Berlin: A free-falling Russian rouble on Tuesday prompted fears that the nuclear-armed nation could be entering a deep economic recession with the potential for unrest, as citizens and investors try to get their hands on cash amid crippling international sanctions and sinking oil prices.
The Russian central bank tried to right the ship with a surprisingly large interest rate hike, to 17 per cent, before the nation's financial markets opened on Tuesday. But it was for naught as the already limping rouble fell another 20 per cent against the US dollar.
"What we've seen in the last few days is real financial panic," said Anders Aslund, a Russia expert for the Peterson Institute for International Economics in Washington.
Problems in Russia circled the globe, with volatile trading in European financial markets and wild intraday swings on Wall Street.
The jump in Russian rates was designed to keep investors there from fleeing the country, sweetening their returns. Instead, investors shrugged it off and proceeded to head for the exits.
Will this hold value? A customer inspects a car for sale at a Lexus automobile dealership in Moscow. Photo: Bloomberg
Russia is being hit by a double blow: falling oil prices and international economic sanctions levied in the wake of Russia's moves into Ukraine.
Even before the extraordinary action on the rouble, the central bank had warned that if oil prices stay where they are today, in the range of $US60 a barrel, the economy would contract sharply. Higher interest rates now further raise the cost of borrowing for Russian businesses, deepening the expected contraction.
"Nothing they do with monetary policy can help. If you have something that is fundamentally wrong, you can't fix it with monetary policy," said Mr Aslund, who said Russian President Vladimir Putin must find a face-saving way to back out of his foray into the Ukraine and lift the sanctions.
Adding to the pressure, White House spokesman Josh Earnest confirmed on Tuesday that US President Barack Obama will sign this week a bill that imposes further sanctions on the Russian economy. Ultimately, he said, "it will be up to President Putin to decide whether or not the economic costs are worth it to him and are worth it to the Russian people".
Ordinary Russians are emptying out ATM machines and standing in long lines to buy appliances and electronics, anything that might hold its value more than the sinking Russian currency. It's led to a strange, albeit temporary boom for Russian consumption.
"Not seeing bank runs and panic just yet. So far there's actually been a mini-consumption boom, as Russians buy durable goods [and real estate] that hold value better than the rouble," said Alexander Kliment, a Russia expert for political risk consultant Eurasia Group.
But it is easy to see how that could quickly shift as the falling rouble makes imports more expensive. Many Russians are accustomed to the hard times of the Soviet era, and the elites in Russia, who enjoy preferences, will now be more beholden to Mr Putin than before as their fate is increasingly in his hands.
"That said, the economic situation will be tough next year. Recession and inflation. Putin's increasingly in a corner, and that's dangerous," said Mr Kliment, who does not expect a retreat from Ukraine. "Ukraine policy ... is a key part of Putin's political support now. To cave on that would be politically disastrous for him."
For months after Russia moved into Ukraine, it was able to weather international sanctions thanks to its revenues from high oil prices. Now, however, oil prices have been roughly halved, giving more bite to US and European sanctions that have sought to isolate Russian energy firms and banks.
Russia's single-resource economy is even more reliant upon oil and gas than the numbers say, according to Indra Overland, a Russia expert at the Norwegian Institute of International Affairs in Oslo.
"Russia is a petro-state," said Mr Overland, adding that falling prices mean job losses throughout the large chain of energy suppliers. "As the oil prices fall, so does Russia."
Unless Russia sharply curtails its public-sector spending, which carries social costs, the other alternative is greater indebtedness, an equally difficult prospect amid an era of falling oil prices. Russia is spending money it doesn't have, much as it did during the arms race that led to the collapse of the Soviet Union.
"The pain this time is self-inflicted," said Keir Giles, director of London's Conflict Studies Research Centre. "It's Kremlin paranoia, based on the obsessive belief that the West is coming to get them."
Mr Putin has largely been out of public view in recent days as the rouble tanked, but he's scheduled to address the nation in an end-of-year press conference on Thursday. By then, he'll know whether the rouble stabilises or whether he'll be drawn into actions to slow the economic bleed.
TNS
There's something called fundamentals. Right now the fundamentals of the Russian economy which is based almost exclusively on oil and gas is not good. World oil and gas prices are plummeting and there is no certainty when that will reverse or will it ever reverse.Devaluation is not bad, panic is not good. The movement must be gradual and orderly. It is logical to take action against sudden movement.
The first ones to be riled by capital controls would be the cronies of Putin who have Worldwide businesses. This would not be an easy thing to do for Putin.I expected capital controls but is has not happened so far. It is true that capital controls can distort the fx market even more. So capital controls is not a long term solution. However capital controls can plug the gap for a short while and may be needed if attack on Ruble becomes too severe.
Russia is not an attractive place for entrepreneurs right now. The most promising young entrepreneurs are already leaving Russia for foreign countries. So don't bet too much on diversification while Putin and his cohorts are ruling Russia like a new version of the Czars.The stability in Russia will come by decreasing dependence on mineral sector. The industry and agriculture will require a lot of extra attention. This requires a lot of hard work. It remains to be seen if Russia can rise up to the challenge. One good thing so far is that Russia's industrial output is stable. We need to watch this number.
You are talking about the State. The biggest Russian companies (especially those controlled by Putin cronies) are mostly in debt that are denominated in $ or Euros. This presents a very big headache for Russian economic managers.Well actually Russia has the wherewithal -
but how to get the money back is a big Q :shocked:
A good idea.I read this news article. The last two paragraphs are interesting.
Shall we merge this with the one below?
http://defenceforumindia.com/forum/...-injects-uncertainty-into-global-economy.html
@Singh, @Ray Sir?
I agree with it and it is 100% true. India is a customer / client nation of Russia.Why Russia's defence industry can bank on Indian money
India has in the past rescued the Russian defence production industry with huge infusion of funds, and can do so in future. It's no wonder cash-strapped Moscow wants India to quickly stitch up deals worth billions of dollars for helicopters, transport aircraft, and another nuclear submarine.
Russia will take solace from Narendra Modi's assurance to Vladimir Putin that Russia will remain India's top defence supplier, although New Delhi may be increasingly sourcing military equipment from the US, Israel and France.
An immediate outcome is India's decision to acquire another Akula-II class nuclear-powered submarine on lease from Russia, much like INS Chakra was inducted in April 2012, on 10-year lease for around $1 billion.
India secretly funded most of INS Chakra's construction after Russia stopped it because of financial problems after Soviet Union broke up in 1991. Russia is now offering another mothballed Akula-II submarine - Irbis - which could cost India over $1.5 billion.
Russia wants early inking of the final R&D contract for the joint fifth-generation fighter (FGFA) project, in which India will invest $5.5 billion to develop a stealth fighter. India will spend around $25 billion on 127 such fighters, to be built domestically, in the FGFA project.
"Russian shipyards and aerospace industry would've floundered had India not placed mega orders in the past," an official said. These include refit of aircraft carrier Admi refit of aircraft carrier Admi ral Gorshkov or INS Vikra maditya ($2.33 billion), six Talwar-class stealth frigates (almost $2 billion), 272 almost $2 billion), 272 Sukhois (project cost over $12 billion), 45 MiG-29Ks ($2 billion), 139 Mi-17 V5s helicopters (over $2 billion).
ndia has been Russia's st defence customer, biggest defence customer, with imports worth over $40 billion over the years. But India has turned to others, miffed at Russia's unreliable delivery schedules, cost revisions, technology transfer hurdles and shoddy spares support.The US has bagged Indian defence deals worth $10 billion since 2007-2008, dislodging Russia for the topmost position in the last three years. But only Russia helps India in strategic projects, from providing nuclear submarines to helping India build its own.
Why Russia's defence industry can bank on Indian money - The Times of India
NO...I did not say that...BUt..I say this...Iraq was attacked because Americans were angry about 9/11 ....there was not even one terrorist was from Iraq...all of them were from western allies...Saudi Arabia and Egypt....This Iraq debacle lead to fall in consumer confidence in the world and economies started slowing more and more due to wars in Iraq,Afghanistan ,Syria. People in western countries started spending lesser and lesser out of fear and out of fear of taking more debt because they could not borrow or were no more creditworthy. So, this vicious cycle lead to very very slow economic growth. As a rusult ,Demand for oil plummeted and oil producers started selling cheap oil to sustain their economies from collapsing into severe deflation. This put pressure on Russian economy as its major business is Oil and Gas....West choose this time to instigate Ukraine by bribing Ukraine of Money and luring it into EU if they fight against Russia. But, Civil war started in Ukraine. Russia had to protect its naval base in Creamia . Creamian people joined Russia thru referendum making West frustrated and angry. They fueled the civil war with more money and more weapons....all to keep Russia on its toes. Fires of war continue to burn in Iraq, Afghanistan, Syria, Leabanon, Ukraine and so on.....AND..consumer confidence remains in gutter. GET IT !So you are saying that the global economic slowdown is a conspiracy by the West?
Sorry, but Iraq War in 2003 has no bearing to Worldwide economic slowdown now (it is only a slowdown, meaning growth rates are vastly slowed, not worldwide recession). IF you are old enough to observe the years after the Iraq War those were the phenomenal growth years especially for BRICS.NO...I did not say that...BUt..I say this...Iraq was attacked because Americans were angry about 9/11 ....there was not even one terrorist was from Iraq...all of them were from western allies...Saudi Arabia and Egypt....This Iraq debacle lead to fall in consumer confidence in the world and economies started slowing more and more due to wars in Iraq,Afghanistan ,Syria. People in western countries started spending lesser and lesser out of fear and out of fear of taking more debt because they could not borrow or were no more creditworthy. So, this vicious cycle lead to very very slow economic growth. As a rusult ,Demand for oil plummeted and oil producers started selling cheap oil to sustain their economies from collapsing into severe deflation. This put pressure on Russian economy as its major business is Oil and Gas....West choose this time to instigate Ukraine by bribing Ukraine of Money and luring it into EU if they fight against Russia. But, Civil war started in Ukraine. Russia had to protect its naval base in Creamia . Creamian people joined Russia thru referendum making West frustrated and angry. They fueled the civil war with more money and more weapons....all to keep Russia on its toes. Fires of war continue to burn in Iraq, Afghanistan, Syria, Leabanon, Ukraine and so on.....AND..consumer confidence remains in gutter. GET IT !
Political power exists because of certain conditions. These conditions exist for Russia as a center of Slavic culture and a magnet of Slavic people.There's something called fundamentals. Right now the fundamentals of the Russian economy which is based almost exclusively on oil and gas is not good. World oil and gas prices are plummeting and there is no certainty when that will reverse or will it ever reverse.
The first ones to be riled by capital controls would be the cronies of Putin who have Worldwide businesses. This would not be an easy thing to do for Putin.
Russia is not an attractive place for entrepreneurs right now. The most promising young entrepreneurs are already leaving Russia for foreign countries. So don't bet too much on diversification while Putin and his cohorts are ruling Russia like a new version of the Czars.
What do you mean? If you're talking about power in general then it exists everywhere, there's even power relations among animals.Political power exists because of certain conditions. These conditions exist for Russia as a center of Slavic culture and a magnet of Slavic people.
Everyone has their good and dark sides. What we have been busy talking here that concerns Russia is its imperialistic attitude towards its smaller neighbors. That is bad. Ukraine in particular should be allowed to chart its own course.The Russians have certain positive aspects and certain negative aspects. It is not correct to see Russians from our perspective. My reading is that Russia is tackling its problems in its own way and with its own resources.
One possible consequence of the current economic crisis is a rethinking on the current gas station economic model of Russia. Whether or not a shift will be made or whether or not such a shift will be successful cannot be known at the moment.If the crisis results in a Russia that builds on its own strengths rather than looking towards Europe for everything, then all the trouble is justified.
You should. Putin has amassed so much political power on himself over the years, even you cannot deny it.I would not pay too much attention to one individual - Putin. I do not think Russia's destiny will be written by Putin alone. Putin is not a czar in any sense. Putin was asked all kinds of questions by Press in New Delhi and he replied with grace. He is not a dictator at all.
I don't have the statistics, but I think US-India bilateral trade is so much bigger than India-Russia. Anyway, I just hope Putin listens to Modi...As I said before, we need to see what happens to the economy. Russia needs to listen to Indian Prime Minister. India can provide a lot of support to the Russian economy. Russian bureaucracy is as bad as India's, and that is the problem. The key is to resist Russian tendency of isolationism.
I did not say "all," please read again my post. There are obviously die hard Russian nationalist businessmen who will not leave Russia even if it becomes a smoldering wasteland (I'm not saying it will become one), you can see them around Putin. But for a lot of young start ups, the deteriorating atmosphere of freedoms in Russia and shrinking capital opportunities are too much for them. The plight of these group of Russians is crucial if Russia is to successfully diversify away from over reliance on oil.Some people will leave Russia. Your characterisation that "all young entrepreneurs are leaving Russia" is illogical. Some will leave and other will come. These things happen.
Ok, let us come back to real life, and talk about the imperialistic global warmongering of the US towards its smaller "neighbours" who are thousands of miles away and pose no threat to the US.What we have been busy talking here that concerns Russia is its imperialistic attitude towards its smaller neighbors.
Crimea in particular has been allowed to chart its own course.Ukraine in particular should be allowed to chart its own course.
Of course, no one denies that diversification is required, as there is always room for improvement. I also think, a gas station economic model, is resource based, and is better than usury based economic model that is bound to collapse.One possible consequence of the current economic crisis is a rethinking on the current gas station economic model of Russia.
The simple rule to political power is looking out for your citizens. A leader who cares for his subjects, is loved by his subjects in return.Putin has amassed so much political power on himself over the years, even you cannot deny it.
I can't see them around Putin. In fact, I see almost all of Russia around Putin.There are obviously die hard Russian nationalist businessmen who will not leave Russia even if it becomes a smoldering wasteland (I'm not saying it will become one), you can see them around Putin.
I don't see any deteriorating atmosphere as far as freedom goes. Yes, I do see a welcome lack of freedom for western funded NGOs whose purpose is to groom and finance criminals and bandits.But for a lot of young start ups, the deteriorating atmosphere of freedoms in Russia and shrinking capital opportunities are too much for them.
Despite being under incredible pressure as the Russian ruble collapses on foreign exchange markets, she is staying calm and collected and is not calling for any kind of government interventions that would only make things worse.
She seems to get that markets will resolve things themselves.
From RT:
The plunging ruble is a signal for the Russian economy to adapt to new conditions, Russia's Central Bank Chair Elvira Nabiullina said, following the surprise midnight decision to hike the key interest rate to 17 percent.
The regulator decided to increase borrowing costs by 6.5 percentage points to stymie wild inflation and the ruble, which has fallen to record lows after the bank stopped spending billions of dollars intervening. The hike shocked the ruble, bringing it down from 67 to 60 rubles to the dollar. At the time of publication, the ruble exchange rate was 65.59 against the US dollar.
"We must learn to live in a new reality, to focus more on our own resources to finance projects and give import substitution a chance," the bank chief said in a televised address Tuesday...
The Central Bank has yet to hint they would start a stimulus project, or money printing, to avoid recession.
"If anything there will be support, not stimulus for banks. It is a priority of the Central Bank to maintain and stabilize this sector," Vladimir Pantyushin, a senior analyst at Sberbank CIB, told RT.
Contrast this coolness with the panic in the eyes of Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson during the 2008 financial crisis, when they caused the US government to intervene one hundred different ways and bail out the banksters.
She has also cut money supply growth to single digit levels from the 15.3% money growth that was going on when she first took the helm at the Bank of Russia.
Elvira Nabiullina is my hero!
So, @asianobserve, what have to say about what was planned for Russia?Russia risks Soviet-style collapse as rouble defence fails
'What is happening is a nightmare that we could not even have imagined a year ago,' says Russia's central bank
Russia risks Soviet-style collapse as rouble defence fails - Telegraph
Oil falls on news that Saudis are preparing for $60 US crude
Saudi Arabia is preparing to slash its January prices in the United States and Asia.
The price of oil is dropping because the U.S. has ramped up production of shale oil and world demand for oil is waning as emerging economies begin to cool and Europe's fuel use flattens.
When Saudi Arabia, the de facto leader of OPEC, trimmed its prices to $71 last month, markets believed $70 a barrel might be the base price for oil.
But at a meeting last week, OPEC decided not to pull back on production and oil prices began falling again. Brent Crude has fallen 10 per cent in the past week.
http://www.cbc.ca/news/business/oil...audis-are-preparing-for-60-us-crude-1.2860516
Have you now understood the game?OPEC won't stop US oil production growth
http://www.cnbc.com/id/102234051#.
Okay, even granting the US is acting as imperialistic as Russia, still American sins do not make Russian actions right.@asianobserve, you never get tired of spouting the State Department mythology.
Ok, let us come back to real life, and talk about the imperialistic global warmongering of the US towards its smaller "neighbours" who are thousands of miles away and pose no threat to the US.
...illegally by Russia.Crimea in particular has been allowed to chart its own course.
That's a recipe for global anarchy....Donetsk, Lugansk, Kharkov, Zaparozhiya, etc., should be allowed to chart their own course.
Just look at what is happening to Russia now...Of course, no one denies that diversification is required, as there is always room for improvement. I also think, a gas station economic model, is resource based, and is better than usury based economic model that is bound to collapse.
Just like how Germans loved Hitler in the lead up to WW2... They genuinely adored him.The simple rule to political power is looking out for your citizens. A leader who cares for his subjects, is loved by his subjects in return.
Because you are not allowed inside Putin's guilded mansions... Bonga-bonga would be nice for you. You need to chill out.I can't see them around Putin. In fact, I see almost all of Russia around Putin.
The people whose apparition you see around Putin, such as that tax fraud Khodorkovsky, and that now decimated thug Berezovsky, are actually seen in western capitals, not around Putin. Putin doesn't surround himself with criminals. He surrounds himself with people who care for the nation.
He needs some semblance of free press in Russia.I don't see any deteriorating atmosphere as far as freedom goes. Yes, I do see a welcome lack of freedom for western funded NGOs whose purpose is to groom and finance criminals and bandits.
Putin, to me, is too liberal. If I were him, I'd chuck out those deceitful Finnish propaganda publications that maliciously and dishonestly call themselves the Moscow and St. Petersburg Times, respectively. This is just one example.