The Russian economy (catch all)

[Watcher In The Middle]

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

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.

[Schmedlap]

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]

Vlad says he's going to increase the Russian Defense budget by 27% next year. Deja vu all over again indeed...

[kaur]

'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_R...r/1200407.html

[kaur]

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/we...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-f...0779fd2ac.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/wo...s-1522983.html

[Beelzebubalicious]

Wow. Just read today about how Slovakia is jumping into bed with one of the fat boys . 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.

[Stan]

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.

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 !