The Russian economy (catch all)

[kaur]

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

[Stan]

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]

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.

[Jedburgh]

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.

[Culpeper]

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!

[kaur]

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]

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

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]

Link To Article

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]

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

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]

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 !

[kaur]

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/...d-company.html

[Beelzebubalicious]

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.

[Stan]

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 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 )
MANPADS duties
Do a little digging - you'll get there

Support Anti-Terrorism
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]

By the way, Stan, some of the things on this list might be applicable to you. I was only 2 years in Ukraine, but a lot of them applied to me....