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Monday, August 28, 2006

Half of All Russians Still Fear Financial Crisis

Photo from www.e1.ru22.08.2006 Bloomberg - Eight years of prosperity haven't persuaded Russians that good times are here to stay. A public opinion poll published last week by the Moscow-based Levada Center shows that almost half of the nation's 143 million people think a financial crisis is possible in the next 12 months, ignoring a planned $56 billion budget surplus for next year. Millions of Russians had their savings wiped out on Aug. 17, 1998, the third time in less than a decade, when the government defaulted on $40 billion in domestic debt as oil tumbled to less than $14 a barrel. Since then, oil has risen more than five-fold, driving economic growth that has averaged 6.7 percent a year from 1999. "Russians are pessimistic by nature and don't expect anything good to come from life,'' said Nikolai Zlobin, director of Russian and Eurasian programs at the Washington, D.C.-based World Security Institute. "No one believes in the quality of management of Russian authorities or in state statistics.'' 47 percent of the 1,600 people surveyed across 46 regions of Russia said another default was possible within the next year, the Levada poll carried out July 14-17 revealed. 38 percent said it's unlikely. The poll has a margin for error of plus or minus 3 percent. The percentage of citizens expecting an imminent default has held steady at around half since 2002, when the center began polling citizens on the issue. Russians are more trusting of their own currency now than before, after the ruble surged 7.6 percent against the dollar this year. Half of those surveyed recommended holding cash savings in rubles, nearly double the level in 2002. Trust in the U.S. dollar has plummeted, with 9 percent recommending holding the dollar, down from 33 percent in 2002. Russian currency reserves held at the Central Bank leaped from $10.1 billion to $277 billion in the week to Aug. 4, the bank said on Aug. 17. That increase is about 70 percent as large as the country's total reserves eight years ago, when they stood at $14 billion. Foreign debt will tumble to 9 percent of the gross domestic product by the end of the year, a smaller proportion than any of the Group of Seven industrialized nations. Russians' distrust of statistics heralds back to Soviet days, when managers cooked the books to show they had fulfilled or surpassed state production plans amid fear of reprisals.

Russia's foreign debt drops to $72.9bn

Aug 26.2006 RBC News - Russia's foreign debt went down from $76.5 billion (EUR 64.4 billion) as of 1 January 2006 to $72.9 billion (EUR 58.1 billion) on 1 July 2006, the Finance Ministry of the Russian Federation said. Russia's debt to the Paris Club creditors dropped by $900 million in the first six months of this year, to $24.3 billion. Debt to other countries was reduced from $3.5 billion on 1 January to $2.9 billion on 1 July. Debt to the members of the Council for Mutual Economic Assistance stood at $2 billion on 1 July, down $100 million from 1 January. Russia's commercial debt remained unchanged at $1.1 billion. Debt to international financial organizations was reduced by $200 million to $5.5 billion. Eurobond obligations went down $300 million, to $31.2 billion on 1 July. OGOVZ bond obligations were decreased $1.4 billion to $5.7 billion. Foreign currency-denominated guarantees were reduced from $300 million to $200 million. Russia's early payment to the Paris Club will save Russia's federal budget more than $12 billion in interest payments over the period until 2020. In 2007 alone the federal budget will save $1.2 billion on interest thanks to early repayment. In 2008, Russia will save $1.1 billion on interest payments, and $1 billion in 2009. Russia's debt to the Paris Club matures in 2012-2015, but in 2004 Russia offered to repay part of its debt early. On 30 June, Russia and the Paris Club signed a multi-party agreement allowing Russia to repay its remaining debt of $21.3 billion to the club. The debt had been restructured in 1996 and 1999. The early payment was made in the following way: at nominal value if interest rates were floating or fixed at 15 percent; while 85 percent of the debt with a fixed interest rate was paid at market value. Germany, France, Britain and the Netherlands received premiums of about $1 billion in total. Seventeen out of Russia's eighteen Paris Club creditors took part in the early repayment program. On 15 August Vnesheconombank paid over EUR 1 billion to the Paris Club of creditor nations, as the first installment under the early debt repayment agreement, and the final payments were made on 21 August. Russia's total public debt stood at $3.10411 trillion as of January 1, 2006, including $2.22868 trillion in foreign debt and $875.43 billion in domestic debt. Last year Russia's foreign debt was reduced from $114.1 billion (19.3 percent of GDP) to $81.5 billion (10.6 percent of GDP).

Tuesday, August 15, 2006

Russia's external challenges in the 21st century

MOSCOW. (Sergei Kortunov for RIA Novosti) - Nearly all of the mid- and long-term forecasts for Russia's development made in this country and abroad are pessimistic. They predict a demographic collapse, a decline in the quality of human capital, economic and technological degradation, the crumbling of democracy, and a return to totalitarianism. The only possible result of this will be Russia's rollback into the group of third-rate countries on the outskirts of global development, an eventual break-up, and division of the "Russian heritage" among the more successful international players: China, the United States, the European Union, Japan, and the Islamic states. 15/ 08/ 2006 RIAN News -This is possible, but it's not the only scenario. The good news is that it should mobilize the nation to do something to prevent its coming true. But in order take appropriate actions, the country should put aside the hysterics and emotions and start calmly analyzing the military and political situation. This alone can provide the foundation for making realistic development forecasts for the world and Russia. I suggest analyzing such realistic forecasts. External threats to Russia will be minor in the short term (three to five years). It is difficult to imagine any country launching an armed aggression against Russia in this period. NATO has become the dominant military force in Europe, but there are no acute political or economic conflicts between its members and Russia that could develop into a major war. Russia will maintain its nuclear status, and the arms control system, which ensures military and political predictability, will most likely be a sufficient strategic deterrence and therefore preclude the threat of a surprise attack. At the same time, Russia cannot hope to sign major new agreements in this sphere with the U.S. Moreover, the nuclear club may expand, and the proliferation of missiles seems likely. On the whole, the threat of an external attack is now much smaller than the threat of internal socio-political destabilization, a growing divide between the rich and the poor, a demographic catastrophe, continued technological degradation, and natural and man-made disasters (including those brought about by the deterioration of fixed assets). We must admit that the main threats to Russia's vital interests do not come from without, but are the result of domestic developments and events in the former Soviet republics. Therefore, Russia should have the following national security priorities: Domestic political and social tasks should come first (protecting human rights and liberties, and building the foundations of a civil society and an effective democratic state). Next should come technological modernization, including the renewal of fixed assets, transition to innovation-based economic development and global competitiveness, and the creation of an affordable, quality social infrastructure, just like in successful post-industrial states: healthcare, education, pension insurance, affordable housing, etc. Taken together, this boils down to improving living standards. And the last task is to protect these achievements from external threats by deterring aggressions and ensuring the country's vital interests beyond the national territory. In the mid term (10-15 years), external threats may grow, especially in the south. Islamic extremism is gaining momentum in the world, and Russia is coming face to face with the aggressive regimes of the Middle East. If diplomats fail to develop good relations with Islamic countries, disputes with some Muslim countries that seek domination from Bosnia to Tajikistan may develop into confrontation. At the worst, Russia may have to wage several Afghan-type wars in its domestic territory or in the Commonwealth of Independent States (CIS). In may be a period of continued degradation of international security mechanisms (the UN, NATO, the Organization for Security and Cooperation in Europe, etc.), as well as the main regimes of non-proliferation of weapons of mass destruction and their delivery vehicles, primarily missiles. East-West relations may also deteriorate, but a direct military threat is improbable. However, Russia and NATO should develop a mechanism for effective partnership, and the latter should change from a closed military bloc into a peacekeeping organization with Russia as a member and stop its military infrastructure from moving to Russia's borders. Otherwise the situation could be aggravated to the point of potential confrontation between Russia and the West. We must realize that the role of nuclear weapons in ensuring national security will keep diminishing in the midterm. The United States will equip its armed forces with fifth- and subsequently sixth-generation precision-guided weapons with powerful information systems, which will allow it to wage non-contact wars. Russia is unlikely within the next 10 years to have the technology to rival the U.S., which may deploy tactical ballistic missile systems effective against some (though not all) Russian strategic forces, as well as elements of a territorial National Missile Defense system. In addition, if Russia fails to start batch production of fifth-generation weapons (including an analogue of the U.S. Joint Strike Fighter), possibly in cooperation with the leading EU countries, Washington will monopolize the global arms market, and Russia will most probably lose its standing as a global arms supplier, which is a major lever for influencing global politics as a whole. In the medium term, China may enter into serious disputes with Russia's regional allies (Kazakhstan, Kyrgyzstan and Tajikistan), as well as with neutral Mongolia, which is a crucial nation for Russia. Although there are no grounds for forecasting aggressive Chinese aspirations now, some objective factors point to the possibility of disputes between China and Russia, which might create serious security problems for Russia's regions beyond Lake Baikal and the Maritime Territory. (To be continued) Sergei Kortunov is deputy chairman of the expert council of the international affairs committee of the upper house of Russia's parliament. The opinions expressed in this article are those of the author and may not necessarily represent the opinions of the editorial board.

Tuesday, August 08, 2006

Threefold More Direct Investments in Russia

08/08/2006 (12:41) RZD News - Direct foreign investment in Russia's economy in January-June 2006 almost tripled year-on-year to hit $26 billion, Kirill Androsov, Deputy Economics Minister, said Tuesday. "Direct foreign investment was about $26 billion in the first six months of 2006," K. Androsov said, adding that the figure was preliminary and could differ from assessment of the Central Bank and the State Statistics Service. In January-June of 2005, direct foreign investment in the Russian economy stood at $9.3 billion, reports RIA Novosti.

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