The Russian economy (catch all)

[Firn]

Putin Clans Gridlocked Over Arrest as Sanctions Bite is a rather dramatic title but it meshes well with earlier papers and reports like that NYT article or comments by the current or former finance ministers.

When Putin came to power at the end of 1999, state companies accounted for about 30 percent of the economy, according to BNP Paribas SA. (BNP) Now the share is more than half.

Unlike Putin’s first two terms as president, when Medvedev and other “economic rationalists” had more freedom and growth averaged 7 percent, this cabinet is dominated by “statists” who want to expand the state’s role in the economy, according to Masha Lipman, an independent political analyst in Moscow.

“When there’s a clash between economic efficiency and rationalism and control and sovereignty, Putin always opts for the latter,” Lipman said. “The desire of the statists to be fully in charge has intensified. This trend has become irreversible. Medvedev is at risk and removing him as premier would take away the last defense of the rationalists.”

Foreign businesses are still investing but far less so then before. The damage inflicted on Russia is certainly increasing, but takes time. Worst are perhaps the wounds caused by it's government itself.

[AmericanPride]

Putin Clans Gridlocked Over Arrest as Sanctions Bite is a rather dramatic title but it meshes well with earlier papers and reports like that NYT article or comments by the current or former finance ministers.

I think the biggest take away from that article is that the Putin administration is not monolithic, and that it contains a number of factions competing for power, wealth, and influence. It might be tempting to believe that the Russian government is stock full of 'irrational criminals' living in an 'altered state of reality' but the truth is that decision-making in Moscow is really a function of a factional process in which the combat between competing voices produces sub-optimal policy outcomes (not unlike in the U.S.).

For me, the real question is how much influence will the nationalists gain at the expense of the realists and technocrats still remaining in government.

[AmericanPride]

From Igor Yurgens, Chairman of the Management Board of the Institute for Contemporary Development and Vice President of Russian Union of Industrialists and Entrepreneurs:

"The West vs Russia" at the National Interest:

Most importantly, beginning a new chapter is not the same as ending one—and it by no means preordains the final pages of the book. Perhaps ironically, the harder the West tries to isolate Russia, the more Western actions will strengthen forces inside the country that welcome isolation. This will make it increasingly difficult to find necessary cooperative solutions to current differences, and it is likely to increase costs on all sides.

[Firn]

A voice of smart reason - sadly following Putin's logic. It is the West who should strech out it's arm and just forget that Putin's aggression has ripped the poltical landscape and post-war consensus of Europe. What have all those offers and understanding got from Russia's side? At best united with the Ukrainian resistance they made a deeper invasion less likely and reduced the level of violence for the time being.

Making the oligarchs of Putin's circle and the common people suffer economically and weakening the Russian ability to built up it's military further is perhaps the least worse outcome given Putin's actions. That there is some infighting within the circle for a bigger slice of the cake which is no longer growing is a just a bonus.

As written by a important Russian economist Putin dominates more the Katharia the Great. This means that the 'moderates', which supported openely his policies of aggression have at best a limited influence the foreign realm if more so in the economic sphere. Actually the isolationists, which seem to be used in part as a spectre would help a great deal to wreak the Russian economy. They already are working hard on it. That has also risks but lower ones then the alternatives. IMHO, of course.

It might be tempting to believe that the Russian government is stock full of 'irrational criminals' living in an 'altered state of reality' but the truth is that decision-making in Moscow is really a function of a factional process in which the combat between competing voices produces sub-optimal policy outcomes (not unlike in the U.S.).

Quite unlike the US, in which one man doesn't dominates personally or through proxies the media, all the three branches and the economy. The infighting is within his circle not between quite indipendent political forces...

[AmericanPride]

Firn,

. It is the West who should strech out it's arm and just forget that Putin's aggression has ripped the poltical landscape and post-war consensus of Europe.

Except for some of the hardliners in Russia, I don't think anyone is saying this at all. I think the majority of the criticism towards Washington's policy is that it's not considering long-term consequences to the conflict's continuation or escalation. Sure - the U.S. can punish Russia economically, but as I've asked Outlaw repeatedly, how does that impact other U.S. security and economic interests? And since the sanctions are in response to Russia's occupation of Ukrainian territory, how do the sanctions reverse that specific action? Historically speaking, sanctions are ineffective in that regard, and considering the other foreign policy consequences of a confrontational U.S.-Russian relationship, there needs to be more consideration of how to de-escalation the conflict at its source.

Quite unlike the US, in which one man doesn't dominates personally or through proxies the media, all the three branches and the economy. The infighting is within his circle not between quite indipendent political forces...

We can debate the extent that this is true, but recent research shows that U.S. policy decisions effectively align with the preferences of American elites, and that the specific outcomes and contours of policies are often subject to heated bureaucratic infighting (i.e. invasion of Iraq, several major intelligence programs, Affordable Care Act, etc). That the specifc mechanisms of power and elite relationships differ to some degree does not in my view invalidate the argument that this process of bureaucratic infighting occurs and shapes policy rather than policy being designed and driven by one man or a monolithic agency.

[AmericanPride]

Some more reasons why Russia is unlikely to alter its course in Ukraine in response to sanctions:

In a poll conducted Sept. 19-22 among 1,600 respondents in 46 Russian regions, 71 percent of Russians believe that the main purpose of Western sanctions is “to weaken and humiliate Russia.”

Sixty-eight percent of the respondents believe Russia should “continue its policy” in retaliation against the sanctions, almost a fifth (22 percent) call for “seeking a compromise and making concessions in order to stop the sanctions” and 10 percent are undecided.

So essentially it appears that as of September, Western sanctions have strengthened not weakened the Russian public's resolve.

[OUTLAW 09]

Oil price crash continues today, falling as low as $88.11 in Asia. Analyst Chris Weafer says Russia relying on $110.

Note:
Next bottoming is estimated to be at 85---if it clears 85 then there is no more bottoming until around 79--if it clears then 79 then hold your breath--some in the field say 69-70 is final end point--currently extremely low demand especially out of China and a very high over supply as suppliers push as much as possible to make up the short falls via large volume movement.

So for every barrel Russia tries to sell at say 85 and they need 110--what is the daily loss----60-80M per day in revenue?

http://qz.com/278945

[OUTLAW 09]

the Russian stock market opened his morning 1.3% down and the CB has again moved the currency bundle band in an attempt to slow down the fall of the Ruble which continued again today.

Leading Russian economist has openly stated the CB will run out of money as the slide cannot be stopped alone by the CB--there must be some political breakthrough to reassure the markets and support the Ruble.

Boy was he brave with that statement.



From Interfax today:

10:10 CB SHIFTS BICURRENCY CORRIDOR TO 36-45 RUBLES

10:05 RUSSIAN STOCK MARKET OPENS WITH 1.3% DROP FOR MICEX, RTS INDEXES

10:04 DOLLAR UP 5 KOPECKS AT 40.2 RUBLES, RUBLE FALLS AGAINST BICURRENCY BASKET

11:09 Russian monetary base down 38.1 bln rubles

11:07 MONETARY BASE IN RUSSIA WAS 8.299 TRLN RUBLES ON OCT 3 AGAINST 8.337 TRLN RUBLES ON SEPT 26 - CENTRAL BANK

11:05 RUSSIAN MONETARY BASE DOWN TO 8299.3 BLN RUBLES ON OCTOBER 3 FROM 8337.4 BLN RUBLES ON SEPTEMBER 26 - CB

[AmericanPride]

So, outlaw, how does the downward momentum of the Russian economy alter its policy preferences?

[OUTLAW 09]

So, outlaw, how does the downward momentum of the Russian economy alter its policy preferences?

AP--in some aspects you read my mind---in theory the "ceasefire" is not "ceasefire" when since 5 Sept there have been over 1340 shellings and ground attacks.

There was some Russian troop movement out of the Ukraine but it now appears that it was a typical Russian Army rotational shifting of troops and equipment.

Putin then "disappears" for his 62th birthday and there is silence from him--BUT then look a one day before he disappears--Russian military units started moving back into the Ukraine including equipment never seen outside of Russia.

So one can now speak of an escalation instead of a de-escalation ---which is the reason for the strong German comments yesterday and French comments directed towards Putin today.

Now to your question--in a "death race" the core question becomes---can I win victory and or my defined end state before my economy collapses around my ears and my own population starts to suffer?

The sectorial sanctions were designed to hit the oligarchs not the Russian population---that was the core western mistake---actually Putin has done more to hit his own people than the west did.

Today the price of oil broke through the 85 marker and now the bottom will tank at around 68-70.

Oil: $84.81
pic.twitter.com/LMxnPdt0AH

Personally after watching him for years starting in Dresden he will go all in for the land corridor and the full territory of New Russia as that is the "victory" he himself defined for the Russian population six months ago---that was what he defined in his Duma speech as well.

See AP even with all the fighting in the Donbas and all the destruction and now the resurgence of the mercenaries and his high Russian troop loses--he still has not "won a single thing" ie the Ukraine has signed the EU agreements, the RADA is voting on revoking the non alignment law and NATO is nudging closer to him inside the Ukraine and here is talk hat he Ukraine will leave the CIS shortly.

That explains some of the new Russian military equipment moving into the Ukraine especially the new artillery guidance radar for high precision artillery strikes against moving tanks.

There have been three bridgeheads built up by Russian troops and the manpower in them as reached the standard Russian attack ratios they seek when they overwhelm enemy forces--using their standard rolling attack formations.

Now if you would have understood the "suckered in" comments you would have seen a corresponding redeploying of Ukrainian troops and equipment opposite those bridgeheads. Remember I did say Ukrainians do understand the Russia mindset.

By the way the US comments on potential US lethal aid to the UA hit a major Russian nerve yesterday---and they commented aggressively again today "they can prove the aid is in fact in the country now along with trainers".

This in fact might be true as a heavy anti tank ability would in fact negate the heavy Russian use of tanks making the fight a tad more equal.

[AmericanPride]

Now to your question--in a "death race" the core question becomes---can I win victory and or my defined end state before my economy collapses around my ears and my own population stars o suffer.

So, in sum, the impact of the sanctions may actually make Russia more aggressive, not less?

[OUTLAW 09]

So, in sum, the impact of the sanctions may actually make Russia more aggressive, not less?

AP--again AP you need to read more---aggressive more or less than what?

The sanctions did not start before the Crimea did they?----Putin's Duma speech and the clarity of the Putin Doctrine and the Russian UW strategy were before and or after the sanctions?

The sanctions are only speeding up the Putin Doctrine not slowing it down--by the way you did notice that Putin is starting the same EU threats against Moldavia right?

What Putin did not calculate and he could not have calculated were in fact the strength and depth of the sanctions--that did not happen after Georgia and Moldavia--he really did think it would go back to business as usual.

There was a short comment online early on by a close advisor to Putin that actually stated he was stunned and totally surprised by the sanctions as was Putin himself.

He has about until say next Tuesday to make a serious decision--move forward militarily and or declare a "victory" now and reign in the mercenaries as per Minsk 1 and 2 and figure out another way to influence the Ukraine.

The Russian CB cannot stop the Ruble crash--there is simply not enough USDs available for them to stem the total crash longer than next Tuesday or no later than Wednesday.

As sanctions bite, Russian central bank is unable to halt slide in national currency
http://uatoday.tv/business/as-sa

[Firn]

So essentially it appears that as of September, Western sanctions have strengthened not weakened the Russian public's resolve.

So it might appear of September. Which might weaken it's resolve considerably more down a long bleak economic road as it enables in the short run more policy stupidity. Or maybe not. Early times, still after months early times.

In any case this isn't the only aspect of a weaker Russian economy. For example increasing it's military strenght will also require more effort or more sacrifice in other areas as the cake doesn't grow bigger and Western tech will be harder to come by. It's economic 'lever' over some countries will likely become weaker. Supporting the occupied territories in economic turmoil like the Crimea will be harder even if they don't screw it up as badly as they do currently.

[AmericanPride]

Which might weaken it's resolve considerably more down a long bleak economic road as it enables in the short run more policy stupidity.

I think there's alot of inferences in that assessment that wouldn't stand up to scrutiny. The problem with the sanctions argument and the assumptions about Russia's behavior in response to them is that its often viewed (and justified) within the prism of Western normative dispositions. Russia 'should' do this or 'should' do that. When is anyone going to talk about what Russia will do and can do?

The sanctions are only speeding up the Putin Doctrine not slowing it down

That would be more aggressive.

If the sanctions do not reverse Russia's gains in Ukraine, but 'punish' Russia by weakening its economy (with all the attendant instability), is that a 'win' for the U.S. and/or the West?

[OUTLAW 09]

I think there's alot of inferences in that assessment that wouldn't stand up to scrutiny. The problem with the sanctions argument and the assumptions about Russia's behavior in response to them is that its often viewed (and justified) within the prism of Western normative dispositions. Russia 'should' do this or 'should' do that. When is anyone going to talk about what Russia will do and can do?



That would be more aggressive.

If the sanctions do not reverse Russia's gains in Ukraine, but 'punish' Russia by weakening its economy (with all the attendant instability), is that a 'win' for the U.S. and/or the West?

And again AP you show a weak understanding of Russian politics since Stalin and especially the four legged decision making process Putin moderates.

In order that you better understand the rule of the Russian oligarchs and how Putin plays that group to serve himself--please again read something which you tend to not do.

http://www.nytimes.com/2014/10/11/op...=tw-share&_r=0

AND again you do no seem to believe he theory of "suckered in"---remember the Ukrainians tend to far better understand Putin than we do.

AND AP the Moldavians are also having their problems with Putin---this from the CIS meeting this week.

"Even after the verbal spat was over, Russian and Moldovan presidents continued to exchange angry looks & gestures"

http://www.mk.ru/politics/2014/10/10...m-moldovy.html …

[OUTLAW 09]

Looks like the Russian Finance Ministry has a new strategy---"hope".

From Interfax today:

10/11 18:19 Oil price unlikely to go down to $60 per barrel - Russian Finance Ministry official

10/11 18:11 No fundamental reasons for ruble to continue weakening - Finance Ministry official

[Firn]

I think there's alot of inferences in that assessment that wouldn't stand up to scrutiny.

You forgot the maybe not, just saying. Overall it might be helpful if you are a little bit clearer why it wouldn't stand up.

As well it surprises me that you seem to expect results so quickly, almost like Mr. Market. Looking at the Russian polls, including those in which many understandably confess that they have no idea why the ruble is falling I'm reminded about an old Graham quote: “In the short run the market is a voting machine. In the long run it's a weighing machine.”

That goes pretty well for an economy as a whole. Time, the harshest scrutinizer, will tell what us what happened to the Russian economy and Mr. Putin.

P.S: Would you bet that in the next poll by Pew Global after a year from now has the same or higher level of support? I think not.

[OUTLAW 09]

#Siluanov tells Duma that #Russia will have to use the Reserve Fund if oil & the ruble stay at their current rate:

http://www.themoscowtimes.com/article/509331.html …

And the spiral continues onward and downward.

From RIA and Interfax today:

MOSCOW, October 13 (RIA Novosti) -The Russian government could spend up to 1.5 trillion rubles (over $37 billion) in 2015-2017 to finance the federal budget in light of falling oil prices and the weakening of the national currency, the Finance Ministry said Monday.

"Our budget policy is facing several risks. We are expecting some 1.5 billion rubles, or almost half of the Reserve Fund, to be spent in the next three years [to counter those risks]," First Deputy Finance Minister Tatyana Nesterenko said.

Russia's Reserve Fund totals some 3.5 trillion rubles ($74 bln) as of September 2014.

Interfax:
14:58 Central Bank shifts currency corridor another 25 kopecks to 36.25-45.25 rubles

14:57 FINANCE MINISTRY INCLUDES POSSIBILITY OF USING ABOUT 1.5 TRLN RUBLES FROM RESERVE FUND IN THREE-YEAR BUDGET - NESTERENKO

14:54 Finance Ministry supports idea of allowing non-state pension funds buy Russian banks' subordinated loans (Part 3)

[OUTLAW 09]

About a month into the Crimea problem the US in a little noticed move did a
6M barrel crude oil sale out of the strategic reserves---the US argued it had to do with the maintenance of the depots---some analysts stated then that if the US maintained the rate of sales through say four months the overall market price for sour crude ie Russian oil could drop into the 80s ranges.

Then about two months ago a really little noticed single one prargraph Russian new release came and went and was never backed up by others which is standard practice--this PR simply stated --- a named Russian official from inside the oil industry stated "he felt that the KSA would not "play" games with the crude oil prices.

It was rather unusual and simply did not fit in the normal Russian news PR flow for that day and it did not tie into any other PRs for that week or the rest of the month.

IT appeared to be a "please please do not sink the oil prices" kind of plea.

I mentioned both articles here in SWJ and indicated had the oil price been forced far faster downwards Russian troops would not be in the Ukraine--and took massive heat in some comments for thinking that to be possible.

THEN this today hit the news cycle---and behold the KSA is "playing" with the oil prices especially sour crude---what Russia exports.

I had also pointed out that the KSA has been teed off at Russia for a long while concerning their support for Assad especially on the military weapons support side of the house---also many did not like that statement as well.

Saudi Arabia's Oil Price 'Manipulation' Could Sink The Russian Economy

Business Insider
By Tomas Hirst
1 hour ago

The vice-president of Russia's state-owned oil behemoth Rosneft has accused Saudi Arabia of manipulating the oil price for political reasons. Mikhail Leontyev was quoted in Russian media as saying:

Prices can be manipulative. First of all, Saudi Arabia has begun making big discounts on oil. This is political manipulation, and Saudi Arabia is being manipulated, which could end badly.

The news comes as Reuters reports Saudi officials have been privately admitting to oil market participants that they are comfortable with lower oil prices. According to the news service, the Organization of the Petroleum Exporting Countries (OPEC) is willing to accept prices as low as $80 a barrel for as much as the next two years.

NOTE: the Russian budget cannot take a hit to their oil pricing of 80 for two straight years.

Falling prices are of particular concern to Russia. Russia needs high oil prices to buoy its economy. The country has seen its economic performance slow under the weight of sanctions over Ukraine and weakening domestic demand. The Russian Central Bank forecasts growth over 2014 to be a meager 0.4%, improving marginally to between 0.9%-1.1% in 2015.

The problem is that Russia's latest budget requires oil prices to average at least $100 a barrel in order to cover the government's spending promises. The government already needs to borrow around $7 billion from foreign investors next year and as much as 1.1 trillion rubles ($27.2 billion) from domestic investors. Given the country's sanctions-imposed isolation from international bond markets, any additional borrowing would be a big concern for policymakers in Moscow.

Finance Minister Anton Siluanov has already acknowledged that the budget forecasts for both Russian GDP growth and oil prices are "optimistic." During the Reuters Russia Investment Summit in September he was quoted as saying:

There are risks to economic growth rates. It is a rather optimist forecast; there are risks to oil price. Without a doubt, this and the next year we will have to try very hard to ensure the planned growth rates.

If the forecast growth fails to materialize and the oil price continues its slide it could force the Russian government into an embarrassing retreat on spending commitments and increase the country's economic woes.

[OUTLAW 09]

The Russian economy death spiral still continues and only gets worse.

Oil Price Set To Fall to $76-77 -- Oil Minister of #Kuwait
No reduction in OPEC production to support prices either
http://www.theinsider.ua/business/543b98aaa8039/ …

Appears the Russian CB has also given up on supporting the Rubel.

#Russia|n Central Bank Admits Defeat as Ruble plunges to new low:
$1 = 40.460
€1 = 51.342
http://www.businessinsider.com/russi...-ruble-2014-10 …
@AP pic.twitter.com/LSnOpxDcZ4