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  • Understanding Russia's Financial Crisis

    Russia President Dmitry Medvedev (Photo by Dmitry Astakhov/Newscom)

    MOSCOW — The financial turmoil in Russia might not be all-embracing yet, but some of its features suggest its gloomy prospects. Big business’ lack of confidence in national economy is what primarily strikes the eye.

    Speaking at a Cabinet meeting last week, Prime Minister Vladimir Putin unveiled scandalous information concerning the bank giants — government bailout money recipients stepping up their operations to move funds offshore in lieu of channeling the money to its intended recipients in industry that badly need it.

    There are some other reasons for capital outflow, though. Bank of Russia is forced to expend billions of dollars to prop up the ruble that is sinking dramatically over the economic confusion and plummeting oil prices. Russia’s stabilization fund lost $100 million over the past month – a cause for serious concern to the Russian leadership.

    If recently the accumulated hard currency reserves have seemed enormous and reliable, today, at the current spending pace, they may well be exhausted as early as next year. Panic buying of cash dollars among the population does nothing to help consolidate the ruble. Depositors are withdrawing their savings even from such reliable government-run banks as the nation-largest Sberbank. Last month saw its deposits plunge by $3 billion (2.5%).

    Despite the country’s financial leaders’ numerous vows that there will be no ruble devaluation, is it a fait accompli. Over the past two and a half months ruble lost over 15% of its value. This is none other than devaluation.

    What are the government’s plans to reverse these negative trends? In fact, it looks like it goes out of its way to employ government regulation measures, including the use of power structures, rather than market levers. For example, the Cabinet meeting where Putin accused the banks giants of funneling money into foreign accounts was attended by Prosecutor General Yuri Chaika and Interior Minister Rashid Nurgaliyev. Captains of industry must have unequivocally interpreted such a meeting make-up as a signal that some day these very people might well call them to account.

    In line with the tough government regulation policy, President Dmitry Medvedev called for the Central Bank to appoint “commissars” to oversee the use of the government funds allocated to combat the crisis. The Federal Financial Markets Service — Russia’s securities watchdog — called for all market participants to disclose their ultimate owners, largely offshore residents.

    Rather than work to establish a business-conducive environment, the government is pouring oil on the flames. Last week saw Deputy Prime Minister Igor Sechin give the directions to resume investigation into the 2006 accident at a mine developed by a major fertilizer producer Uralkaliy. As a result, Uralkaliy could well be fined several billion dollars.

    Sechin’s resolution sent Uralkaliy’s shares into a 75% freefall. It looks like the government is seeking to gain control of this lucrative business through bankrupting it and crowing out the present owners. Under the circumstances this would inevitably raise concerns with other Russian businesses. They will most likely wind up their operations and take the resources out of the country. The financial crisis in the country is going to exacerbate.

    Posted in International [slideshow_deploy]

    One Response to Understanding Russia's Financial Crisis

    1. Vladimar I understand Russias finance crisis

      However the whole world is having a crisis

      Please come get me so I can get to

      Money in cenTral bank I am asking you

      As a family member not as Prime MiNister

      Her Imperial Highness Margaret

      3638 Kings Way #1

      Sacramento Xa 95821

      9162438392

    2. Vladimar You tell Dmitry to have those Bank giants

      Mentioned above produce all documents to prove where

      Those monies just disappeared too and then file legal

      Documents against them and put them in criminal court

      Now.Money just doesn't disappear into thin air.

      Her Imperial Highness Margaret

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