress their employers.
"The bosses informed us of this in June in a tone which made clear they recommended it ... They distributed and asked us to fill out a form for the donation. People started complaining - why should they donate to Crimea?" said Tatyana, 52, who declined to give her surname for fear of retribution.
"In our department, not one of us made the donation and our boss understood because she was of the same opinion," she said by telephone.
Of course that is only a local snapshot of a large economy which is in deep trouble, even if the stock market bounced back, for now, in the recent months.*
Investment has all but dried up, forcing the government to dip into reserves meant for pensions to finance projects, and the government says it will sell a stake in Russia's state-controlled oil company, Rosneft, to cover some of the costs of developing Crimea.
Finance Minister Anton Siluanov had to backtrack after coming under fire for saying that all the funds accumulated in Russia's personal pension plans in 2014 had been spent on "anti-crisis measures" and on Crimea.
The next day, he said Russians "would lose nothing", but stopped short of saying whether the sum of $8 billion would be returned to the personal pension plans.
While such measures may take a while to hurt the population, Karen Vartapetov, an analyst at Standard & Poor's rating agency, said a more immediate danger was the stagnation of real disposable incomes, which show only 0.2 percent real growth (adjusted for inflation) this year.
"Zero growth of real disposable incomes against continuing growth of public sector pay indicates that salaries in the private sector and non-salary incomes are shrinking," he said.
"The economy outside the public sector has been stagnating."
I noted this increasingly strong divergence of the public and private sector earlier on a paper I cited. It is rather typical for oil states in which state power and ressource wealth are intertwined.
*Needless to say that over the last years those who invested in Russian securities lost a very large percentage compared to the world index.
Aid Elusive, Crimea Farms Face Hurdles (http://www.nytimes.com/2014/07/08/world/europe/aid-elusive-crimea-farms-face-hurdles.html?_r=0)
A rather in-depth look at the problems faced by the Crimean agriculture some months after the Russian invasion.
SIMFEROPOL, Crimea — Sergei V. Tur, a significant landowner, scowled beneath his desert camouflage cap as he watched a hulking combine chew through one of his golden barley fields, reaping part of what he predicts will be the best harvest in Crimea in three years.
The weather may be cooperating, but since the Russian annexation of the Black Sea peninsula in March, the political crisis has disrupted virtually every other aspect of farming — from irrigation to credit to exports.
“On a scale of one to five, we are at negative three,” said Mr. Tur, the head of the Association of Farmers and Landowners of Crimea, with 300 members among the largest 1,700 farms.
Russia has a terrible economic record in it's de-facto occupied territories as we noted earlier and the classic problems of it's economy are all surfacing, plus those specific to annexed Crimea:
Mr. Polyushkin, the agriculture minister, said produce trucks were waived right onto the ferry. Farm managers said that was news to them. Not only does the produce have to wait, but once the trucks get into Russia, Ukrainian license plates make them targets for constant stops, searches and shakedowns by the Russian police, producers said.
A steady parade of senior Kremlin officials, including Prime Minister Dmitri A. Medvedev and numerous ministers, have all promised help, farmers said. But little that is concrete has materialized.
“Russia talks about patriotism all the time, but they do not seem to be taking the simplest steps to promote Crimean goods,” said Gennadi V. Potabenko, a publicist working for Skvortsovo.
Russian Billionaires in ‘Horror’ as Putin Risks Isolation (http://www.bloomberg.com/news/2014-07-20/russian-billionaires-in-horror-as-putin-risks-isolation.html)
It sounds a bit alarmistic, but it is worth a read.
If Putin doesn’t move to end the war in Ukraine in the wake of last week’s downing of a Malaysia Air jet in rebel-held territory, he risks becoming an international outcast like Belarus’s Aleksandr Lukashenko, whom the U.S. famously labeled Europe’s last dictator, one Russian billionaire said on condition of anonymity. What’s happening is bad for business and bad for Russia, he said.
“The economic and business elite is just in horror,” said Igor Bunin, who heads the Center for Political Technology in Moscow. Nobody will speak out because of the implicit threat of retribution, Bunin said by phone yesterday. “Any sign of rebellion and they’ll be brought to their knees.”
It is difficult to see capital flight easing after the recent events and with a high likelyhood of a weaker economy and reduced demand investments are dropping. Maybe Russia is already entering one of those vicious recession cycles, but it is still early to tell.
Russia's surprise interest rate rise 'to curb inflation' (http://www.bbc.com/news/business-28483159).
BBC economics correspondent Andrew Walker
There's a key phrase used by the Russian Central Bank: "the aggravation of geopolitical tensions".
The shooting down of the Malaysian airliner over eastern Ukraine is now having an economic impact, indirectly, on Russia.
I will comment later on it, time has run out.
On Key rates (http://www.cbr.ru/eng/press/pr.aspx?file=25072014_133012eng_dkp2014-07-25T13_19_44.htm) by the Central Bank of Russia.
Of course the 'geopolitical factors' took it's toll, but in the long run this part confirms earlier statements and independent research:
Low economic growth rates are largely caused by structural factors. Utilisation of production factors — labor force and commercially viable production capacities — is high. Labour productivity growth is sluggish. Due to the demographic trends labour force shortage will continue to affect economic growth in the long term. Along with structural factors, external political uncertainty has a negative impact on economic activity. Investment demand remains weak amid low business confidence, limited access to long-term financing in both international and domestic markets, and declining profits in the real sector. Besides, consumer activity is cooling. Economic slack in most countries that are Russia’s trading partners does not contribute to acceleration in economic growth. At the same time, persistently high oil prices support domestic economy.
It seems harsh, but yes, Russia is in budget terms a bit like those oil states in the Gulf. Without high prices for ressources, especially oil and gas it's economic model doesn't work.
----------
The Central Bank of the Russian Federation (Bank of Russia)
Press Service
12 Neglinnaya Street, Moscow, 107016 Russia; tel: +7 495 771-44-17, +7 495 771-46-69; fax: +7 495 924-92-16;
www.cbr.ru
The German FAZ (http://www.faz.net/aktuell/wirtschaft/wirtschaftspolitik/wie-die-eu-sanktionen-russland-treffen-13071026.html), Bloomberg (http://www.bloomberg.com/news/2014-07-29/u-s-adds-russian-banks-to-sanctions-list-in-move-with-eu.html) (which also has a short historical overview with links (http://www.bloomberg.com/quicktake/financial-war/)) and the Sole 24 ore (http://www.ilsole24ore.com/art/notizie/2014-07-29/ucraina-ambasciatori-ue-compatti-inasprimento-sanzioni-russia-171636.shtml?uuid=AB2HUWfB) offer views from different countries. The strategy seems to be clear, with harsher ones possible, but for now the execution and the moral impact will matter.
After the last months it is still true that the balance sheet of Russia looks fairly strong but it's economic prospects increasingly grim. Russia is already paying a considerable price for Putin's war and now we have for the first time sanctions which show intent to harm the economy.
Treasury Secretary Jacob J. Lew, speaking to reporters today in Riverdale, Iowa, said U.S. sanctions are designed to maximize the economic pain on Russia while minimizing the effects elsewhere.
“If we are doing the sanctions effectively and smartly, we will put an enormous amount of pressure on Russia, and we shouldn’t see terribly negative economic impacts here in the United States,” Lew said. “Russia is barely growing now. With these increased sanctions, it’s going to grind Russia into either a flat or a negative economy.”
Personally I think that Russia is already in a recession but we will only find out once the adjusted figures come out.
The sanctions felt the earliest will likely be those bans on the bond market (http://www.bloomberg.com/news/2014-07-29/putin-sanctions-risk-access-to-600-billion-in-funding.html), unless the Russian Central Bank or the Kremlin react quickly and strongly.
European Union and U.S. sanctions jeopardize funding for Russian companies, which have tapped international capital markets for more than $600 billion in debt and equity since the country emerged from its 1998 default.
Russian businesses have about $165 billion in U.S. and European bonds and more than $100 billion in offshore syndicated loans currently outstanding, according to data compiled by Bloomberg. Whether banks based in China, which remains friendly with President Vladimir Putin’s regime, can replace that lending remains to be seen.
The sanctions against Russia “will likely force a further contraction in domestic credit growth and hence the economy,” said Alexander Moseley, senior portfolio manager in New York with Schroders Plc, which oversees $100 billion in fixed-income assets. “Asian debt and equity markets are probably not able to substitute entirely for curbed access to the dollar and euro markets.”
Orysia Lutsevych, research fellow at Chatham House in short Bloomberg video (http://www.bloomberg.com/video/how-long-can-russian-economy-withstand-sanctions-Xn2nBfkeTKWplrNjz2z3zw.html). She makes the point I raised earlier, some sanctions will work in the long term like those technology bans in the oil sector.
OUTLAW 09
07-30-2014, 07:51 AM
firn---the EU is estimating the cost of this last round to be in the 100B range over two years thus 20% of their foreign currency reserves---the problem is that they can use those funds to support internally their economy---but to get to them they must cross through the NYC money exchanges centers and or thru the EU currency center which is now sanctioned and virtually any other exchange center will deny them as well as they do not want to get tangled up in the US long reach that they have in fines for those not holding to the financial sanctions ie the French and German banks right now with their fines.
Add the Yukos decision of 50B which they must pay if they want further foreign investment to come in and feel their investments are protected--that's another 10% from the foreign currency they hold.
Not a good week for the Russian Central Bank.
OUTLAW 09
07-30-2014, 09:19 AM
firn--a really good article on the internal balancing at of the four pillars of Russian power 1) the military, 2) the security services, 3) the oligarch's, 4) the Russian mob and how the sanctions are starting to impact the internal politics of Russia.
http://www.nytimes.com/2014/07/30/world/europe/as-sanctions-pile-up-russians-alarm-grows-over-putin-tactics.html?
OUTLAW 09
07-30-2014, 10:11 AM
firn--notice the contradiction in the two press releases---first the sanctions will not hurt our activities, but then we might need some help from the government.
From Interfax today:
12:08
SANCTIONED RUSSIAN AGRICULTURE BANK MIGHT SEEK GOV'T SUPPORT IF NECESSARY - SUPERVISORY BOARD MEMBER
12:04
SANCTIONS AGAINST RUSSIAN AGRICULTURE BANK WILL NOT AFFECT ITS ACTIVITY - BANK
This post is about the Russian stock market to be able to put it into the global context. I will try to address various issues in seperate posts.
Russia Stocks to Ruble Rally on Relief Sanctions Weren’t Tougher (http://www.bloomberg.com/news/2014-07-30/ruble-gains-1st-day-in-5-as-sanctions-seen-milder-than-expected.html), by Bloomberg.
The benchmark Micex Index (INDEXCF) added 2.2 percent to 1,400.39, the strongest advance in more than a month. Russia’s currency rose 0.5 percent to 35.6240 per dollar as of 2:17 p.m. in Moscow. That pared its decline in July to 4.6 percent, the steepest monthly loss since January and the worst decline in the period among 24 emerging-market peers tracked by Bloomberg.
EU governments agreed on sanctions against Russia yesterday that bar state-owned banks from selling shares or bonds in Europe, restrict the export of equipment to modernize the oil industry and bar export of equipment with military uses. That was followed hours later by U.S. penalties against three Russian banks, including VTB Group, and a state-owned shipbuilder. OAO Sberbank, Russia’s biggest lender, wasn’t on the U.S. list.
While the stock markets of the developed markets had overall a mighty rally during the last three years the MICEX lost quite a bit making it by simplistic p/e earnings one of the cheapest worldwide. It is imporant to note that the Russian stockmarket is different in a couple of ways for example lack of free float, a few massive companies among the relatively few listed, ownership restrictions and so forth. History of Russia's IPOs as Reflected in the MSCI Russia Index (http://www.themoscowtimes.com/business/business_for_business/article/tmt/455986.html) and New IPOs Get Squeezed by the Size of Gazprom (http://www.themoscowtimes.com/business/business_for_business/article/tmt/462182.html) offer some background.
However, we hope that the next chapter in the index history will be all about new IPOs and new placements and an increase in free float. We are awaiting privatization deals, but at the same time we are hopeful for more IPOs of the companies in the non-Soviet assets sector. Russia's weight in the MSCI Emerging markets index is small — only 7 percent. South Africa, which has market cap three times smaller than Russia has bigger weighting because its free float is bigger. In fact, South Africa has 100 percent free float, and Russia only 27 percent. A large part of the Russian market is privately held either by oligarchs or by the state. There is also a big disconnect between Russia's weighting in global landmass and Russia's weighting in the emerging markets index.
....
First, I want to highlight the following statistics: Russia has only 26 companies in MSCI Russia index vs. MSCI South Africa 50 companies, MSCI India 73 companies, MSCI Brazil 78 companies, MSCI South Korea 105 companies and MSCI China 143 companies. Russia looks kind of small here.
Companies in the MSCI country index are the most exposed to international institutional investors. International investors do not just invest in any stocks on the exchange; they pick up the stocks from the MSCI Index for a particular country. MSCI is a financial information agency that tells which stocks in each country form an investible universe. Investors chose MSCI indexes rather then FTSE or S&P or any other financial information agency index because MSCI was the pioneer in setting up consistent methodology indexes for any country across the globe. They started their indexes right after World War II, just as the need for global diversification was coined by U.S. investors and as globalization started to gain speed.
Because Russia needs large energy revenues for it's economic model with a large public sector and relatively high pensions and only a few mostly state-controlled companies are handling almost all of this business targeting them can do far more damage on the Russian economy compared to 'normal' countries. The Russian banking sectors has some similarities through the large de-facto state banks.
OUTLAW 09
07-30-2014, 03:58 PM
firn--what is the story with the Russian stock market crashing today and trading coming to a standstill and then resuming if it can until 1930 this evening?
From Interfax today:
18:05
Moscow Exchange extends equities trading until 7:30 p.m.
17:44
Moscow Exchange to restart stock market trading at 5:50 p.m.
17:23
Moscow Exchange working to resolve stock trading problem; other markets operating normally
OUTLAW 09
07-30-2014, 04:57 PM
firn---appears that the Russian banks are in for a rather hard time in the coming months.
VTB is having a hard time getting refinancing capital for a refinance 1B plus loan.
From a reuthers release today:
The Russian Central Bank said it could support banks that were hit by sanctions. Russia's second-largest bank, VTB, said it would find funding outside of the EU and United States, using currencies other than euros and dollars.
But bankers said Russian firms had been effectively frozen out of global lending, and not just in the West, leaving the Russian state as their only source of funding.
"Right now, all banks are acting the same. No group is any more cautious or sanctions aware: It's all too important. Asian banks are the same as European or U.S. banks in this respect," a London-based banker at an Asian bank said.
A banker said VTB had been unable to find a lender for a $1.5-$2.0 billion refinancing loan since a previous round of U.S. sanctions on July 16. VTB declined to comment.
OUTLAW 09
07-30-2014, 05:14 PM
firn--threat today by Russia to rise the energy prices due to the sanctions--that led the EU saying go ahead as we are in the middle of checking Gasprom contracts anyway for cartel violations thus the 10% fine we are leveraging against the total yearly Gasprom earnings could in fact go higher than 10%.
I am not sure they fully understand the cartel thing as they view Gasprom a state organization thus above cartel law as Russia since the fall of the Soviet economy seems to believe everything state owned is above the law as it acts in the interest of the govenment.
Gasprom had attempted to restrict Slovenian reverse gas flows to the Ukraine until the EU stated that they could not since under EU law that was not possible and there would be fines involved if Gasprom did restrict the flow.
Suddenly gas flows resumed steady state.
http://www.zeit.de/wirtschaft/2014-07/eu-russland-sanktionen-reaktion-energiepreise
OUTLAW 09
07-30-2014, 05:21 PM
firn---looks like the Russian economy is now scrambling to figure out what to do.
From Interfax today:
19:35
Econ Ministry seeks Putin's help in monetary policy dispute with Central Bank - source
19:17
RUSSIAN ECON MINISTRY PROPOSES TO WIDEN 3 PERCENTAGE POINT PERMITTED DEVIATION ON INFLATION TARGETS - SOURCE
19:16
ECON MINISTRY PROPOSES INTRODUCING MECHANISM FOR ADJUSTING INFLATION TARGETS IN APPROVED MONETARY POLICY
19:15
RUSSIAN ECON MINISTRY SUGGESTS SPECIAL MECHANISM TO DETERMINE INFLATIONARY TARGETS WITH PARTICIPATION OF FINANCE MINISTRY AND CENTRAL BANK - SOURCE
19:14
ECON MINISTRY WANTS TO CHANGE SYSTEM FOR SETTING INFLATION TARGETS, CURTAILING AUTHORITY OF CENTRAL BANK - SOURCE
I have no idea what caused the stop and maybe I will check what is it about the supposed dispute between the RCB and MoF. At the first glance it might be about the tradeoff between more price stability and credit squeeze in the wake of the rate hikes.
In any case this thread needs more graphs, here a nice view on the Russian trade volume with EU states.*
http://cdn4.spiegel.de/images/image-730193-galleryV9-wefz.jpg
The EU is by far the most important market for Russia while the other way around, not so much. And, needless to say, it isn't able to sell much in numbers but ressources...
http://cdn2.vox-cdn.com/assets/4806398/main.png
What the EU's tough new sanctions on Russia do (http://www.vox.com/2014/7/24/5930855/EU-sanctions-on-russia). An informative article featured on one of my favorite sites, vox.com.
*with the inclusion of inter-Eu trade.
An area which wasn't discussed much in this thread so far is the increasing number of import bans by Russia, with Ukrainian juice (http://www.themoscowtimes.com/business/article/russia-adds-juice-to-banned-ukrainian-imports/504365.html) being the latest. Such trade restriction on, to put it midly, dubious claims are nothing new but have now reached a considerable width and degree.
Such Russian actions will hit mostly both European producers and Russian consumers. It will put additional pressure on inflation which has risen a good deal, despite the large rate hikes of the RCB. Certainly Russia is walking further along the path towards increasing isolation.
After the energy exports and the Russian important bans in strategic sectors it is time to look at the banking sector. This thread has a good number of links on it. With debt financing over Western markets and with it's capital getting harder for targeted companies and those suffering from the collateral damage Russia looks increasingly at Asia even big success was rare in the past months.
Asia No Answer to Russian Companies' Capital Crisis (http://www.themoscowtimes.com/business/article/asia-no-answer-to-russian-companies-capital-crisis/504363.html) by Reuters points out some of the difficulties faced.
SINGAPORE/LONDON — Russian banks and companies shut out of Western funding markets are unlikely to be greeted with open arms and ready wallets in Asia, international bankers and industry experts say.
New sanctions imposed by Washington and Europe over the Ukraine crisis have prompted firms such as VTB — Russia's second-largest bank by assets — and Gazprombank to look east for new sources of funding.
Banks and investors in Asia, however, are reluctant to get involved. This leaves the Russian Central Bank as the only obvious alternative, apart from Chinese currency bonds where borrowing costs are rising and the market is too small to plug the gap left by Western capital markets.
The Islamic bond market is also problematic.
It is imporant to keep basic stuff in mind. Just like the Crimea has a hard time to switch from the deep economic links with Ukraine to the so far shallow ones with Russia, Russia itself faces problems with such a financial scenario. Deep economic ties take a long time to grow and rapid changes come at a (high) price. Even in the best case there will be friction and stumbling blocks.
OUTLAW 09
07-31-2014, 04:23 PM
An area which wasn't discussed much in this thread so far is the increasing number of import bans by Russia, with Ukrainian juice (http://www.themoscowtimes.com/business/article/russia-adds-juice-to-banned-ukrainian-imports/504365.html) being the latest. Such trade restriction on, to put it midly, dubious claims are nothing new but have now reached a considerable width and degree.
Such Russian actions will hit mostly both European producers and Russian consumers. It will put additional pressure on inflation which has risen a good deal, despite the large rate hikes of the RCB. Certainly Russia is walking further along the path towards increasing isolation.
firn--Poland launched today a purchase an apple and support Polish growers campaign and by all signs the Poles are into it---side affect increased apple prices vs what they were getting from Russian exports.
the rest what cannot be purchased by the locals will be recovered via a EU internal price support for lost markets---the same goes for the Baltics hit by the coming bans. The Ukraine is already getting import free duties on anything sold.
So it looks like the Russian consumer will be paying the price of the bans not the EU.
http://khpg.org.ua/en/index.php?id=1406748323
OUTLAW 09
07-31-2014, 04:25 PM
After the energy exports and the Russian important bans in strategic sectors it is time to look at the banking sector. This thread has a good number of links on it. With debt financing over Western markets and with it's capital getting harder for targeted companies and those suffering from the collateral damage Russia looks increasingly at Asia even big success was rare in the past months.
Asia No Answer to Russian Companies' Capital Crisis (http://www.themoscowtimes.com/business/article/asia-no-answer-to-russian-companies-capital-crisis/504363.html) by Reuters points out some of the difficulties faced.
It is imporant to keep basic stuff in mind. Just like the Crimea has a hard time to switch from the deep economic links with Ukraine to the so far shallow ones with Russia, Russia itself faces problems with such a financial scenario. Deep economic ties take a long time to grow and rapid changes come at a (high) price. Even in the best case there will be friction and stumbling blocks.
firn---looks like Lukoil will be cutting back on their investment projects as they cannot get capital--they are the second largest producer so in the coming months it will be hard for Russia long term to increase oil product which they have to do to keep the increased cash needs flowing.
http://uk.reuters.com/article/2014/07/31/ukraine-crisis-russia-lukoil-idUKL6N0Q645520140731
OUTLAW 09
07-31-2014, 04:34 PM
firn---looks like Russian companies are trying to slide out of USDs and trying to use other currencies to run their businesses.
From Interfax today:
18:52 Norilsk Nickel transfers some cash into Hong Kong dollars - source (Part 2)
.
OUTLAW 09
07-31-2014, 05:38 PM
firn---more indicators that the Russian companies are now in free swim mode.
Interfax today:
19:59 Bashneft board of directors recommends postponing SPO due to unfavorable market conditions
19:55 Russian stock market loses morning growth in evening trading Thursday
Unfavorable market conditions have indeed been cited quite a lot by Russian companies and their government in those last months as they postponed and postponed. So far it only bought time to help to some degree alternative sources and avoided a higher benchmark.
As I stated earlier even if they eventually find alternatives one can not just replaced one to one the world biggest markets and movers without suffering due higher costs, friction and disruptions. With less fresh capital at acceptable conditions available, an economy heading into recession and facing big geopolitical risks non-state investments won't increase...
With Sanctions, Russia Becomes Crimea's Sole Investor (http://www.themoscowtimes.com/business/article/with-sanctions-russia-becomes-crimea-s-sole-investor/504408.html) fits in this regard, as the state might be forced to step in and carry the burden alone.
Almost a third of that vast sum, or 247 billion rubles ($6.9 billion), must be channeled to building a bridge across the Kerch Strait, creating the first direct road and rail connection with Russia's mainland there, Savelyev said, speaking at a meeting with Deputy Prime Minister Dmitry Kozak.
With the recent rounds of hefty punishments for banks and the limited size of the Russian market it will be interesting to see who will deem the risk worth it. As a whole interest will be turned down quite a bit.
Contradicting earlier reports, Kozak said that the bridge, which will be the most expensive one ever built in Russia, is now to be funded on state money alone. Construction is scheduled to begin later this year, he added.
In short it is not Russia's end but the longer Putin's war continues the greater the toll for it's economy, up to a point which isn't quite attractive. If harsh sanctions are not that good at achieving the desired political effect they do a pretty good job at hitting the economy hard. The latter will at least decrease the ability of Russia to modernize it's forces and maybe help other powers to think twice before doings something as stupid.
Russia continues to hit strategic markets (http://www.themoscowtimes.com/business/article/russia-slaps-duties-on-moldovan-imports-in-mounting-trade-offensive/504437.html) with duties of bans, in this case raising the costs for Moldavan imports. It certainly strenghtens the impression in European countries that Russia isn't the most reliable of trade partners and alternative destinations are inter alia more attractive. The latest round adds to the already quite strong inflationary pressure caused by devaluation.
Putin to Introduce Consumer Tax to Help Stuttering Economy, Sources Say (http://www.themoscowtimes.com/business/article/putin-to-introduce-consumer-tax-to-help-stuttering-economy-report-says/504411.html) is, if true, an important article.
President Vladimir Putin has decided to introduce a sales tax on Russian consumers, two sources acquainted with the issue said on Thursday, raising the tax burden earlier than expected as Western sanctions deepen the country's financial woes.
The levy will be applied on a region-by-region basis, allowing each administrative district to decide on a sales tax of up to 3 percent to make up for budget shortfalls, which the Finance Ministry estimates will reach up to 1 trillion rubles ($27.99 billion) in the next three-year budget.
The decision ends a rift among policymakers over whether to introduce a consumer tax or boost a current value-added tax.
"The VAT will not be touched. Sales tax will be up to three percent depending on the decision of the region. Everything will go to the budget of the region," said one of the sources acquainted with the issue.
"It's obvious that a consequence of introducing the tax will be an increase in retail prices by the size of the tax," analysts at Russia's Sberbank said in a report.
From the perspective of a Russian economy facing (or already in) recession this looks at the first glance only like the stupidity it is. However it also shows once again what lessons Russian decision makers took away from history, that state debt makes Russia vulnerable to Western countries and has to be avoided at almost all costs.
All in all Russia does hit back and itself to ready itself for increased isolation.
OUTLAW 09
08-01-2014, 08:35 PM
firn---an interesting article on the impacts of the sanctions on the Russian foreign reserves from Bloomberg.
http://www.bloomberg.com/news/2014-07-31/why-putin-has-2006-flash-before-his-eyes-after-sanctions.html
OUTLAW 09
08-02-2014, 09:56 PM
firn---have you noticed the price of sour oil via Dubai and the KSA has been steadily weakening the last two weeks based on weak demand and a shift to more sales of light--at majority of the refineries outside of the US are designed for the light grade while a large number of US refineries handle only sour grades.
Read recently that the Russian budget absolutely requires a minimum price of 85 USDs per barrel.
We had talked way earlier about the potential of oil pricing as a pressure point.
I'm certainly not that informed about the oil market, but there have been voices that Russia increasingly needs a higher oil price to sustain it's budget as the public expenditures are quite rapidly growing. We had some articles in this thread about this dilemma.
Sales Tax May Counter Soaring Deficit in Regions (http://www.themoscowtimes.com/business/article/sales-tax-may-counter-soaring-deficit-in-regions/503047.html) is a month-old article of the Moscow Times.
The ministry estimates that the regions' total budget deficit will reach 857 billion rubles ($25 billion) in 2014 — 33.5 percent higher than in 2013, Prime reported Sunday, citing data from ITAR-Tass.
Nonetheless, the ministry intends to cut that deficit nearly in half by 2017, bringing it down by 26 percent in 2015, 8 percent in 2016 and another 21 percent in 2017 to end at just 455 billion rubles ($13 billion).
In order to accomplish this rapid reversal, the ministry has proposed an unexpected maneuver: allowing the Russian regions to introduce a sales tax.
It is sometiems important to state the evident, and indeed in an economy not only the federal debt (and who financed it) matters. While the state debt might seem healthy the regions and other public entities can carry a surprising high debt burden, just as the companies and households. This was (maybe minus the companies IIRC) actually the case in Spain. We had the discussion in the thread about the European economy.
There is no doubt that Russia overall little public debt, but there are, as mentioned before big problems ahead for it's economy.
However it also shows once again what lessons Russian decision makers took away from history, that state debt makes Russia vulnerable to Western countries and has to be avoided at almost all costs.
All in all Russia does hit back and itself to ready itself for increased isolation.
The fact that Russia will use pension savings as a short-term budget fix for second year (http://www.themoscowtimes.com/business/article/russia-eyes-pension-savings-as-short-term-budget-fix/504611.html) confirms this earlier view of mine which was based on words and actions of the Kremlin in recent years.
"This move breaches the 'social contract' between the state and society to develop long-term private savings," analysts at Russia's Alfa Bank said in a note, adding that it raised a long-term "risk for budget stability."
In a sign of deep disagreements among Russian officials, Interfax cited an anonymous source at the Central Bank on Tuesday saying that the move would "put an end to attracting investment into the sector and remove its growth chances," as well as "undermining the trust of citizens toward pension reform."
By limiting funds available for investment, the move would also lead to a sharp rise in interest rates on the bond market, potentially hurting economic activity and the budget, the source told Interfax.
So far most of the political moves regarding the Russian economy were about the short-term and very little about the longer one. This fits of course quite neatly into the (rather consistent) Kremlins political strategy as a whole, which doesn't necessarily act for the prosperity of the population. Having a budget shortfall wouldn't fit the media campaign about 'Russia is a very strong country', 'Russia can stand alone', 'Putin is doing a great job' and so forth. Kicking the can further down the road is of course a strategy employed almost everywhere.
Don't get me wrong, there was and still is a need to react to the current economic downturn but I doubt that the leadership strikes the porper balance between the federal budget and the health of the economy.
So just how much food does Russia import from the EU?
http://images.zeit.de/wirtschaft/2014-08/sanktionen-russland-2/sanktionen-russland-2-540x304.jpg
From left to right:
meat(products); milk(products) and eggs, fish;
fruits and vegetables; grain(products); coffee, tee, cacao, spices
AmericanPride
08-07-2014, 11:06 PM
Firn,
Thanks for the graphs. I don't the West is the target of the purpose of the Russian sanctions. The target remains Moscow's domestic audience to demonstrate the country's resolve in facing down the U.S. The people will be called to sacrifice for their patriotic duty.
As to the effectiveness of U.S. sanctions, I came across Economic Sanctions Reconsidered by Hufbauer, Schoot, and Elliot. In their analysis of sanctions, they cite Leyton-Brown in stating that "compellant purposes of sanctions are the most difficult to achieve..." based upon the ineffectiveness of sanctions to change the foreign policies of Cuba, Iraq, and North Korea. And they assessed that the overall effectiveness of sanctions (regardless of purpose; i.e. coercion, signalling, etc) is about 34% (as of 2007). The success rate for coercive sactions is 30%.
The success rate for coercive sactions is 30%.
Can the current sanctions even be considered 'coercive'?
So what alternate action - if any - should be taken against Russia?
AmericanPride
08-07-2014, 11:26 PM
Can the current sanctions even be considered 'coercive'?
Yes - if the intent is to change Russia's foreign policy in Ukraine.
No - if the intent is to signal to U.S. domestic audience or to U.S. allies.
You tell me - you're the one what wants to "emasculate" Russia.
Ok, so you have run out of ideas. Obama's plan has failed.
What you say? Let Russia annex some more of Ukraine and keep that and the Crimea.
Always safer to do nothing... is that the idea?
Yes - if the intent is to change Russia's foreign policy in Ukraine.
Interesting turn of phrase.
So that I understand you. Are you talking about a Russian withdrawal from both eastern Ukraine and Crimea and the payment of punative reparations?
Or just a gentle slap on the wrist?
But then of course the sanctions haven't worked, have they?
AmericanPride
08-08-2014, 12:04 AM
So that I understand you. Are you talking about a Russian withdrawal from both eastern Ukraine and Crimea and the payment of punative reparations?
The official U.S. position (as stated to the public) is the complete withdrawl of Russian forces from Ukraine, the cessation of Russian support for separatists, and the return of Crimea to Ukraine. I think the first one is realistic, the second one achievable, and the third one out of reach.
But then of course the sanctions haven't worked, have they?
Nope. And I haven't stated my support of economic sanctions anywhere in this thread. In fact - I've been pretty clear in multiple statements that sanctions are generally ineffective.
Ok, so you have run out of ideas.
My idea was and remains the implementation of inclusive, internationally monitored elections in Ukraine. That brings in the moderates and isolates the radicals. Crimea should be returned to Ukraine, but that's a matter of principle, not material advantage, and it's not central to resolving Ukraine's economic crisis (the problem driving this conflict in the first place). And some arrangement should be conceived that brings Ukraine and Russia more closely integrated with the EU/West (you know, 'keep your friends close, your enemies closer' kind of thing...).
Your election idea is nonsense... but do tell why you believe the US Administration has taken such a wimpish position over the Russian actions in Ukraine?
The official U.S. position (as stated to the public) is the complete withdrawl of Russian forces from Ukraine, the cessation of Russian support for separatists, and the return of Crimea to Ukraine. I think the first one is realistic, the second one achievable, and the third one out of reach.
Nope. And I haven't stated my support of economic sanctions anywhere in this thread. In fact - I've been pretty clear in multiple statements that sanctions are generally ineffective.
My idea was and remains the implementation of inclusive, internationally monitored elections in Ukraine. That brings in the moderates and isolates the radicals. Crimea should be returned to Ukraine, but that's a matter of principle, not material advantage, and it's not central to resolving Ukraine's economic crisis (the problem driving this conflict in the first place). And some arrangement should be conceived that brings Ukraine and Russia more closely integrated with the EU/West (you know, 'keep your friends close, your enemies closer' kind of thing...).
The idea of elections is merely a wimpish attempt to avoid taking the right measure of economic and other action to bring Russia to heel.
Anything but a confrontation with Russia, right?
AmericanPride
08-08-2014, 12:44 AM
The idea of elections is merely a wimpish attempt to avoid taking the right measure of economic and other action to bring Russia to heel.
What does the "right measure of economic and other action" mean?
Anything but a confrontation with Russia, right?
States don't maintain their power by exhausting their strength on battles with (near) peer competitors or lost causes. I'm perfectly content with writing off Crimea if that preserves U.S. interests elsewhere. Until there's a way around Russia's nuclear arsenal, large standing army, and political position in institutions like the U.N., negotiating with Russia is a fact of life.
What does the "right measure of economic and other action" mean?
I quote you:
The official U.S. position (as stated to the public) is the complete withdrawl of Russian forces from Ukraine, the cessation of Russian support for separatists, and the return of Crimea to Ukraine.
To this I would add the extraction of war reparations that would make the Russian's eyes water... together with other good stuff.
OK, so we basically agree... the crunch is that how the US is progressing - albeit with a very reluctant EU (especially Germany) - is not going to achieve that aim ever or anytime soon... or do you think otherwise?
Dayuhan
08-08-2014, 02:27 AM
To this I would add the extraction of war reparations that would make the Russian's eyes water... together with other good stuff.
Is there any way to do this short of fighting a war with Russia? If not, why even bother discussing it?
the crunch is that how the US is progressing - albeit with a very reluctant EU (especially Germany) - is not going to achieve that aim ever or anytime soon... or do you think otherwise?
If you look at the three nominal goals:
Complete withdrawl of Russian forces from Ukraine
Probably achievable, if the separatists can be forced into an untenable position without providing the Russians with an opportunity to intervene directly. As I've said elsewhere, this could be achieved by offering a settlement at a suitable point, aimed at depriving the Russians of the pretext for an intervention in the guise of "peacekeeping".
the cessation of Russian support for separatists
If a settlement can be achieved with the separatists, the Russian support will eventually cease. If the Ukrainians insist on a complete military victory, I think the Russians will probably intervene, not because they really want to but because they're afraid of being accused of betrayal by their own nationalists. A face-saving exit point could save a lot of mess.
the return of Crimea to Ukraine.
Realistically, not achievable without incurring costs that vastly exceed any possible benefit.
Any discussion of courses of action has to be reality-based... there's just no point in chest-thumping bluster.
Existing policy is neither a success nor a failure. Putin has not done in the east as he did in Crinea, He has not pulled an open invasion and tried to link up with the breakaway Russian enclave in Moldova. His proxies in the east are not winning. He got his way in Crimea, he's not getting it in the east. Mixed results for both sides. The extent to which Putin's failure in the east is a consequence of the gradually escalating sanctions is not possible to know at this point.
If either party adopts the position that nothing short of total victory is acceptable there will probably be a major war, which wouldn't be good for anybody.
As always, criticism of existing policy would be far more credible if accompanied by some indication of what realistically possible policies might have achieved better results (in the opinion of the critic, of course).
mirhond
08-08-2014, 01:29 PM
This seems a strange and self-defeating move, if true, simply because it hurts a lot more people in Russia than outside of it. The last thing most governments would want to sanction is their own imports of cheap food. People will overlook many things in the grip of nationalism, but the stomach is pretty close to home.
https://ph.news.yahoo.com/russia-bans-u-food-eu-fruit-veg-sanctions-231321612.html
Poor Moscow hipsters, they will surely die without Spanish hamon and French butter :)
I've just checked my frige and found Latvian cheese, Spanish fish and Polish apples - well, I can handle without it, that's for sure.
Now, getting serious, all imported foodstuff isn't cheap, it's just slightly better than Russian/CU - I can't imagine I'd starve without it.
AmericanPride
08-08-2014, 04:11 PM
To this I would add the extraction of war reparations that would make the Russian's eyes water... together with other good stuff.
Can you be more specific?
OK, so we basically agree... the crunch is that how the US is progressing - albeit with a very reluctant EU (especially Germany) - is not going to achieve that aim ever or anytime soon... or do you think otherwise?
Agreed. Since the Russian seizure of Crimea, I've been consistent in my belief that the U.S. is not well-positioned to counter Russian intervention. I don't think sanctions will produce the desired outcome of reversing Russian gains. But I do think Russian gains can be minimized.
AmericanPride
08-08-2014, 05:26 PM
Some thoughts on Putin's calculations from Joshua Yaffa at Foreign Affairs (http://www.foreignaffairs.com/articles/141835/joshua-yaffa/putins-wager?cid=nlc-foreign_affairs_this_week-080714-putins_wager_5-080714&sp_mid=46659115&sp_rid=ZGF2aXMuY2hyaXN0b3BoZXIubUBnbWFpbC5jb20S1):
To Putin, sovereignty constitutes the essence of power. “Putin’s motivating idea is that Russia’s influence is preordained,” said Sergey Utkin, the head of the Department of Strategic Assessment, part of the Russian Academy of Sciences. “It’s a genuine conviction, a call, a challenge that must be answered in the country’s policies.” Were Putin to back down over Ukraine, even after the attack on MH17, it would mean not just losing face but also turning his back on what he sees as Russia’s historic birthright. It is worth remembering that under the presidency of Dmitry Medvedev, Moscow never embraced the prospect of a so-called reset of U.S.-Russian relations; it simply regarded Washington’s conciliatory pose as a long-overdue adjustment. The impulse to avenge past geopolitical humiliations has intensified in Putin’s current presidential term. And now, the crisis in Ukraine has elevated its champions. For the country’s hodgepodge of hard-liners and nationalists, Utkin said, “confrontation is a plus,” in that it “allows the acquisition of ever more sovereignty.”
U.S. and EU sanctions will likely cause Russia’s GDP growth rate, which was already declining before the Ukraine crisis, to fall even more precipitously. But the latest sanctions do not block Russia’s oil and gas exports, which account for around half of the Kremlin’s budget. Those revenues will continue to flow into state coffers and from there into the pockets of the large contingent of Russians whose livelihoods depend on the government. (About 20 percent of Russians are pensioners, 20 percent work for the state, and 15 percent work for state-owned companies.) And so the sanctions will put little pressure on wages, which are central to political stability. As Vladislav Inozemtsev, an economist and the director of the Centre for Post-Industrial Studies, put it, “Sanctions will take a hit on growth, but they can’t keep Putin from raising salaries of bureaucrats and FSB officers.”
OUTLAW 09
08-08-2014, 08:09 PM
Firn,
Thanks for the graphs. I don't the West is the target of the purpose of the Russian sanctions. The target remains Moscow's domestic audience to demonstrate the country's resolve in facing down the U.S. The people will be called to sacrifice for their patriotic duty.
As to the effectiveness of U.S. sanctions, I came across Economic Sanctions Reconsidered by Hufbauer, Schoot, and Elliot. In their analysis of sanctions, they cite Leyton-Brown in stating that "compellant purposes of sanctions are the most difficult to achieve..." based upon the ineffectiveness of sanctions to change the foreign policies of Cuba, Iraq, and North Korea. And they assessed that the overall effectiveness of sanctions (regardless of purpose; i.e. coercion, signalling, etc) is about 34% (as of 2007). The success rate for coercive sactions is 30%.
The countries of Cuba, Iraq and NK have never been as tied into the globalized world as is Russia---noticed you did not mention Iran and the effectiveness against them which has virtually closed down their internal economy.
The sanctions have been far more successful than many had anticipated and actually have worked quicker than many thought possible---Russia plays a shell game ie Ponzi scheme in a number of their state owned businesses and have been living deeply on 90 day lines of credit and or financed major projects off of USD bond debts which will come due next year to the tune of 45B USD and now cut off from the international banking world damages their internal economy to an extent they themselves never calculated. Those companies hit by sanctions are now starting to ask for government assistance.
This year VTB has to pay 14B USD on a debt line that is due.
The food sanctions that Putin wanted to damage the west with will in fact damage his own economy as prices have raised 45% just in the last two days regardless of how his propaganda spins it---which is to protect their own manufacturing base for food.
Watch what happens to Russia oil and gas earnings if the Ukraine via their own sanctions stops all transit of oil and gas to the west--right now the west is sitting on solid gas storage amounts and oil is easily replaced from other sources---but the loss of even three months of earnings will hurt especially if they take the transit stoppage up to say December.
Right now watch the steady eroding of the world price of sour oil which is what Russia exports---several leading oil experts have been startled by the over supply of sour and the low demand which has the rates now at around 95-98n USD and is going lower---they are predicting a potential lowering to around 90 USD and even breaking under 90 and if that happens then the price will go lower.
Russia has often stated they need a minimum of 85 USD in order to finance they national budget and had raised that to 89 USD so if it breaks lower they are in serious trouble
AmericanPride
08-08-2014, 08:49 PM
The countries of Cuba, Iraq and NK have never been as tied into the globalized world as is Russia---noticed you did not mention Iran and the effectiveness against them which has virtually closed down their internal economy.
The sanctions against Iran have not altered Iran's foreign policy. Once you start breaking linkages with another state, you also remove leverage from influencing that state's policies.
The sanctions have been far more successful than many had anticipated and actually have worked quicker than many thought possible.
Is that why Russia still occupies Crimea and supports the separatists in eastern Ukraine?
Russia plays a shell game ie Ponzi scheme in a number of their state owned businesses and have been living deeply on 90 day lines of credit and or financed major projects off of USD bond debts which will come due next year to the tune of 45B USD and now cut off from the international banking world damages their internal economy to an extent they themselves never calculated. Those companies hit by sanctions are now starting to ask for government assistance.Right - as I've stated before, states are resilient and they tend to adapt to their changing circumstances.
The food sanctions that Putin wanted to damage the west with will in fact damage his own economy as prices have raised 45% just in the last two days regardless of how his propaganda spins it---which is to protect their own manufacturing base for food.And, as argued in a recent Foreign Affairs contribution, the sanctions do not damage Russia's most important sectors nor diminishes the state's ability to finance its most important constituents.
Watch what happens to Russia oil and gas earnings if the Ukraine via their own sanctions stops all transit of oil and gas to the west--right now the west is sitting on solid gas storage amounts and oil is easily replaced from other sources---but the loss of even three months of earnings will hurt especially if they take the transit stoppage up to say December.And what will that do to gas prices in Ukraine, a country suffering from political crisis, economic fragility, and war?
OUTLAW 09
08-08-2014, 08:52 PM
The sanctions against Iran have not altered Iran's foreign policy. Once you start breaking linkages with another state, you also remove leverage from influencing that state's policies.
Is that why Russia still occupies Crimea and supports the separatists in eastern Ukraine?
Right - as I've stated before, states are resilient and they tend to adapt to their changing circumstances.
And, as argued in a recent Foreign Affairs contribution, the sanctions do not damage Russia's most important sectors nor diminishes the state's ability to finance its most important constituents.
And what will that do to gas prices in Ukraine, a country suffering from political crisis, economic fragility, and war?
I know you are cheering for the economic ruin of a nuclear armed state, but you could be more effective in hiding your bloodlust behind a veneer of rationality.
AP---here is an article now tear it apart---let's see what you have to say on each and every paragraph to the author.
http://www.foreignpolicy.com/articles/2014/08/06/we_come_in_peace_mh17_ukraine_russia_prepares_for_ war
Ukraine last week seized tanks emblazoned with the insignia of the Russian Airborne Troops (VDV), an elite military force that was instrumental in taking Crimea last March. The head of the VDV, Col. Gen. Vladimir Shamanov, has promised to expand his operations beyond Russian Federation territory, and Ukraine is not necessarily paranoid in suggesting that the launching ground for an invasion may also encompass Crimea, which is why Kiev argues that the real figure of Russian troops surrounding the country is more like 45,000.
Come on AP try it---let's see how you tear apart a journalist from the Interpreter---will be interesting to see your work. And maybe we can get your response to the article released in FP as a counter voice to the author who wrote the article.
Waiting AP---have gone over all of your responses in the thread and I am not exactly sure what you would suggest doing if the author is correct that the Russian troops are already over the border.
AmericanPride
08-08-2014, 09:08 PM
Waiting AP---have gone over all of your responses in the thread and I am not exactly sure what you would suggest doing if the author is correct that the Russian troops are already over the border.
My suggestion was and remains: negotiate. The coercive tools available to the U.S. are not sufficient to fully dislodge Russia from Ukraine. Nor is Ukraine the exclusive or primary security interest of the U.S. The only reason why policy discussions in recent weeks have drifted to talks about increasing U.S. security commitments to Europe is to signal to NATO's eastern European members that they won't be left in the lurch - it has nothing to do with actually restoring Ukraine's territorial integrity.
You not only advocate aggressively reversing Russia's gains, but also to disarm Russia entirely. Despite repeated questions from Dayuhan on how that could be achieved, you have been silent in answering how you would disarm a nuclear state, and do so without further threatening U.S. security interests in Europe and elsewhere. Russia gave us a black eye in Ukraine - I can acknowledge that without recommending that we rush to war against Moscow. Now is the time to assess how Russia's new gains can be marginalized or minimized, since reversing them is out of reach, a war between the U.S. and Russia will do no one any good (including the Ukrainians).
Frankly, your ideas are poorly thought-out and would only lead to further erosions in U.S. security.
OUTLAW 09
08-08-2014, 09:29 PM
My suggestion was and remains: negotiate. The coercive tools available to the U.S. are not sufficient to fully dislodge Russia from Ukraine. Nor is Ukraine the exclusive or primary security interest of the U.S. The only reason why policy discussions in recent weeks have drifted to talks about increasing U.S. security commitments to Europe is to signal to NATO's eastern European members that they won't be left in the lurch - it has nothing to do with actually restoring Ukraine's territorial integrity.
You not only advocate aggressively reversing Russia's gains, but also to disarm Russia entirely. Despite repeated questions from Dayuhan on how that could be achieved, you have been silent in answering how you would disarm a nuclear state, and do so without further threatening U.S. security interests in Europe and elsewhere.
Frankly, your ideas are poorly thought-out and would only lead to further erosions in U.S. security.
AP--US security went down the drain in 2003 actually it went down the drain starting in Beirut in the 80s. Security went down the drain when the green flags of Hezbollah were walked into Lebanon, security went down the drain when all US military power was pulled out of Europe, security went down the drain when we decided soft power works over hard power. Security went down the drain when we expanded in AFG after 2001 , and security went down the drain when the political parties in Congress decided drinking tea was better than governing. Security went down the drain when banks blew up the property bubble and no one went to jail. Security went down the drain when the drug cartels were allowed to expand into the US when no one cared what they were doing down south but some political parties in the US were interested more in what the ATF was doing.
AP the list could go on and on and on....
AP---still awaiting your response to the FP article paragraph for paragraph---let's see how you respond to the reality in the field not in your comments.
It is reality that needs an answer.
By the way hope which you state often is and will never be a strategy. One can actually define negotiations as being a form of "hope".
By the way NEGOIATE for what? A return of the Crimea , a return to the former Soviet Union that Putin envisions, or a return to the Cold War or a return of Stalin or a return of the Czar-negotiate a return of Russian ethnic nationalism which is really a form of fascism--again negotiate for what AP?
Again AP negotiate for what?--not firing artillery and MRLs into the Ukraine, or negotiate for what not killing none Christians as defined by Russian Cossack mercenaries---again AP negotiate for what?
By the way --this goes to just how you read---have I ever here advocated for disarming Russia---what I have advocated is making sure they fully understand the red lines and that there is a price for attempting to rewrite Soviet history that was doomed by the poor Russian decision making of that period and a collapsed Soviet economy due to the low price of oil ---not by anything the West was alleged to have done.
Come on AP quote back to me where I advocated the disarming of Russia.
I keep asking you--why does the world need a Russia which is in reality a developing second world country that envisions itself as the third superpower?
OUTLAW 09
08-08-2014, 09:37 PM
AP:http://www.kyivpost.com/content/ukraine-abroad/deutsche-welle-ukraine-mulls-blocking-russian-oil-and-gas-to-europe-359961.html
OUTLAW 09
08-08-2014, 10:01 PM
AP---you cannot really believe this comment of yours do you?---you really did need to have resided and worked here in Europe since 1967--then maybe you might have a different take on Russia.
Originally Posted by AmericanPride:
Some ideas on inducing cooperation from Russia: dissolve NATO, a new Marshall Plan for countries of the former USSR, the most critical players of all: Russian citizens and companies. This could include reducing the existing visa barriers between Russia and the EU and, in the longer term, lessening the restrictions on working abroad..the West could radically shift the focus of its cooperation with Russia to the Pacific.
By the way AP you really do know that the EU has offered a number of times for Russia to associate with and later into the EU as a joint economic zone but Russia wanted a Eurasia concept to lock in the older SU countries---you do know the Russian response---nyet.
You do know that the Russian parliament has representatives in the EU PACE and yet they walked out over the Crimea when the EU confronted them on it---so how is anything similar to work in the future?
Come on AP you really do not believe what you wrote right?
Dayuhan
08-09-2014, 12:08 AM
By the way --this goes to just how you read---have I ever here advocated for disarming Russia---what I have advocated is making sure they fully understand the red lines and that there is a price for attempting to rewrite Soviet history
I don't agree with AP on the negotiation side; I doubt that negotiation would achieve much without the deployment of significant carrots and sticks.
What I'm missing from you, despite your efforts to position yourself as an omniscient authority, is any hint of a practical policy suggestion. What, specifically, do you think the US and EU should do at this point? Surely your self appointed authority puts you in a position to make a suggestion, and if it doesn't, what good is it?
If you're talking of "red lines", what exactly should they be and what should be done if (when) they are tested? If we're talking of prices, what specific price do you suggest and how is that price to be imposed?
OUTLAW 09
08-09-2014, 07:15 AM
I don't agree with AP on the negotiation side; I doubt that negotiation would achieve much without the deployment of significant carrots and sticks.
What I'm missing from you, despite your efforts to position yourself as an omniscient authority, is any hint of a practical policy suggestion. What, specifically, do you think the US and EU should do at this point? Surely your self appointed authority puts you in a position to make a suggestion, and if it doesn't, what good is it?
If you're talking of "red lines", what exactly should they be and what should be done if (when) they are tested? If we're talking of prices, what specific price do you suggest and how is that price to be imposed?
See Dayuhan--this is the problem--if you had been following my comments and those of JMA then you would have seen the red lines and the suggestions.
I am for one really waiting for the 90 day bank lines of credit to be halted and the halting of sales of stocks for all Russian oligarch companies as well as the halting of all Sovereign fund bonds as well as Russian company bonds sales.
Then the red line is seriously stated to Putin.
Only when he clearly sees the financial abyss will he pull back as he cannot regardless of how much propaganda he throws at the Russian population ---there are way to many of the middle class that sees , hears, and understands the west from their many trips/vacations and they fully understand the propaganda---Putin has totally established a dictatorship using "legal democratic" means and they are now afraid to say anything out of fear of landing in prison. Just listen to the voices of the young Russian generation that is here in Berlin in large numbers---anti Putin to a person--but then totally nationalist Russians in their love of their country. There is the disconnect.
Remember what drove them in 1994---the realization that there was another economic developmental/growth model out they and they knew they wanted a part of it. Yes the average yearly income of 7K has been risen to 14K but it has been on the credit pump from the west and there still is no real serious internal development that can sustain Russia when the raw resource turn down---then what? Remember Russia is still the same old Soviet style state capitalism just with "former communist" now "democratic" oligarchs.
Just look at the food sanctions ban--it did not really hurt the west---actually Europeans were startled by his remarks as they know it will hit the Russian consumer far harder---but Putin needs to drive his population backwards in order to survive the isolation that is now there---the problem is and he totally forgot--Russia is tied to the globalized world thus cannot drift back into economic isolation without truly damaging his own economy for the next 20 years.
Putin is struggling to get reelected nothing more nothing less and if it means crossing with little green men into the Ukraine in the end he will do it---the question is just how hard will the west push back on against a ethnic national imperialist bent on reestablishing the Russian Empire?
He has already crossed two serious red lines and that has been signaled to him a large number of times and yet he does not respond---and all AP wants to do is what----to negotiate?
So in the end if his economy totally tanks it is not the fault of the west which he so often blames for everything--- it is then his own fault---but right now he is in an "ain't my responsibility---it is yours" mindset.
AmericanPride
08-09-2014, 05:10 PM
By the way NEGOIATE for what? A return of the Crimea , a return to the former Soviet Union that Putin envisions, or a return to the Cold War or a return of Stalin or a return of the Czar-negotiate a return of Russian ethnic nationalism which is really a form of fascism--again negotiate for what AP? Again AP negotiate for what?--not firing artillery and MRLs into the Ukraine, or negotiate for what not killing none Christians as defined by Russian Cossack mercenaries---again AP negotiate for what?
Negotiate for what? How about starting with identifying the official U.S. and Russian positions. Have you bothered to investigate what they are?
I think it is important to be honest when it comes to the (short-term) political outcome of sanctions and confess we don't know. The study cited by AP comes up with a 30% success rate, but if one considers that sanctions itself are a negative selection there remains the questions: What would have happened without the sanctions? A more favorable outcome, a worse one? For whom? What impact had it on other countries faced with potential sanctions.?
In addition to that even good studies suffer form the usual problems of a limited sample and huge differences between countries and considerable ones in the extent and type of sanctions. So it is important to be sceptical.
So far the political logic of sanctions against Russia seems to be:
a) Showing that all those words were not hollow
b) Impose rising costs for Russia to make it less likely that Putin 'escalates' further
c) Possibly also trying to make an international point with a + b
So far the Kremlin doesn't look like it backs off, but just has I have written after the Crimean annexations (without anticipating the invasion into the Donbass) this looks like a long game.
The economic consequences are much easier to predict, even if their precise outcome can't be know, especially since the sanction cycle is in full swing. At least Putin helps us to run a big real-world economic experiment which will pretty likely support other experiments in that direction.
AmericanPride
08-09-2014, 07:26 PM
So far the political logic of sanctions against Russia seems to be:
a) Showing that all those words were not hollow
b) Impose rising costs for Russia to make it less likely that Putin 'escalates' further
c) Possibly also trying to make an international point with a + b
I think it's important to note the absence of reversing Russia's gains in Ukraine from your list. I don't think the ineffectiveness of sanctions in regards to reverse gains is lost on the Obama administration and I'm inclined to believe that the sanctions are an attempt at posturing vis-a-vis Russia for a better bargaining positioning down the road and to signal to U.S. allies (particularly Poland and the Baltic states) that the U.S. is committed to European security.
At some point, the escalation cycle will exhaust itself and both Washington and Moscow will be left staring at one another wondering what to do next. The only game-changer would be the prospect of the extermination of the separatists, which I think is highly likely to trigger further Russian escalation. Note that the Georgian conflict ended with a formal cease fire but many of the political and territorial issues remain unsolved and frozen for the time being. I suspect a similar situation to emerge in Ukraine - the exact boundaries of which are at this point unclear but at least include Russia keeping Crimea.
OUTLAW 09
08-09-2014, 08:52 PM
I think it's important to note the absence of reversing Russia's gains in Ukraine from your list. I don't think the ineffectiveness of sanctions in regards to reverse gains is lost on the Obama administration and I'm inclined to believe that the sanctions are an attempt at posturing vis-a-vis Russia for a better bargaining positioning down the road and to signal to U.S. allies (particularly Poland and the Baltic states) that the U.S. is committed to European security.
At some point, the escalation cycle will exhaust itself and both Washington and Moscow will be left staring at one another wondering what to do next. The only game-changer would be the prospect of the extermination of the separatists, which I think is highly likely to trigger further Russian escalation. Note that the Georgian conflict ended with a formal cease fire but many of the political and territorial issues remain unsolved and frozen for the time being. I suspect a similar situation to emerge in Ukraine - the exact boundaries of which are at this point unclear but at least include Russia keeping Crimea.
Then AP you seem to not understand just what is ongoing in the Ukraine--right now the UA has fully surrounded Donetsk and are on the verge of cutting all LOCs from Russia and have signaled Russia they view any crossing of the borders as an act of war.
Georgia is not the Ukraine and Russia knows that---why ----to cross over would provoke far more serious sanctions on their gas industry. Right now there is some indications that the Ukrainian Army has shifted some of their SF units into a guerrilla environment that have been ambushing the separatists constantly for the last few weeks.
The Ukrainians read Russia far better than we will ever do and have under their new President actually out maneuvered Putin at his own game since they went onto military operations after the first ceasefire failed.
You as well seem to not have seen the somewhat pathetic Russian response with the food ban on the west which had even the most conservative European economists shaking their heads as it will hit Russian consumers far harder than anywhere in the west.
Also the pathetic threat of not allowing western airlines to cross Siberian airspace got dropped in a hurry after Putin and his deputy made such statements---did you really think Aeroflot was going to give up 300M USD a year for the overflights?
Down to the pathetic threat of raising gas prices seemed to what frighten the EU---notice how fast it came of the table when the Ukrainians threatened to cut all oil and gas crossing the Ukraine.
You really seem to get hung up on this "negotiating thing" and Russia is not about to negotiate with anyone from the west the last time I read Isvesitia.
http://www.spiegel.de/politik/ausland/ukraine-regierungstruppen-haben-donezk-eingekesselt-a-985313.html
By the way AP did you notice that absolutely no ongoing negotiations on any topic has gone anywhere? Wonder why?
mirhond
08-09-2014, 09:36 PM
While I see cowardly appeasement rearing it's head there is a chance that you are now openly pushing Russian propaganda. Which is it?
American Pride, wellcome to SWJ Exclusive Club of KGB mouthpieces. I'll send you cookies, on occasion :D
prices have raised 45% just in the last two days regardless of how his propaganda spins it
Outright lie and complete BS, as usual. It takes few weeks perhaps, before retail prices start to rise.
One consumer visited shop with higher price range "Seventh continet" in Moscow and took some photos. After comparing the view with Putin's sanctions list, he did some cutting and painting and you can see the moscovites choices on the second pic.
http://www.the-village.ru/village/situation/situation/162206-azbuka-vkusa-takoe
American Pride, wellcome to SWJ Exclusive Club of KGB mouthpieces. I'll send you cookies, on occasion :D
Look up 'Antonio Negri' and see where he is coming from. Maybe the difference is that you are doing it for the money and he for ideological reasons... but he seems to have missed that communism collapsed in Russia some time ago. Mirhond, you don't believe in the Marxist crap do you?
Dayuhan
08-10-2014, 01:56 AM
See Dayuhan--this is the problem--if you had been following my comments and those of JMA then you would have seen the red lines and the suggestions.
I do read most of the posts, though given the sheer volume and occasional incoherence it's always possible to miss something. I've seen little or nothing that indicates a specific suggestion. From JMA the closest I saw was a presumably facetious recommendation that the Ukraine be provided with nuclear weapons.
I am for one really waiting for the 90 day bank lines of credit to be halted and the halting of sales of stocks for all Russian oligarch companies as well as the halting of all Sovereign fund bonds as well as Russian company bonds sales.
I've said from the start that the response should be multilateral, economic, and graduated, so we're not so far off being on the same page there. I try not to suggest specific economic sanctions, because I don't have the access to detailed data or the number crunching expertise to determine the cost/benefit relations of specific possibilities. If it were up to me I'd have had a team of experts on the Russian economy serving up lists of possibilities with projected impacts for each. I assume that this has been done.
Then the red line is seriously stated to Putin.
Which specific red line do you mean?
Only when he clearly sees the financial abyss will he pull back as he cannot regardless of how much propaganda he throws at the Russian population ---there are way to many of the middle class that sees , hears, and understands the west from their many trips/vacations and they fully understand the propaganda---Putin has totally established a dictatorship using "legal democratic" means and they are now afraid to say anything out of fear of landing in prison. Just listen to the voices of the young Russian generation that is here in Berlin in large numbers---anti Putin to a person--but then totally nationalist Russians in their love of their country. There is the disconnect.
Remember what drove them in 1994---the realization that there was another economic developmental/growth model out they and they knew they wanted a part of it. Yes the average yearly income of 7K has been risen to 14K but it has been on the credit pump from the west and there still is no real serious internal development that can sustain Russia when the raw resource turn down---then what? Remember Russia is still the same old Soviet style state capitalism just with "former communist" now "democratic" oligarchs.
Just look at the food sanctions ban--it did not really hurt the west---actually Europeans were startled by his remarks as they know it will hit the Russian consumer far harder---but Putin needs to drive his population backwards in order to survive the isolation that is now there---the problem is and he totally forgot--Russia is tied to the globalized world thus cannot drift back into economic isolation without truly damaging his own economy for the next 20 years.
Putin is struggling to get reelected nothing more nothing less and if it means crossing with little green men into the Ukraine in the end he will do it---the question is just how hard will the west push back on against a ethnic national imperialist bent on reestablishing the Russian Empire?
I find it interesting that you say "Putin has totally established a dictatorship" and a few paragraphs later "Putin is struggling to get reelected". That seems to be a bit of a disconnect; can you explain?
I agree that Putin has backed himself into a corner: his proxies are failing despite very overt support, and now all his options are bad. This is a common problem in proxy war, as the US well knows: if your proxies can't do the job you're left without good options.
The question now is how to get him to take the bad option we prefer: not invading. Economic threats are part of that. So is undercutting the pretext: the last thing we need right now is a bunch of dead ethnic Russian civilians.
He has already crossed two serious red lines and that has been signaled to him a large number of times and yet he does not respond---and all AP wants to do is what----to negotiate?
AP will have to respond to that; as I said before I don't see much point in negotiating without a solid supply of carrots and sticks at hand. The question is what the most effective carrots and sticks would be, and how and when they should be deployed.
AmericanPride
08-10-2014, 05:11 AM
American Pride, wellcome to SWJ Exclusive Club of KGB mouthpieces. I'll send you cookies, on occasion
I like shortbread cookies. Or... do cookies choose me?
Georgia is not the Ukraine and Russia knows that---why ----to cross over would provoke far more serious sanctions on their gas industry.
Then why in other posts do you hype a threat of imminent Russian invasion?
By the way AP did you notice that absolutely no ongoing negotiations on any topic has gone anywhere? Wonder why?
Not in public, at least. At some point, Washington and Moscow (and the EU) will sort out the details at the negotiating table. It's not a matter of "if" but of "when" and under what conditions. I'm not against the U.S. increasing it's leverage prior to negotiations through diplomatic and economic maneuvering - that's par for the course. Anyway, the long view is a political settlement. There will not be a perpetual conflict in Ukraine (or with Russia).
Look up 'Antonio Negri' and see where he is coming from.
Negri's work is fundamentally a critique of neoliberal capitalism - I'm not a neo-liberal myself - but his ideology departs from a nationally-centered position. Frankly - my concern is chiefly with American interests; not with Ukrainian, or Russian, or South African. Internationalism is a strategy not an end-state.
OUTLAW 09
08-10-2014, 08:03 AM
American Pride, wellcome to SWJ Exclusive Club of KGB mouthpieces. I'll send you cookies, on occasion :D
Outright lie and complete BS, as usual. It takes few weeks perhaps, before retail prices start to rise.
were you yesterday at the local markets in Moscow---products that are now on the Russian food bans have either been pulled so the merchant can get a higher price in the coming two weeks or they were totally purchased by a single consumer--or what I call Russian hording.
Foods on the ban have now been stopped on the Belarus border to Russia and turned back---these were not storage articles but articles destined to go straight into markets for sale.
If you had been shopping yesterday and actually the second day after the food bans were ordered by Putin actually some prices were raised higher than 45%.
Get out there and shop and check for yourself and stop making comments you yourself cannot back up.
I hope you are not still spinning the tale that the Putin food bans will hurt the West---come on comrade in some areas Russia imports over 50% of a product because they have a poor and failing food production state run system from the SU days---oh sorry I meant to say an oligarch owned state system.
still awaiting your answer as to where those "zealous Christians" took the 36 bodies that you yourself as an expert claimed went to Donetsk.
http://www.washingtonpost.com/opinions/anne-applebaum-russias-blow-to-globalization/2014/08/08/c0030480-1f35-11e4-ab7b-696c295ddfd1_story.html?hpid=z2
OUTLAW 09
08-10-2014, 08:07 AM
I like shortbread cookies. Or... do cookies choose me?
Then why in other posts do you hype a threat of imminent Russian invasion?
Not in public, at least. At some point, Washington and Moscow (and the EU) will sort out the details at the negotiating table. It's not a matter of "if" but of "when" and under what conditions. I'm not against the U.S. increasing it's leverage prior to negotiations through diplomatic and economic maneuvering - that's par for the course. Anyway, the long view is a political settlement. There will not be a perpetual conflict in Ukraine (or with Russia).
Negri's work is fundamentally a critique of neoliberal capitalism - I'm not a neo-liberal myself - but his ideology departs from a nationally-centered position. Frankly - my concern is chiefly with American interests; not with Ukrainian, or Russian, or South African. Internationalism is a strategy not an end-state.
AP---I hype it because in fact and most of the time you seem to not read---Russian GRU/FSB/SF and two Airborne BNs have in fact crossed over in the night of 16 to 17 July so it is not a question of when or how---it is a question on just how many are already across.
So based on your holding onto the mistaken belief that negotiations will occur---do you mind telling us when because from where I sit yes they will occur- but maybe in 1-3 years and yes the Ukraine internal fighting will continue even if Russia does not formally cross as that is the way of proxy wars but since you never fought in one then that must explain your avid holding onto negotiations as the answer.
OUTLAW 09
08-10-2014, 08:25 AM
I do read most of the posts, though given the sheer volume and occasional incoherence it's always possible to miss something. I've seen little or nothing that indicates a specific suggestion. From JMA the closest I saw was a presumably facetious recommendation that the Ukraine be provided with nuclear weapons.
I've said from the start that the response should be multilateral, economic, and graduated, so we're not so far off being on the same page there. I try not to suggest specific economic sanctions, because I don't have the access to detailed data or the number crunching expertise to determine the cost/benefit relations of specific possibilities. If it were up to me I'd have had a team of experts on the Russian economy serving up lists of possibilities with projected impacts for each. I assume that this has been done.
Which specific red line do you mean?
I find it interesting that you say "Putin has totally established a dictatorship" and a few paragraphs later "Putin is struggling to get reelected". That seems to be a bit of a disconnect; can you explain?
I agree that Putin has backed himself into a corner: his proxies are failing despite very overt support, and now all his options are bad. This is a common problem in proxy war, as the US well knows: if your proxies can't do the job you're left without good options.
The question now is how to get him to take the bad option we prefer: not invading. Economic threats are part of that. So is undercutting the pretext: the last thing we need right now is a bunch of dead ethnic Russian civilians.
AP will have to respond to that; as I said before I don't see much point in negotiating without a solid supply of carrots and sticks at hand. The question is what the most effective carrots and sticks would be, and how and when they should be deployed.
Dayuhan--you need more actual physical interaction on a daily basis with Russian politicians and military and you then would understand that yes in fact he has established an authoritarian rule quasi a dictatorship actually more like the head of multinational corporation as Russia is made up of 4 distinct ruling elites.
Russia the former SU has a pendent to holding onto legal documents as if they somehow justify and grant that country or person "legal rights"---go back and reread all Russian comments especially Russian FM comments and count the number of times they mention that certain agreements, treaties, actions are in their view illegal---that goes to the concept that "the shine of legality" gives them their power--that is until that agreement, memo, treaty blocks them then they will totally ignore the fact they are in violation of the very agreements they signed.
Actually that should not surprise anyone as that was the core statement that Stalin told a high ranking Communist Party meeting in 1939.
Go back and reread Putin's Duma comments and his press conferences and list the arguments he states he considers the West having violated as his reasoning for moving into the Crimea and eastern Ukraine---it is in the public domain to be read by all---although some commenters here tend to not do that often enough.
Here is one of those statements---NATO has violated the agreements with Russia on the expansion into the bordering countries next to Russia---actually count the number of times that has been stated by both the Russian FM and Putin himself---then actually do the research and try to find that signed agreement---there exists none---it was a conversation between Gorbi and Bush that was not followed up on and signed into agreements---now explain to me just how an "agreement" is considered an agreement if verbal---and yes I know in some countries a verbal agreement can and is often considered a legal contract. The closest thing to an agreement that Putin loves referencing was the German Reunification Agreements 4 plus 2 and even Russian FM and Putin state them differently to the world than what is written in them---again cognitive dissonance.
I have dealt with Russian officers in 2012 and 2013--if you misused one word or sentence you could find yourself later arguing over that word or sentence as they will hold it in your face and blatantly state---this is what you said so it was agreed to but attempt to find it in the hand written recorded statements and the running video.
This is a major problem when dealing officially with Russian government officials---this cognitive dissonance penetrates into even the lowest ranking Russian officer or government official.
These "legal documents" grant them the cover and yes even a "democratically "appearing election however rigged is considered "legality" to the ruler ie Putin as he can say to the west see I am supported by 98% of the population so therefore you must deal with me the ruler of Russia not the political parties. this was if you noticed the argument on the Crimea elections--Dayuhan notice the trend--it is always there and when AP claims that negotiations are the way forward then he knows nothing on how to counter cognitive dissonance. That is why he is so set on getting reelected ---it gives him the appearance of "legality"--outside of his ego thing he has going for him.
I have stated here a number of times--this type of thinking often leads authoritarian leaders to believe their own propaganda and often that leads them into an altered state of reality which by the way Putin is in if you view his food ban decision in the light of cognitive dissonance--ie the belief that somehow this great milk and beef producing machine in Russian can replace overnight imports of upwards and depending on product 63% ---and that overnight ---and again "without" hurting the Russian consumer as that is what he told his population.
Remember even a population can be affected by cognitive dissonance if the propaganda begins to be believed as the "truth" as it must be "true" as our "democratically elected" leaders are the ones telling us.
In opposition to AP---we do not need negotiations right now we need a team of psychologists to talk to Putin as they are about the only ones capable of understanding this cognitive dissonance of his.
IMO that is why right now no western leader --not even Merkel is not getting through to Putin--they have no earthly idea how to deal with cognitive dissonance at the leadership levels as western leaders tend to work in the realm of logic and rational though processes---not the emotional world that causes decisions to sometimes go left instead of the intended right which Putin finds himself in right now in eastern Ukraine.
There though is one who fully understands Putin and has actually out maneuvered him---the current Ukrainian President.
It might sound racist but is not meant to be--it takes a Slav to understand a Slav.
The economic question is of course intertwined with the political one as we have seen all too clearly in those last weeks and months but I think we should still focus on the former aspect.
----
Top Suppliers Of Food To Russia (2013) (http://www.rferl.org/contentinfographics/infographics/26519095.html). Brazil is surprisingly high up there, maybe animal feed is included? I will check later.
mirhond
08-10-2014, 11:03 AM
One consumer visited shop with higher price range "Seventh continet" in Moscow and took some photos. After comparing the view with Putin's sanctions list, he did some cutting and painting and you can see the moscovites choices on the second pic.
http://www.the-village.ru/village/situation/situation/162206-azbuka-vkusa-takoe
Oh, gawd, you read Russian - how do you managed to mistook "Azbuka vkusa"(highest prices in Moscow, vanity shop for nouveau riche) for "Seven continent"(middle-to-high prices)?
Next time I'll go to the nearest retail shop for lower classes and bring some photos of shelves full of Russian and unsanctioned foodstuff with a small token of grub wich fall into sanctions.
I like shortbread cookies. Or... do cookies choose me?
Yeah, Russian reversal - cookies like you :D
mirhond, my bad! Waiting for your pics :)
Nice reading about sanctioned food products in Russian. According this survey biggest winner will be Belarus.
http://ttolk.ru/?p=21312
OUTLAW 09
08-10-2014, 01:30 PM
Oh, gawd, you read Russian - how do you managed to mistook "Azbuka vkusa"(highest prices in Moscow, vanity shop for nouveau riche) for "Seven continent"(middle-to-high prices)?
Next time I'll go to the nearest retail shop for lower classes and bring some photos of shelves full of Russian and unsanctioned foodstuff with a small token of grub wich fall into sanctions.
Yeah, Russian reversal - cookies like you :D
you still have not answered you own comments about those zealous Christian Cossacks that were badly beaten into the ground and have been retreating into Donetsk ---so again where did they take the 36 bodies comrade as they seemed to not make Donetsk?.
you still think those zealous Christian Cossacks are great fighters---well it looks like the Ukrainian National Guard seems to have defeated that Russian myth of your did they not comrade?
even the FSB officer Girkin was complaining on his cell phone about their fighting abilities---with quality mercenaries like that no wonder they are losing against a ragtag Ukrainian Army----- well so much for the glorious Russian Army training.
OUTLAW 09
08-10-2014, 01:38 PM
Oh, gawd, you read Russian - how do you managed to mistook "Azbuka vkusa"(highest prices in Moscow, vanity shop for nouveau riche) for "Seven continent"(middle-to-high prices)?
Next time I'll go to the nearest retail shop for lower classes and bring some photos of shelves full of Russian and unsanctioned foodstuff with a small token of grub wich fall into sanctions.
Yeah, Russian reversal - cookies like you :D
just why is it that the Russian government is passing a law forbidding stores from overcharging for food products---seems like your Putin is getting ready for a massive shortage---there was a by the way a picture posted from your own Russian bloggers asking what is the new Russian food diet
1. bread
2. vodka
3. potatoes
well so much for punishing those mean anti Russian western consumers and now Putin is assisting European consumers in lowering their own cost of living for the next year or so with cheap farm/fruit/vegetable products.
that comrade mirhond was a great sanctions example--- is that all the Russia "superpower" is capable of---come on man fruit and vegetables really?
agree with kaur---where are the photos---oh forgot you never answer anything anyway comrade
AmericanPride
08-10-2014, 07:34 PM
where I sit yes they will occur- but maybe in 1-3 years and yes the Ukraine internal fighting will continue even if Russia does not formally cross as that is the way of proxy wars but since you never fought in one then that must explain your avid holding onto negotiations as the answer.
In my best Outlaw impression:
"Look! You agree! You said negotiations will occur! Thank you for agreeing with the obvious. My work here is done."
OUTLAW 09
08-10-2014, 07:55 PM
In my best Outlaw impression:
"Look! You agree! You said negotiations will occur! Thank you for agreeing with the obvious. My work here is done."
Great finally AP seems to be getting the concept--even based on your statements that negotiations are the only way forward---would appreciate just what you assume there will be negotiations over? What Yalta, the beaches of the Crimea or those world famous Crimea vineyards or those new casino's Putin wants built.
The last time I checked they are still negotiating on the border to NK are they not, let's see they are still negotiating in Baghdad, still negotiating with Iran, still negotiating on Syria, on issues in Lebanon, between the Israeli's and the Palestinians and the list goes on and on. The last time I checked even the negotiations over the South Sudan what were a raving success?
Oh then let's check the negotiations with Russia over the Georgian and Moldavian separatists? Wow we seem to have a great track record with successes with Russia when we see them negotiating-right AP?- -even the INF they signed has been violated or the current Ukrainian Memorandum they actually did sign and what followed it to the letter---right AP?
Can you tell us here at SWJ just where negotiations finally settled a major world crisis?
Again directed question to you----just what is to be negotiated over the Ukraine?---what Russia is to be allowed to be a member of the Ukrainian parliament or maybe Ukrainians will get what free visa visitation rights in the summer to visit Crimea beaches? Or maybe we can negotiate over the shipment of Crimea Sekt to the US or maybe we can negotiate to allow KBR to built a new bridge from Russia to the Crimea.
The concept of negotiations are something that seems to be at least since 2001 failures or can you see a better track record?
Again AP where have they succeeded?
Dayuhan--you need more actual physical interaction on a daily basis with Russian politicians and military and you then would understand that yes in fact he has established an authoritarian rule quasi a dictatorship actually more like the head of multinational corporation as Russia is made up of 4 distinct ruling elites.
Outlaw, the smart guys don't think so, they believe that they are so smart that can just apply a little thought to the matter and come up with a workable solution. There is enough evidence to prove this both around here and in the Us Administration.
Dayuhan
08-10-2014, 11:24 PM
Dayuhan--you need more actual physical interaction on a daily basis with Russian politicians and military and you then would understand that yes in fact he has established an authoritarian rule quasi a dictatorship actually more like the head of multinational corporation as Russia is made up of 4 distinct ruling elites.
Yes, we all know this; it's become pretty much conventional wisdom. The question is how you reconcile the assumption of quasi dictatorship with your observation that "Putin is struggling to get reelected". Dictators don't generally struggle to get reelected, because they control the electoral system: that's what makes them dictators. They do worry about the populace rising against them, but that's a different problem. If Putin is indeed, as you say, "struggling to get reelected", it brings the whole assumption of quasi dictatorship into question.
I do read most of the posts, though given the sheer volume and occasional incoherence it's always possible to miss something. I've seen little or nothing that indicates a specific suggestion. From JMA the closest I saw was a presumably facetious recommendation that the Ukraine be provided with nuclear weapons.
A selective memory I see.
Another example of a misrepresentation of what I said. Deliberate I'm sure but perhaps to you a nuke is a nuke and the yield of a tactical nuclear weapon is lost on you. Not facetious at all. Do you really think the Russians would be invading eastern Ukraine if they were facing - albeit low yield - tactical nukes?
AmericanPride
08-10-2014, 11:32 PM
Negri is a marxist... period.
He is a Marxist. And Marxism is fundamentally a critique of capitalism. I thought his work Empire with Michael Hardt was superficial and rather strained so I haven't bothered reading their subsequent works. I'm neither Marxist or neo-liberal in outlook so I understand your confusion.
But I am surprised that with your utter hate of anything left of D.F. Malan.
Dictators don't generally struggle to get reelected, because they control the electoral system: that's what makes them dictators. They do worry about the populace rising against them, but that's a different problem.
You seem a bit confused... again.
Your final sentence counters the premise in your first sentence as applied to Russia.
Arguing for the sake of arguing is pretty ridiculous don't you think?
Dayuhan
08-11-2014, 12:03 AM
Your final sentence counters the premise in your first sentence as applied to Russia.
Not at all. A leader that has to struggle to get reelected generally doesn't have to worry about the populace taking to the streets: why would the populace bother going to the streets if they can just vote the bastard out?
Struggling to get reelected is the problem of elected leaders. The prospect of the populace in the streets is the problem of dictators. Dictators, by definition, don't struggle to get reelected. They dictate the results of the election, if they bother to have an election at all.
I simply asked Outlaw to clarify what appears to be an inconsistency.
Dayuhan
08-11-2014, 12:16 AM
Another example of a misrepresentation of what I said. Deliberate I'm sure but perhaps to you a nuke is a nuke and the yield of a tactical nuclear weapon is lost on you. Not facetious at all. Do you really think the Russians would be invading eastern Ukraine if they were facing - albeit low yield - tactical nukes?
Possibly not, but if the US threw the NPT out the window I'm sure others would take the opportunity to do a bit of proliferating for themselves. If we can send a few low-yield tactical nukes to the Ukraine, the Russians can send a few to Iran... and why wouldn't they? Imagine the price of oil - and the Russian revenues - if one got used? They might very well do it, or something equally stupid, just to show that they aren't going to be bluffed and any move we make will be matched in kind. That kind of escalation doesn't go anywhere useful.
Handing over nuclear weapons wouldn't stop the proxy war in any event... that's why the cold war was fought by proxies. A nuke of any size is a last resort weapon, as long as you keep even the slightest shred of implausible deniability it won't be used. I'd guess that if the Ukraine had a tactical nuke the Russians would be doing exactly what they are doing now, secure in the knowledge that the Ukrainians wouldn't use it unless their very existence was threatened.
Since we all know it won't happen it's a fairly pointless suggestion anyway.
You can't help yourself can you?
Under the terms of the Budapest Memorandum Ukraine gave up the world's third largest nuclear weapons stockpile in exchange for security assurances against threats or use of force against the territorial integrity or political independence.
Bet they are sorry they trusted the US to stand by that commitment.
Of course the US are not going to send any weapons to Ukraine to allow them to defend themselves against Russian aggression... they don't have the balls for a confrontation with Russia.
If you were indeed as intelligent as you would have others believe you would know that appreasement does never prevent escalation.
Pointless? Of course we are just discussing what we as individuals believe should be done. The thought of the US standing up to Russia - or China for that matter - is indeed laughable, I agree. Those days have passed.
Possibly not, but if the US threw the NPT out the window I'm sure others would take the opportunity to do a bit of proliferating for themselves. If we can send a few low-yield tactical nukes to the Ukraine, the Russians can send a few to Iran... and why wouldn't they? Imagine the price of oil - and the Russian revenues - if one got used? They might very well do it, or something equally stupid, just to show that they aren't going to be bluffed and any move we make will be matched in kind. That kind of escalation doesn't go anywhere useful.
Handing over nuclear weapons wouldn't stop the proxy war in any event... that's why the cold war was fought by proxies. A nuke of any size is a last resort weapon, as long as you keep even the slightest shred of implausible deniability it won't be used. I'd guess that if the Ukraine had a tactical nuke the Russians would be doing exactly what they are doing now, secure in the knowledge that the Ukrainians wouldn't use it unless their very existence was threatened.
Since we all know it won't happen it's a fairly pointless suggestion anyway.
Nah...
You getting yourself in a tangle here.
As long as there is the near certainty of the populace taking to the streets which could get ugly Putin needs to be careful just how much he can 'fiddle' the election.
You tried to be smart in a reply to Outlook, you got it wrong.
Not at all. A leader that has to struggle to get reelected generally doesn't have to worry about the populace taking to the streets: why would the populace bother going to the streets if they can just vote the bastard out?
Struggling to get reelected is the problem of elected leaders. The prospect of the populace in the streets is the problem of dictators. Dictators, by definition, don't struggle to get reelected. They dictate the results of the election, if they bother to have an election at all.
I simply asked Outlaw to clarify what appears to be an inconsistency.
OUTLAW 09
08-11-2014, 01:50 AM
Negotiate for what? How about starting with identifying the official U.S. and Russian positions. Have you bothered to investigate what they are?
AP===let's check out your comment here---starting six months before Crimea and counting all Interfax/RIA Russian FM comments and comments attributed to Putin and including his Duma speech---give me a number of the exact reasons Russia claims the rights to Crimea and eastern Ukraine.
If one is to negotiate than one must in theory know the reasons right AP that is the supposed cause of the crisis. In the Russian reason count---be sure to highlight exactly what international agreement, memorandum or treaty were being violated that contributed to the armed annexation of the Crimea and the sending of weapons and Russian mercenaries into the Ukraine.
With the shot down of MH17 we have currently 14 different versions running around the globe by the way---that is a bad example of where to start negotiations is it not AP?
Await your count and your highlighting.
OUTLAW 09
08-11-2014, 01:53 AM
Oh, gawd, you read Russian - how do you managed to mistook "Azbuka vkusa"(highest prices in Moscow, vanity shop for nouveau riche) for "Seven continent"(middle-to-high prices)?
Next time I'll go to the nearest retail shop for lower classes and bring some photos of shelves full of Russian and unsanctioned foodstuff with a small token of grub wich fall into sanctions.
Yeah, Russian reversal - cookies like you :D
Comrade mirhond the sixth one of you all---thanks for confirming both you and your IP address are in fact out of Russia.
OUTLAW 09
08-11-2014, 02:07 AM
Yes, we all know this; it's become pretty much conventional wisdom. The question is how you reconcile the assumption of quasi dictatorship with your observation that "Putin is struggling to get reelected". Dictators don't generally struggle to get reelected, because they control the electoral system: that's what makes them dictators. They do worry about the populace rising against them, but that's a different problem. If Putin is indeed, as you say, "struggling to get reelected", it brings the whole assumption of quasi dictatorship into question.
And again Dayuhan you simply do not understand the beast you are commenting on---and you failed to mention my attempts to show you how "legality" plays a big role in Russian elections.
You really do have to spend some time in the former Soviet Union and then you will understand. Russia is offering some really good cheap Crimea beach vacations--- but wait the cheap Aeroflot daughter airlines cannot fly there anymore as they were grounded by the sanctions so that is out as a suggested place to visit.
I think we should focus here on the economic aspects to be able to have a more fruitful discussion.
European Banks Battle to Keep Russian Clients Amid Sanction Lending Freeze (http://www.themoscowtimes.com/business/article/european-banks-battle-to-keep-russian-clients-amid-sanction-lending-freeze/504862.html)
Bank Austria, the central and eastern Europe [CEE] arm of Italian bank UniCredit, said this week it expects to keep making solid profits in Russia.
"It is a compliance complexity for sure, a very significant effort, but I think it is our approach and culture that any requirement from the sanctions we respect to the extreme detail," said Chief Financial Officer Francesco Giordano.
Bankers working on a syndicated loan of up to $900 million for Russian steel company Evraz — led by Dutch bank ING and Germany's Deutsche Bank — say they hope it will be signed as soon as this week, though they will have jumped through many hoops to get it over the line.
"I think the deal will get done, but it is more difficult at the moment. People are asking a lot of questions around the new sanctions," one banker told Thomson Reuters Loan Pricing Corp, or LPC.
As usual it is important to point out that the sanctions itself have a rather gradual impact in many areas instead of being a on/off switch. This deal might well go through but it is hard to imagine that the conditions for the Russian company are the same as before. I would be very surprised if they will have to cencede a risk premium. Other deals will fall through all those events will contribute to weaken the Russian economy.
Demonstrating this uncertainty, Russia's syndicated debt market, worth $47.2 billion last year, has dried up since hostilities broke out over the Ukraine. Just two corporate loans have been signed since March — a $1.15 billion pre-export loan for Russian iron ore company Metalloinvest and a $450 million unsecured loan for potash producer Uralkali.
Btw the same goes of course for trade triangles which might involve Belorussia or other countries. Even if they operate successfully there will be welfare losses in the West and Russia.
OUTLAW 09
08-11-2014, 07:36 PM
firn---seems like now Russia wants to forego membership in the WTO.
Seems like they have realized that if they complain about something to the WTO they could themselves end up being penalized.
Since the sanctions hit their first response was we will go to the WTO---think they have found out that it is not that easy and I think they were shocked by the Yukos court decision of 50B USD.
It is really as if they do not understand globalization of economic systems---they have had way to much state owned economics and cannot seem to make the shift to a globalized world.
http://euromaidanpress.com/2014/08/11/russian-federation-council-proposes-to-suspends-russias-wto-membership/
davidbfpo
08-11-2014, 10:15 PM
Three threads are closed to enable people to cool down and to enable a review. This one thread. I will endeavour to open the thread tomorrow.
davidbfpo
08-12-2014, 07:04 PM
I have deleted eleven posts and edited many posts.
davidbfpo
08-12-2014, 07:13 PM
SWC has clearly set terms of reference and rules of engagement, which are all set out at:http://council.smallwarsjournal.com/faq.php
SWC respects the right of members to post using psuedonyms. members are not required to provide an introduction on joining, nor are 'credentials' required. We are a "broad church" of experience, interests and standpoints. We are not a political board, although politics is ever present.
On a number of issues, in the past and today, members engagement changes and lurches into sniping or personal attacks. Members often contact a Moderator when concerned, a few post their dismay. It maybe appopriate for a Moderator to then take action.
SWC is open for non-members (with a few exceptions) to read and has an excellent reputation for its content. Sometimes the wrong word(s) can damage SWC.
mirhond
08-13-2014, 12:13 AM
And that's incorrect on your statement it affects chicken which is considered a basic staple. All fishing products from shrimp, tuna, crab, and lobster. Tuna at least is pretty common on shelves in supermarkets. It affects fruits such as apples from Poland. It affects vegetables which are once again big imports from eastern europe.
I suppose you think the russian side of the embargo only includes fine cheeses from France? Well that would be incorrect. But I'd like to hear you define why basic things like fruits and veggies are not considered staples? Grains? Fish? Chicken? Beef?
1. I fail to found exported chicken in Aushan or any other chain stores with reasonable prices.
2. You consider shrimp, crab, and lobster a "basic staple"? Gawd, You leave in a fairy kingdom, may be? This food is fu(king expensive, two-three time more expensive than ordinary beef, as expensive as fine veal.
3. Fruits and vegies vary greatly, from the cheapest Russian to the most expensive European, glorious Polish apples lie somewhere in the middle.
4. Fish - well, I'll miss Norwegian salmon. Beef/pork - there are some exported, two-three times more expensive than Russian.
5. Grain - Russia actually exports wheat, but imports durum wheat, but I prefer rye-bread, so I'll not suffer without macaroni and wheat-bread(assuming that at least part of it is made of exported wheat).
upd. I'll not miss Norwegian salmon - just bought 2 kilos of Karelian trout
Here is a pic of sanctioned grub I found in my fridge
http://i61.tinypic.com/5wwevm.jpg
conclusion: I'll not starve because of sanctions.
"Ich habe Putin zu Sanktionen geraten" (http://www.zeit.de/2014/34/russland-sanktionen-stefan-duerr)
I actually remember that German guy from a interview a couple of years ago. Already then he was one of the biggest producers of milk in Russia and moving into different areas. The company website (http://www.ekosem-agrar.de/en?mid=000100010001) offers some basic information.
DIE ZEIT: Herr Duerr, der russische Praesident Wladimir Putin hat ein Importverbot gegen westliche Lebensmittel verhngt. Hat Sie das ueberrascht?
Stefan Duerr: Nein, in Russland haben alle darauf gewartet, dass die Regierung mit Gegenmanahmen auf die Sanktionen der EU und der USA antwortet. berrascht hat mich das nicht. Einen Tag vor dem verkuendeten Importstopp sass ich sogar noch mit dem Praesidenten zusammen, und er hat mit mir auch ueber die Krise gesprochen.
He came across as quite humble and insightful and I guess the question of the interviewer let to that 'I talked to the president before' answer. There is little doubt that his and other companies will greatly profit from sanctions. Russia has certainly lots of potentials in agriculture but one can not just turn a switch and become close to selfsufficiency. It will be rather interesting to see to which degree prices will rise and supply contract in the coming weeks and months.
mirhond
08-14-2014, 04:02 PM
For now, Russia imported billions worth of meat. First month it will be of little effect.
All this meat cost two-three time more expensive then Russian,
I certainly consider shrimp such, and crab. Both are actually found rather cheap in the US, EU, Australia, Mexico, Canada, Brazil, and South Africa. Only certain crab breeds are expensive. Why isn't it true for Russia?
Actually, I found shrimps in Aushan, none of it were from EU/USA, Argentinian mostly, 16-30$ per kilo.
They will vary a lot less soon for yes some are pricier than others, but it doesn't matter. If you cut out a low cost or an expensive supplier than means your supply is lower. Even .05 cent veggies will go up. Every penny is just one less in the middle and poor's pockets.
That's true, as well as trivial.
Russia is not self sufficient in beef. Cattle was being exported en masse to Russia because it was trying to become beef self sufficient. Most of these imported cattle were from the US. It wasn't there yet, supply is now down, beef will go up. Once more, never said beefless, I said cost. Even as far back as 2012 Russia was still importing a lot of beef:
May be, I've never intentionally looked for exported beef in any shop, for obvious reason.
What you prefer, and what other people eat especially poor are an entirely different thing. Russian wheat imports were not the most impressive but any product removed is an alternative no longer there. Russia still imported most of its lentils, peas, beans, soy, and other low cost food items.
OK, next time I'll do some research of the canned food prices in the closest retail shop for working class.
Cost, cost, cost. Extra spending cash was already low in Russia's middle class, this will just consume more of it. Russia only punished its middle class and poor. The more trouble they get into the more they turn to the state, the more the state has to spend to make certain they eat the more it will cost for them.
Anecdotal pictures of food I don't care about. I want data that suggests Russia didn't import more than 30% of its food. Show me that.
I have no such data, I just enjoy common sence which allows me to to fill my food basket with variety of unsanctioned grub for a reasonable price.
God bless you, innocent child, cherish your anecdotal beliefs, while middle class and poor out there are making themselves ready for food rationing, gravely serious.
Nyxilis
08-15-2014, 04:10 AM
I have no such data, I just enjoy common sence which allows me to to fill my food basket with variety of unsanctioned grub for a reasonable price.
God bless you, innocent child, cherish your anecdotal beliefs, while middle class and poor out there are making themselves ready for food rationing, gravely serious.
It's not ancedotal, you just do not have any idea of trade. Even the US can't just switch it's primary imports of form one country to the other even if the other has the supplies. It takes months if not years to build the infrastructure, establish routes, line up trade companies, and get the government red tape approved. You and 'common sense' do not change what is well established and even taught in Russian schools about trade.
And I bet you it's still affordable, you have warehouses still full of stuff that was in the pipeline. Factories for apple juice still have polish apples sitting waiting to be juiced. They will not next month.
Russia's own government websites put food imports from the countries it banned as high. So, tell me how you expect Russia to avoid increases in the months it takes to negotiate and establish with others in the mean time when Russia has not now or ever been 100% independent on trade? Why Russia is magically immune to cost increases when supply influences cost. Russia just cut a large source of the supplies?
These are facts of trade. If the US banned Mexican strawberries it could get them from Brazil, cost would still suffer within a month and beyond. This isn't about nationalistic nonsense.
OUTLAW 09
08-15-2014, 02:28 PM
"I have no such data, I just enjoy common sence which allows me to to fill my food basket with variety of unsanctioned grub for a reasonable price.
God bless you, innocent child, cherish your anecdotal beliefs, while middle class and poor out there are making themselves ready for food rationing, gravely serious."
BUT:
At least the Russians did not ban oranges and bananas and lifted the serious mistake of theirs when they banned even grain seeds for next years plantings which all comes from the West.
Appears Russians after all these years still does not get globalized trading---maybe because they are still hung up on state owned businesses for their oligarchs.
Will be extremely interesting to see what is left on the shelves at Christmas and how much they are paying even for Russian substitutes.
mirhond
08-15-2014, 05:18 PM
And I bet you it's still affordable, you have warehouses still full of stuff that was in the pipeline. Factories for apple juice still have polish apples sitting waiting to be juiced. They will not next month.
Thank you K.O., it's very true. :)
So, tell me how you expect Russia to avoid increases in the months it takes to negotiate and establish with others in the mean time when Russia has not now or ever been 100% independent on trade? Why Russia is magically immune to cost increases when supply influences cost.
Straw Man Fallacy.
Cite my post where I wrote anything like this.
These are facts of trade. If the US banned Mexican strawberries it could get them from Brazil, cost would still suffer within a month and beyond.
Thank you K.O., for stating the obvious again.
Russian business daily Vedomosti published today article about Russia's food sanctions. Tis graphic is in Russian, but you do understand the point. First column is country, second is amount in millions of tonns and third is percent of whole import.
http://www.vedomosti.ru/img/newsline/2014/08/18/32226311_news_pic1.png
OUTLAW 09
08-18-2014, 01:40 PM
Should oil prices slide under the $90 level, Yamada sees two big support levels below. “You could see $85 which is your next support [going] back to 2012,” she said.
Beyond that, Yamada thinks prices could hit somewhere between $78 and $80, the bottom of the trading range that began around 2011. “Basically that wide trading range will probably hold for a considerable period of time,” she added
The oil prices is of course of huge importance for the Russian economy which is quite similar in some ways to a Gulf state. Crash in Oil Prices Deals Blow to Sanctions-Hit Russian Economy (http://www.themoscowtimes.com/business/article/crash-in-oil-prices-deals-blow-to-sanctions-hit-russian-economy/505340.html) is for my taste a bit sensational.
Russian Urals crude weakened for an eight straight trading day on Monday due to weak European refining demand, falling well below $100 a barrel for the first time in a year in a move to increase the pain for Russian state finances amid Western sanctions.
Russia has balanced its budget at $114 a barrel this year as President Vladimir Putin is ramping up social military spending amid a conflict in Ukraine, which sent relations between Moscow and the West to their worst since the end of the Cold War.
The fall of the ruble against the USD should actually help to cushion the lower oil prices but on the other side the Kremlin seems to spend more. This plan (http://www.themoscowtimes.com/business/article/cash-strapped-russian-budget-plans-raid-on-central-bank-profits-to-fund-spending/505394.html) is just the latest of a series of creative ways helping to balance the budget.
The Russian government may start helping itself to a bigger share in its Central Bank's profits, in the latest attempt to plug up holes in a federal budget under pressure from Western sanctions and a sharp economic slowdown.
In a move not expected to seriously affect the regulator's operations, 75 percent of the Central Banks' profits for 2013 and 2014 would be syphoned into the federal budget over the next two years, up from the usual 50 percent, under a Finance Ministry bill approved Tuesday by the government's legislative commission. The government is to consider the proposal at an upcoming session.
Russian import ban fuels food price rises (http://www.bbc.com/news/world-europe-28849726)
Since the ban was imposed on 7 August imported pork used in processed meat in Moscow has gone up by 6%, Russian business daily Kommersant reports.
In St Petersburg food prices have risen 10%. That inflation occurred even before the impact of sanctions.
Russia's ban on many Western foods is retaliation for sanctions over Ukraine.
The St Petersburg government's economic policy chief, Anatoly Kotov, said the pork price had risen by 23.5% and chicken by 25.8%.
It is important to point out that much of the negative effects of the food bans might still be ahead. Still early days in that area.
mirhond
08-19-2014, 07:18 PM
Pics from "P'at'erochka" retail shop, lowest prices in Moscow, as I promosed before
http://i58.tinypic.com/oh4tnr.jpg
http://i62.tinypic.com/voqxok.jpg
http://i62.tinypic.com/14y24b6.jpg
http://i57.tinypic.com/vzzax2.jpg
variery as usual, prices too.
OUTLAW 09
08-19-2014, 09:01 PM
The oil prices is of course of huge importance for the Russian economy which is quite similar in some ways to a Gulf state. Crash in Oil Prices Deals Blow to Sanctions-Hit Russian Economy (http://www.themoscowtimes.com/business/article/crash-in-oil-prices-deals-blow-to-sanctions-hit-russian-economy/505340.html) is for my taste a bit sensational.
firn---this is an interesting oil price problem article. What is interesting in the article is Russia needs a pricing of 104 up from 89 per barrel which if correct ---the oil futures are showing a down turn at a ceiling of 95 and potentially sinking to 90 and under.
http://www.themoscowtimes.com/business/article/struggling-with-sanctions-russia-faces-oil-price-crash/505418.html
OUTLAW 09
08-19-2014, 09:07 PM
mirhond---are we sure these are the banned products that you are photographing.
make sure the date/time/geo tagging is turned on when you take the photos as they could have been taken long before the bans went in to effect. by the way since you are monitoring the Ukrainian events you will know how important the geo tagging and date/time are.
if they are in fact banned products which by the way cannot be seen just by the names on the cans--then they are what was in the pipeline in the warehouses which you even agreed is probably a correct assumption.
especially the apples---
mirhond, thanks for pics! From which metro station Пятерочка did you take the photos? It is quite possible, that I manage to make inspection next week to confirm or deny your claims :)
You got nice slogan ;) Did you borrow this from " Россия сегодня"/"Russia Today" :)
OUTLAW 09
08-21-2014, 06:33 AM
Pics from "P'at'erochka" retail shop, lowest prices in Moscow, as I promosed before
mirhond---looks like the prices climbed 6% in just one week---next week another 6% - 10% is being projected by even some Russian economists.
http://www.bbc.com/news/world-europe-28855966
and yesterday in Interfax and RIA Russian banks approached the Central Bank all asking for financial assistance due to the sanctions so was the Crimea and eastern Ukraine worth it for the average Russian?
mirhond
08-21-2014, 10:55 AM
mirhond, thanks for pics! From which metro station Пятерочка did you take the photos? It is quite possible, that I manage to make inspection next week to confirm or deny your claims :)
You got nice slogan ;) Did you borrow this from " Россия сегодня"/"Russia Today" :)
Пятерочка is a net shop belongs to X5 Retail Group, thre are dozens of it everywhere. This particular one near м. Академическая. I could even give you a free tour :)
The author of this slogan is writer Viktor Pelevin, you might have heard of him.
OUTLAW 09
08-21-2014, 11:22 AM
Пятерочка is a net shop belongs to X5 Retail Group, thre are dozens of it everywhere. This particular one near м. Академическая. I could even give you a free tour :)
The author of this slogan is writer Viktor Pelevin, you might have heard of him.
mirhond--well no more Mickey Di's--you might like this comment
"No Two Countries That Both Had McDonald's Fought a War Against Each Other" (But a Country Can Be At War With Itself)
Well nobody knows for sure where the oil price will go in the short run, so many factors, so much unknown. What is certain that Putin's Russia has in the last years steadily increased it's spending and needed with it's reliance on energy prices thus an ever higher floor.
NG prices (http://www.bloomberg.com/news/2014-08-19/european-gas-reverses-biggest-drop-since-2009-on-ukraine.html) play a smaller part. We already discussed that many big utilities in Europe have dialed down their demand for gas because it's often no longer competitive against coal with the problems on the emission market.
All in all so far Russias import bans seem to work as Econ 101 suggested they would.
German 'foreign policy experts' call for demand new EU sanctions against Russia (http://www.faz.net/aktuell/konflikt-in-der-ostukraine-aussenexperten-fordern-weitere-eu-sanktionen-gegen-russland-13122318.html) after it's 'open war'/'undeclared war' against Ukraine. One chairs the foreign relation council of the Bundestag, the other one is the assistent head of the CDU/CSU. The former something I have been writing for a long time...
Weakness of the Wester World is not de-escalating (In this case and others I should add, which doesn't mean that in other occasions the current approach is wrong)
New sanctions against Russia could hit, depending on their quality and quantity, an already shrinking Russian economy hard. Especially if the retaliation is as stupid as it was the last time. Bloomberg (http://www.bloomberg.com/news/2014-08-28/russian-recession-risk-seen-at-record-high-amid-sanctions.html) has a good update on the situation. I would personally put the likelyhood of a recession far higher and indeed think that we are already in one with the second quarter getting adjusted downwards.
“After the last round of sanctions and somewhat unexpectedly harsh Russian retaliation, which is going to hurt it more than the Western countries, it is becoming obvious that economic reasoning was not found in Russian policy makers’ toolkit,” Nerijus Maciulis, chief economist at Swedbank Lithuania in Vilnius, said by e-mail.
The guys at the Russian Central Bank and quite a few others in the respective ministries have tried hard but has been obvious for a while that the big shots are called in Putin's inner circle. One of the biggest fears seems to be a budget deficit for which most of those 'creative' moves were exectuted. I highly doubt that we will see a stimulus for the very weak economy as it would counteract that fear in the short term.
OUTLAW 09
09-01-2014, 02:10 PM
Firn----http://www.themoscowtimes.com/business/article/struggling-with-sanctions-russia-faces-oil-price-crash/505418.html
I think we discussed that earlier. I wouldn't talk about a crash in terms of price, but that level will reduce Russia's economic freedom of movement and seems to reinforce rather harmful moves aimed at protecting the state's balance sheet at the cost of the Russian economy.
VoxEU's most recent article (http://www.voxeu.org/article/europe-s-russian-connections) gives a nice overview of Europe’s Russian connections, as it is aptly named. Lots of nice graphs and maps. :wry:
http://voxeu.org/sites/default/files/image/FromMay2014/ilyina%20fig7%2029%20aug.png
Surprising indeed - or rather mostly not...
OUTLAW 09
09-02-2014, 04:47 PM
Firn----heads up. Seven pulls in a row.
http://www.bloomberg.com/news/2014-09-02/russia-pulls-7th-debt-sale-as-sanctions-concern-weighs-on-bonds.html?cmpid=yhoo
From the article:
Russia has skipped 15 auctions this year as President Vladimir Putin’s standoff with the U.S. and its allies over Ukraine and the threat of tougher sanctions triggered a selloff in the nation’s assets. The EU is considering imposing more penalties amid allegations Russia is dispatching troops and backing militias to open a new front in the conflict that the United Nations estimates has claimed 2,600 lives.
The other side of the coin, at least partly considering that countries like Cyprus are mostly just stepping stones for Russian money for safety, tax and camouflage.
http://voxeu.org/sites/default/files/image/FromMay2014/ilyina%20fig6%2029%20aug.png
As usually it is important to keep in mind that small countries are more susceptible to external causes. Flows through London's City and Germany's Frankfurt dilute quickly in those large economies....
Russian Oil Giant Rosneft to Shed a Quarter of Staff, Report Says (http://www.themoscowtimes.com/business/article/rosneft-to-shed-a-quarter-of-staff-report-says/506426.html)
The Moscow Times Sep. 04 2014 12:48
In very simplistic terms the Russian economy works in important parts like that:
Energy sector -> exports; finances -> state budget; finances -> too large public sector + too generous social promises. All dominated by the Kremlin, but all quite fragile in the long run if the exports won't deliver enough hard currency.
Last month Sechin wrote to the government to request that the country's national welfare fund spend 1.5 trillion rubles ($40 billion) to buy Rosneft's debt.
In the face of declining output from mature Siberian fields, Rosneft's production in August dropped to its lowest level since March 2013, monitoring agency CDU TEK said earlier this week, Bloomberg reported.
The latest bit about declining output in mature Siberian fields reminds me a bit of the last Soviet decade...
OUTLAW 09
09-05-2014, 06:17 AM
Firn---have you ever wondered if the Russian Pension Fund is really just one big Ponzi move the shell around with the pea concept and is basically "floating" on alleged amounts of money? Especially since the Fund "seems" to slowly not able to be used here or there as many in the Duma demand right now.
Notice this issue between the Fund and MacDonalds that dates back to 2013 --one would think the Fund would be interested in every Rubel paid into it?
Granted it maybe political in nature but to refuse 26K thousand employee monthly Fund payments is not chump change.
MOSCOW, September 5 (RIA Novosti) - McDonald’s has filed at least eight lawsuits against Russia’s Pension Fund, saying it refused to accept relevant documents from the company, as a result of which McDonald’s Russia employees’ pensions have not been accumulated since 2013, Russian Izvestia newspaper reported Friday.
“Starting from the third quarter of 2013 and until today, in response to submitted documentation, McDonald’s company receives refusals from Russia’s Pension Fund to accept these documents, which is a direct violation of McDonald’s employees’ rights,” Izvestia quoted McDonald’s Russia Director for Public Relations Svetlana Poliakova as saying.
Poliakova argued that the company submits the documentation to the Pension Fund in accordance with all the requirements.
However, Russia’s Pension Fund representatives explained that the responsibility for McDonald’s employees’ rights violations lies within the company itself, as the majority of submitted documents contained mistakes, including ones in the names of employees, and the payment amounts for each of them, Izvestia reported.
According to Russia’s Pension Fund, in 2013 the number of mistakes in the documents reached its maximum. Pension Fund argues that it has repeatedly called on McDonald’s managers to correct the mistakes and resubmit the papers, but the company ignored all requests. So, the accounts on the basis of which the pension rights are formed, were not ready.
After a bit of reading is quite clear that:
a) The Russian funds in question have a (very) low percentage in equity. Thus real performance suffered compared to the international benchmarks
b) Have difficulties, as pretty much everybody to find fixed income safe according to international standards with a decent return
c) Are heavily invested within Russia
d) Are and have been under pressure to finance pet projects of the government and to support state companies overtly
-----
ANNUAL SURVEY OF LARGE PENSION FUNDS AND PUBLIC PENSION RESERVE FUNDS October 2013 (http://www.oecd.org/daf/fin/private-pensions/LargestPensionFunds2012Survey.pdf)
Fund’s surveyed ranged from conservative, fixed income oriented portfolios to return seeking portfolios with significant allocations to equities and alternatives. Russia’s VTB fund was 100% invested in fixed income and cash.
Table 5 is perhaps the most interesting one with a rough breakdown of investment categories, only that Russia is missing...
Russian pension funds to invest $1 billion in venture funds and innovative companies (http://www.ewdn.com/2014/08/26/russian-pension-funds-to-invest-1-billion-in-venture-funds-and-innovative-companies/)
According to a report by an expert committee answerable to the government, as of 2013 the pension system held around 3.3 trillion rubles (around $100 billion). This means that about $1 billion in pension funds will be invested in innovations and venture companies. This amount is comparable to the entire volume of investments in the Russian venture capital market in 2013.
The report, however, notes the high risks of such investments and the lack of high-quality innovative projects.
Sorry, the table isn't easy to paste:
State
Name
Founded
USD bn.
% of GDP
% increase yoy (2012)
Norway
Government Pension Fund - Global (GPFG)
1990
694.4
133.1
14.7
Russian Federation
National Wealth Fund (4)
2008
88.6
4.3
-3.7
Putin Rebuffed by Pension Funds as $14 Billion Sales Loom (2013) (http://www.bloomberg.com/news/2013-03-19/putin-rebuffed-by-pension-funds-as-14-billion-share-sales-loom.html)
While Russia’s private pension funds are permitted to invest as much as 65 percent of their capital in equities, they have allocated only about 10 percent, according to a Goldman Sachs Group Inc. report on Feb. 4. In the U.S., pension funds had about 52 percent of their holdings in shares last year, according to a global survey by Towers Watson & Co. (TW) Many Russian private funds had a majority of their holdings in stocks before the Micex index’s 67 percent retreat in 2008 led them to become more averse to risk, Goldman said.
AmericanPride
09-05-2014, 05:43 PM
Firn,
The second article seems like the Russian pension fund is battling the same temptation to chase promises of high returns that damaged U.S. municipal and state pension funds prior to the 2008 recession.
Firn,
The second article seems like the Russian pension fund is battling the same temptation to chase promises of high returns that damaged U.S. municipal and state pension funds prior to the 2008 recession.
I would say that this 1% is still peanuts. Would be nice ones however for those with an innovative? company, ideally with some links into the state apperat.:wry:
Personally I think it is a bad thing to demand so many different and often conflicting goals from one fund. I think the Global Norwegian SWF does one of the best jobs in the business because it does focus on the long term performance - in the true sense of the word - while the proper ethical rules have really no impact on the bottom line. It is not tasked to find venture company x or finance state company y for political expendiency. Of course it's absolute and relative size make it rather special and it can operate in a very stable and sensible political and economical environment which give it quite an edge over some of the others.
I really hope that the fund will be much more active when it comes to protecting the shareholder.
OUTLAW 09
09-08-2014, 11:30 AM
Firn--Brent broke through the 100 barrier and is at 99.80 and falling. Tendency is further falls.
Which means sour ie Russian crude will fall to about 92-90 range and that hurts as they planned for 104.
https://twitter.com/markethell/status/508895792896438272/photo/1
OUTLAW 09
09-08-2014, 04:19 PM
Firn---with EU gas supplies quiet high right now and still growing---the need for winter gas will be down.
Then this showed up today via a blog and surprised me---with the Russia needing a 113 baseline price for it's crude.
From the "it's an ill wind" department of news: Brent crude is trading below $100 for 1st time in a year. Russia's budget balances at $113.
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