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  1. #1
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    Default Russia's economy

    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...604792875.html
    Last edited by davidbfpo; 05-21-2014 at 09:13 PM. Reason: Add Mods Note

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    Council Member Stan's Avatar
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    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
    If you want to blend in, take the bus

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    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

    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.

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    FIIA, 1 Sep 08: The Sustainability of Russia's Resurgence
    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.

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    Council Member Culpeper's Avatar
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    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!

    "But suppose everybody on our side felt that way?"
    "Then I'd certainly be a damned fool to feel any other way. Wouldn't I?"


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    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

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    Council Member davidbfpo's Avatar
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    Default Behind the "Little green men" its the economy

    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.
    Last edited by davidbfpo; 05-22-2014 at 12:42 PM.
    davidbfpo

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    Council Member Firn's Avatar
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    Default Behind the "Little green men" its the economy

    So far the blood has only run in the stock market, with the Russia RTS losing around 10%.




    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:







    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.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Council Member Firn's Avatar
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    @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

    --------

    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. As much of service sector is obviously strongly linked to the commodity sector the 52% number underestimates this dependence. Think Gulf states.





    The Finnish Central Bank has an interesting study about Russia's revenue problem which is highly likely to become worse in the long run.
    Last edited by Firn; 03-03-2014 at 08:42 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    2. Russias trade



    a) Balance of trade




    b) Exports

    The only surprise is just how much of the export comes from commodities...




    c) Partners

    The EU and the Urkaine hardly worth to mention, I guess...



    Russia on the other hand is the most important one for the EU, surely:

    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    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...
    Last edited by Firn; 03-03-2014 at 09:44 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Council Member Firn's Avatar
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    VTB Bank Chief Slams Law Penalizing Visa and MasterCard, 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.

    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. 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.
    Last edited by Firn; 05-27-2014 at 11:03 PM.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Quote Originally Posted by Firn View Post
    VTB Bank Chief Slams Law Penalizing Visa and MasterCard, 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?

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    quoting myself:
    It's long overdue to recommend Krugman's blog post "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.

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    Council Member Firn's Avatar
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    @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.

    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....
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Default Action taken to enable thread to be reopened

    I have deleted eleven posts and edited many posts.
    Last edited by davidbfpo; 08-12-2014 at 09:25 PM.
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    Default A reminder from a Moderator

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    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.
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    Council Member mirhond's Avatar
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    Quote Originally Posted by Nyxilis View Post
    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


    conclusion: I'll not starve because of sanctions.
    Last edited by mirhond; 08-13-2014 at 12:18 AM.
    Haeresis est maxima opera maleficarum non credere.

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    Council Member Firn's Avatar
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    "Ich habe Putin zu Sanktionen geraten"

    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 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.
    ... "We need officers capable of following systematically the path of logical argument to its conclusion, with disciplined intellect, strong in character and nerve to execute what the intellect dictates"

    General Ludwig Beck (1880-1944);
    Speech at the Kriegsakademie, 1935

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    Council Member mirhond's Avatar
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    Quote Originally Posted by Nyxilis View Post
    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.
    Last edited by mirhond; 08-14-2014 at 04:16 PM.
    Haeresis est maxima opera maleficarum non credere.

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