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Oct. 31, 2008 - Kommersant - Libyan leader Col. Muammar Gaddafi arrives today in Moscow for an official visit. He faces difficult a talk with Russian President Dmitry Medvedev. Libya did not fulfill the agreement reached in April with Prime Minster Vladimir Putin, even though Russia wrote off $4.5 billion in Libyan debt. But Kommersant has learned that Libya has a pleasant surprise for Russia as well. It is willing to host a Russian naval base. The Libyan leader’s visit is fraught with unsettled issues, not the least of which is where to erect the Bedouin tent that he travels with and spends most of his time in. Gaddafi will spend three days in Russia. The last time he was here was 23 years ago. Like his previous visit, this trip will focus to a great extent on ordering Russian arms. Libya ran up a $5.4-billion debt for arms at one time. That debt was a stumbling block in bilateral relations after the collapse of the Soviet Union. A breakthrough in relations came with Putin’s visit to Tripoli earlier this year, when he cancelled much of the Libyan debt in exchange for promises to conclude contracts with Russian heavy industry and construction companies and to buy a shipment of arms. They value of the contracts was to reach $4.5 billion, the same amount that was written off Libya’s debt. Libya has taken no action to fulfill its side of the agreement, however. Russian Railways, which has a contract worth $3.2 billion for the construction of a rail line from Sirt to Benghazi, has received only a small advance payment from Libya. Libya has also disappointed Russian hopes for the creation of a “gas OPEC.” Libya and Qatar were Russia’s original choice for partners in the undertaking, but Tripoli refused to cooperate. Qatar was unwilling to form an organization with only two members. Iran stepped in to save the plan at the last moment, even though it does not export natural gas. Gaddafi has suggested that allowing Libyan gas companies to operate in Russia would improve bilateral relations. That idea has not created enthusiasm in Russia.

The Central Bank is using Russia’s international reserves to support the ruble
10–30–2008 – RBC News – The Central Bank of Russia reported a sharp decrease in Russia’s international reserves yesterday: from October 17 to 24 they dropped by $31 billion to $484.7 billion, largely due to the dollar’s appreciation against the euro and the British pound, as well as the Central Bank’s interventions on the forex market. Yesterday, however, the bank changed tack, saying it could withdraw its helping hand from banks that continue to build up foreign currency reserves. Russia’s international reserves have been declining over the past month, falling $31 billion from October 17 to 24 to $484.7 billion. According to Trust Bank’s analysts, the reserves shed some $10 billion due to the dollar’s strengthening against the euro and the British pound, shrinking by another $15 billion as a result of the Central Bank’s forex interventions. Stanislav Yarushevichyus, at ING Bank, also estimates the Central Bank’s interventions last week at between $12 billion and $15 billion. The rest seems to reflect the Central Bank’s allocations to Vnesheconombank for loans to banks and corporations, according to experts. Vnesheconombank Chairman Vladimir Dmitriyev announced yesterday that his bank was ready to invest about RUB 5 billion (approx. $185.2m) daily in the domestic stock market:”We plan to use the National Wealth Fund to diversify and support the Russian financial market. On average, we expect to receive about RUB 5 billion daily, and invest it.” The bank has already invested RUB 25 billion (approx. $925.9m), according to Prime TASS. The RTS index climbed 17.81 percent yesterday, reaching 758.71 points, and the MICEX jumped 19.46 percent to 727.39 points. Trading volumes were quite high on Thursday, especially in state companies’ stocks, according to Mikhail Molodov, at Kapital Investment Group: “Indeed, there were a lot of state funds on the market, due not only to Vnesheconombank, but also to VTB and Sberbank.” He said the market might decline at the end of the week as investors could be willing to take profits. At the same time, the Central Bank of Russia withdrew from currency swap operations yesterday, stopping providing banks with rubles for such operations. As a result, the ruble strengthened slightly against the dollar and the euro as banks had to sell foreign currency to buy rubles, analysts at MDM Bank say. ING Bank’s Yarushevichyus, however, argues that this restriction would not affect speculators as there is enough ruble liquidity on the market currently, with interbank borrowing rates standing at 4-5 percent. A more effective measure against speculators betting on a weak ruble could be refinancing restrictions for banks that continue to build up their foreign currency reserves. The Central Bank published a letter yesterday on the monitoring of foreign currency assets of credit organizations, in which it recommended that in November and December banks should not increase their balances of foreign currency as accumulated in the period from August 1 to October 25. “Compliance with this recommendation will be considered by the Central Bank when deciding on limits on the participation of credit organizations in the Central Bank’s auctions for collateral-free loans,” the document says.

RBC, 30.10.2008, Moscow 15:18:05 - Russia's international reserves have been contracting at a remarkably fast pace, down a record $31bn within a week from October 17 to October 24. The outflow of capital and exchange rate adjustment due to the euro's fall are still seen as the main reasons for declining reserves. The strained global financial market has forced investors to sell assets and withdraw funds, including from the Russian economy. In the first nine months, however, net private foreign capital inflow stood at $0.8bn, First Deputy Chairman of the Bank of Russia Alexei Ulyukayev stated last week. According to Ulyukayev, some $7bn was taken from the Russian economy in August, and roughly $25bn more in September. Although the Bank of Russian forecasts outflow for October as well, the amount is predicted to be smaller than in September. The cash transferred to Vnesheconombank to support Russian companies and banks in the face of a financial crisis has been another blow to the reserves. The bank is to be granted up to $50bn in international reserves to refinance external debts of Russian publicly traded companies. For the full year, the Bank of Russia expects the international reserves to rise 14.8 percent to $547bn, down from the previous forecast of $632bn (up 32.7 percent).

27 October 2008 - Russia Today - Russian business is looking to new strategic trade partners. By 2020 China and India will become priority markets for Russia just as the European Union is now. The government has approved the change of direction in Russia’s approach to foreign trade. Russia sees a new trading status for countries, from Kazakhstan and Uzbekhistan to China and India. In just over a decade, it wants these countries to be among its main markets.Last year Russia exported goods worth 580 billion dollars. But most of this consisted of energy sales. This doesn’t satisfy Russia’s prime minister Vladimir Putin who urged the Government to boost exports of other Russian products. “Russia is dependent on exports of hydrocarbons and other raw materials. Russian goods and services are poorly presented on such growing markets like Latin America and Asia.” Experts like Evegeny Nadorshin, Chief Economist at Trust Bank say new markets are essential for Russia if it is to diversify away from reliance on energy exports – and thereby broaden the base of its economy. “Russia can sell to EU only energy. EU won’t accept Russian machinery because its not up to European standards. We need to search for external consumers if we want to diversify the economy.” But some doubt that China will eagerly snap up Russia’s hi-tech products as the country develops its own innovation sector. The main markets for such goods will be members of the Eurasian economic community like Uzbekhistan and Kazakhstan. Experts say China will be still interested in Russian weapons, space technology and energy supplies.

RBC, 29.10.2008, Moscow 15:46:26.Russian President Dmitry Medvedev's address to the Federal Assembly will be delivered on November 5, the presidential press office announced today. The leader today signed instructions authorizing his envoys to Federation Council Alexander Kotenkov and State Duma Alexander Kosopkin to propose to the houses' chairmen that they assemble their chambers at the Georgiyevsky Hall of the Grand Kremlin Palace at noon on November 5, 2008 for hearing the president's address to the Federal Assembly. Government members, chairmen of the Constitutional, Supreme and Supreme Arbitration courts, the Central Election commission, and the Audit Chamber, as well as the General Prosecutor, members of the State Council of Russia and religious leaders have also been invited to attend.

10-24-2008 - RBC News - Russia will consult India and China on measures to combat the global financial crisis, Russian Foreign Minister Sergei Lavrov told reporters today. “Russia will certainly coordinate its steps with the world’s leading emerging economies,” he stressed, pointing out Moscow’s strong ties with India, China and Brazil. The finance minister of the G20 group of rich and developing nations will gather next month in Sao Paulo, Brazil. Russian and Chinese finance ministers are also scheduled to meet there, according to Lavrov. “Despite the emergence of new centers of economic growth and financial power, as well as their rising political influence, it is only through joint efforts that we can solve the current crisis and prevent such things from happening in the future,” he asserted. Lavrov stressed the importance of the G20 summit in Washington on November 15 to discuss the global financial crisis. It will be of vital importance because “all the major players will come together,” he emphasized. “It is vital that they not merely come together, but also make plans relying on collective analysis,” Lavrov concluded. The Finance Minister also said Russia was against any rash moves that could undermine Iran’s cooperation with the International Atomic Energy Agency (IAEA). In its latest report in September, the agency said it had found no military dimension to Iran’s nuclear program, while confirming that Iran continued to enrich uranium. The UN nuclear watchdog said it had failed to make any meaningful progress in assessing Iran's past nuclear activities. "Regrettably, the agency has not been able to make any substantial progress on the alleged studies and other associated key remaining issues which remain of serious concern," the report said. Iran insists that it is not developing nuclear weapons and defends its right to peaceful nuclear programs.

10-23-2008 - RBC News - Russia must avoid the heaviest consequences of the global financial crisis, President Dmitry Medvedev said in a video blog posted on the Kremlin’s website on Thursday. The crisis that originated in the United States has ricocheted on the economies of almost every country because both the power of America’s financial market and its impact on the global economy are great, according to Medvedev. A rapid decrease in credit availability has dented demand; sales markets themselves are shrinking; the use of production facilities is declining, and people are losing jobs, which leads to even further recession in demand. As if that were not bad enough, investment programs are being suspended, and production expansion plans are being frozen. “Russia has not yet been ensnared in this gloomy turmoil. And it can avoid it. It must avoid it,” the President emphasized. Had it happened five or seven years ago, the crisis would probably have had less impact on Russia, he added. But today, the situation is quite different: Russia is a country with an open economy. “On the one hand, this gives us enormous advantages; on the other, it forces us to react and tackle the problems faced by all other major powers,” Medvedev emphasized. Russia has a chance to avoid currency, banking, or debt crises and go through today’s troubles without losing its potential. “We have taken a number of steps to restore confidence in the finance sector and ensure normal lending. In addition, decisions have been made to ensure the stable development of retail trade, agriculture, construction and mechanical engineering, as well as the defense industry, and small businesses. Given the decline in global demand and the impossibility of borrowing as before, it is these spheres that require our immediate support. Our actions should largely offset the above-mentioned negative effects,” the President said, adding that Russia’s international reserves and the Stabilization Fund had been created exactly for such times of trouble. Medvedev pointed out that Russia should not only protect itself from problems now, also “make the most out of the emerging opportunities, of which there are many.” First, the formation of highly competitive companies is certain to begin. They will mainly appear through consolidation in various economy sectors, including the banking sector, retail trade, and construction. “We will be ready to take the necessary measures and provide additional financing for those purposes. Stability of development in those spheres will also help create new jobs,” the President maintained. Second, financial organisations must become more efficient and pay more attention to their own reliability. This will boost the overall stability of Russia’s banking sector, making it more appealing to investors and depositors. Third, falling demand will force Russian companies to cut production costs. It is vital, then, to make their business operations, technologies, and management as state-of-the-art as possible, and in as short a time as possible. Thus, energy and labor efficiency could rise to levels allowing them to compete with the most successfully international companies. The government will support the creation of efficient jobs, tax incentives for innovations, and staff training, Medvedev stressed. Fourth, the current situation should be used to modernize the spheres in which the authorities and businesses have acted too slowly, especially in regard to education and healthcare, judicial reform, technical regulations, and the shift to digital technologies. Finally, Russia should actively participate in the development of new rules of the game in the global economy “to ensure maximum advantages for ourselves and for the promotion of a new ideology that will provide for a democratic and sustainable financial architecture in the world,” Medvedev said. To achieve this goal, new financial centers should be created, and new reserve currencies should appear, as well as new collective decision-making mechanisms. “This is good both for us and for all our partners,” the President emphasized. The heads of the world’s leading nations will meet in Washington on November 15 to discuss all these issues, according to Medvedev. “Russia is determined to actively promote its ideas,” he said. In the latest move to stabilize the situation, Medvedev has signed a decree to establish a national crisis management center, which will be supervised by the Emergencies Ministry, the presidential press office reported. The decree guarantees salary payments to the employees of civil defense forces on contract and the employees of the Fire Fighting Service of the Emergencies Ministry appointed to the national control center for resolving crisis situations. Those appointed to positions with a lower salary will retain their pay until they have a right to a pay raise. The decree took effect upon signing.

MOSCOW, October 23 (RIA Novosti) - European parliamentarians will visit Moscow later this week to discuss prospects for a new Russia-EU framework agreement, the European Commission's delegation to Russia said on Thursday. "A delegation of 12 members of the European Parliament led by the co-chair of the EU-Russia Parliamentary Cooperation Committee, Ria Oomen-Ruijten, will visit Moscow on October 24 - 25, 2008 for meetings with their counterparts from the Duma and the Federation Council," the delegation said. The agenda of the visit includes a working group meeting with members of both chambers of Russia's parliament and discussions with governmental representatives of the prospects for talks on a new EU-Russia framework agreement. The program also includes a meeting with representatives of civil society organizations and nongovernmental organizations. The first round of talks on a new wide-ranging deal between Russia and the EU was held in July this year. The agreement is set to replace the 1997 Partnership and Cooperation Agreement, which was extended for a year when it expired in December 2007. The talks were delayed over disputes between Russia and EU members Poland and Lithuania. The second round of talks was due to take place on September 16, but was delayed by the EU over Moscow's military operation in Georgia and subsequent recognition of the breakaway republics of South Ossetia and Abkhazia as independent states.

//For the first time since 2004, Russia is facing an outflow of capital
10-23-2008 - RBC News - For the first time in four years, capital flight from Russia will exceed its inflow in 2008, Finance Minister Alexei Kudrin announced yesterday. The net outflow could actually be insignificant, he said. Experts, however, are less optimistic, saying that a radical change in international financial markets was needed to ensure a net inflow of capital into Russia in November and December. “The net outflow of capital from Russia in August and September reached $33 billion, and we had a zero result from January-September,” Kudrin said at a finance ministerial meeting of the CIS on Tuesday. “We did not lose as there was no net outflow, but we have to conclude that we will have a net outflow by the end of the year. If the situation stabilizes, it will be small,” he said. The last time Russia had a net outflow of capital was in 2004, when it stood at $8.9 billion. This time, financial difficulties have been aggravated by political problems, comments Tatyana Orlova, an economist at ING Bank. It started with the criticism of pricing methods used by the Mechel mining and metals company, then the military operation in Georgia, the worsening of relations with the United States - all this has frightened investors, according to Orlova. The government’s initial forecast for the net inflow of capital in 2008 was between $30 billion and $40 billion. Global economic outlooks worsened in September as the crisis spilled over into emerging markets and investors began to withdraw, relying on the dollar instead. Russia was seen by many as the riskiest among the BRIC economies. Tatyana Orlova expects capital flight to reach $10 billion - $15 billion in 2008. Julia Tseplyayeva, chief economist at Merrill Lynch, is more pessimistic, projecting a higher outflow of $30 billion to $40 billion. “To hope for a small outflow, of say $20 billion, means to expect an inflow of capital in November and December. I don’t know what needs to happen to change the situation so radically in favor of Russian assets: everything depends on the global market now, not on internal factors,” she argued. The shift from rubles to dollars also adds to capital flight. “The Central Bank’s priority right now is to calm the market,” believes Natalya Orlova, chief economist at Alfa-Bank. In an effort to allay fears yesterday, Alexei Kudrin promised that the ruble would remain stable thanks to Russia’s huge international reserves.

10-21-2008 - Orietta Moscatelli, head of the Italian Information Agency APCOM 'New Europe' project - The Nabucco project, the gas pipeline that should link Erzurum in Turkey to Austria, was born in Europe out of fears of growing energy dependence on Russia. A fear spread by the ‘gas war' with Ukraine in 2005-2006 and refreshed by the new Caucasus conflict this year. Strange as it may seem, however, these days in Brussels politicians and technicians are mumbling that, perhaps, Moscow should be invited to join: it has the primary good - gas - and the picture would not really change compared to one quarter of supplies EU gets from its Eastern giant neighbour. Bizarre at first glance, but it is a sign of pragmatism tempting the Old Continent after August's events, and at the same time, a confirmation of European doubts and divisions over how to deal with Russia. Two faces of a medal that both EU and Moscow should be careful when throwing into the air: on the side shown when it comes down will depend more than a new pipeline. Moreover, it is a very delicate time, as in a phase of global and scary financial crisis, the danger to lose momentum is bigger. So: what about a new sign to move forward. As a British colleague was pointing out recently, the August conflict has had at least one "sane" consequence: Europe has woken up feeling it should have a more independent voice when talking to Russia. How one (a European one) could not agree. A few concrete facts are showing that several European leaders are realizing it is dangerous to jump on the Us train when it comes to acting vis-a-vis to Russia, in the name of a Transatlantic cooperation that after 50 years can not count on simple make up any more. So much more, in a phase of ‘power void' in Washington and one of serious doubts about America leadership in the future. France's Nicolas Sarkozy seems to have realized that. Germany's Angela Merkel definitely has. Silvio Berlusconi came out from the European emergency summit in September telling the press he challenged his colleagues to explain what "disproportioned use of force" means and what would they consider a "proportionate" reaction to Georgian attack. We do not know the answers, but as a declared friend of both Mr Putin and Mr Bush, the Italian prime minister seems to have made a clear choice. Certainly, it is easier with an outgoing American administration, still it should not only be about that. In Brussels, though, at the last summit on October 15th, EU decided to take more time before re-launching negotiations with Russia on a new Strategic Partnership. "It is better to wait a bit", said French Foreign Affairs minister Bernard Kouchner. Poland, the Baltics, Britain and Sweden are against resuming talks, and the Big in Europe - starting from Germany - are saving the ‘unity dose' for more urgent dossiers, such as the financial crisis and the new dispute about measures to fight climate change. The differences about measures to reduce gas-emissions have taken the stage at the Luxembourg meeting, and the 27 will talk again about talking to Russia in November, when Italy and Germany will push again to break the ‘New European' barrier. The two countries have lead the campaign to resume discussions after Moscow withdrew its forces from parts of Georgia, as asked by the Sarkozy-brokered cease fire. But Great Britain is insisting that EU should wait on the result of the Geneva talks between Georgia and Russia in Geneva, where the first round last week was a total failure and where the next one, November 18th, could easily mark a new stand-off. Talking about risks of loosing momentum. So, something new is needed to move on. If a constructive message should come through from Moscow before the next European summit, things could get much easier. President Dmitri Medvedev is offering consultations about a new security architecture for the old Continent, but that season seems still too distant to chose a proper wardrobe. A proposal of cooperation against pollution, instead, might seem diminutive, but would be concrete enough to give a sign. A sign easy to read in Europe, also beyond diplomatic circles. In December, NATO will have to decide whether to invite Ukraine and Georgia into a Membership Action Plan (Map), the first step towards proper membership. It won't go ahead, most probably. But it would make a change if European allies could oppose US not out fears of a new fight with Russia, but out of hope in a really new, possible partnership.

20 October 2008 - Russia Today by James Blake - There will be a global economic downturn, but there are a few factors specific to Russia that offer at least a ray of hope that it can minimize the effects locally, and get its economy into better shape for the upturn when it eventually comes. The great international bank bailout of 2008 may, and only may, head off the meltdown of the global financial system, but it isn’t likely to head off a recession which will hit most if not all of the world. How Russia works it way through that global recession will, in large part, determine not just its place in the world on the other side, but also the day to day lives of a population that, by and large, has only recently started to become accustomed to improving living standards and modest increases in their spending power and wealth. But to look through various aspects of what is unfolding;
Exchange rates: Here in the second week of October we’ve already seen the stock market crash, or part of it at least. But unlike much of the rest of the world most Russians don’t own shares, and aren’t particularly interested in them at a day to day level. The import of what is happening on financial markets is producing its most immediate effect with changes in currency exchange rates, where for the first time in a couple of years many average Russians are looking at the Dollar to Ruble rate and wondering if they might be better off putting some of their hard earned into Dollars after the Ruble has fallen from just above 23 to the dollar in August to more than 26 to the dollar in October. With Oil and most commodities being savagely hit in the wake of the chaos on financial markets the short to medium case for the ruble looks less compelling than it has in ages. Adding to gloom is the prospect of oil now being below the level on which the National budget is formed. This means Russia is now looking at a possible budget deficit far earlier than was forecast – 2010 according to most estimates. Throw in the capital outflow resulting from global investors repatriating funds to deal with chaos on their home markets, and you can see the CBR has had to work overtime to keep the Ruble from depreciating more than it has.
Inflation: The Ruble move into reverse gear, has one immediate impact, and that is to add to Russia’s chronically bad inflation outlook. Russia already has 11% inflation for the year and any significant weakening of the Ruble is likely to add to it. For this reason that we can expect the central bank of Russia to think long and hard before it allows much further weakening as Ruble appreciation has been its one effective tool. Interest rates aren’t real. But with global turmoil moving into the wider economy, inflationary pressures from expenditure and competition for services and materials can be expected to lessen, despite Ruble depreciation. This gives the CBR and government the opportunity to bring the beast under control. Helping them in this task will be increased agricultural production figures, which have seen upward pressure on prices for many food items ease, an expected easing of consumer demand, and over the longer term, the infrastructure expenditure currently underway which will relieve the logistical bottlenecks which have exacerbated the problem.
Consumer sentiment: The vast bulk of the Russian population isn’t particularly well paid, and doesn’t save much. They spend up on whatever is there to be spent upon, but with the upside that they usually don’t go too far into debt to do it. An additional bonus in comparison with many of their global counterparts is that they usually aren’t leveraged by large housing debts. With banks still viewed suspiciously by many Russians – a legacy of the banking collapses of the 1990s – taking out large loans still isn’t part of Russia’s social fabric, even if it has the downside of that same population not being particularly keen to put its money into banks. This provides some upside in the outlook, particularly so if the government can ensure that the downturn isn’t accompanied by a significant jump in unemployment. That may seem a near impossible task, but it is helped by the fact that for most Russians a significant part of their annual salary comes in the form of bonuses – estimated as being as high as 25-30% in many cases. It means two things, first that many Russians can live off less than their total earnings would suggest, and second, that – painful as it may be – there is scope for trimming bonuses rather than laying off employees. If widespread layoffs can be avoided, while maintaining day to day expenditures, the impact of the downturn on general spending can be minimized. That’s not to say that there won’t be major changes in expenditure. There will, and the consumer boom that has become a key part of Russian economic growth for the last 2 years will almost certainly ease back a gear or two. Earlier this week the Rosinter Group, while unveiling its first half figures, announced that it was already planning for changes in customer behaviour. It won’t be the only company. Retail outlets of all descriptions are likely to have similar changes in mind, and the conspicuous expenditure, which has made Russia such a fixture for luxury goods makers, will invariably be toned down.
Employment: The key to keeping retail expenditure up, whilst easing, is going to be employment. Already we are seeing plenty of indication that major players are trimming Capex, lowering outlooks, trimming expansion plans, and deferring projects. One of the major factors behind the governments drive to keep interbank and corporate lending going has been to ensure that major projects can still proceed and that expansion and development plans currently funded by international borrowings can be continued with domestic funding if need be. If those companies can weather the downturn without shedding too many employees – maybe by reducing working hours, or slashing bonuses – then there is scope for Russia’s economy, and society, to weather the global recession.
Infrastructure spending – the key: Russia will face up to this global downturn with a large infrastructure development program already underway. Initially unveiled at the height of the boom to reduce the structural problems facing Russian business it will now become a potential godsend in terms of keeping corporate wheels turning and people in jobs. It may well be a considerable advantage to have such a program already in place, and it can be expected that governments elsewhere will soon be looking at measures to keep domestic consumption up as well, as well as having, at present, a budget surplus to help keep them going, as well as Russia’s reserves to call on in the worst case scenario. The massive investments already unveiled in transport and logistics infrastructure will help to keep heavy industry – steelmakers and construction outfits in particular – generating turnover. Some of the massive gas and oil developments will see the energy majors, along with services companies and pipemakers get a look in at keeping the energy sector going. The refurbishment of the electricity sector is another source of both long term outcome gains and shorter term fiscal and employment boosts. To go with this there is massive investment underway already in improving a lot of social infrastructure – particularly in health and education, as well as massive investment in housing stock. Some of this will certainly be trimmed back, but as long as the bulk of it continues then there is scope for it keeping the economic engine ticking over and keeping employment up, therefore keeping consumption up, while generating long term quality of life improvements for everyday Russians.

10-20-2008 - MOSCOW - (RIA Novosti economic analyst Vlad Grinkevich) - Brent crude has fallen to $70 per barrel on the New York and London exchanges, the lowest in the last 14 months. But analysts say oil prices may continue to fall, because the global economy continues to slow resulting in no reason to expect energy prices to resume growth. Oil will most likely cost between $50 and $70 per barrel next year. Russian officials must hurry to review the 2009-2011 budgets to keep them in the black. At the same time, President Dmitry Medvedev has expressed astonishment at exceedingly high domestic fuel prices. About two years ago, when oil cost $70 per barrel, economists said the global economy would be unable to function with such high oil prices. The economy has adjusted to these prices, but it will be more difficult for the world, and especially oil exporting countries, to return to cheap oil. The Russian budget is based on oil prices of $95 per barrel, and the leading crude producers' investment plans were formed on the assumption that oil prices will exceed $100. It is not surprising that oil prices have fallen; this was bound to happen, sooner or later. What is surprising is that the Russian authorities and oil companies failed to forecast the fall and prepare for it. Much has been said about the speculative nature of high hydrocarbon prices. Oil futures and other commodity securities have become an alternative currency in which speculators readily invested. Their enthusiasm was fed by the nearly mystical belief in the unstoppable growth of the global economy, which would need a growing amount of resources. Raw materials providers had nothing to worry about in that scenario. Also, speculative demand was spurred by the rapidly developing Chinese and Indian economies, which needed ever increasing hydrocarbon imports. Some hotheaded experts even predicted that oil prices would soar to $200 per barrel before the end of this year. The financial crunch is an abstract disaster for the majority of Russians, but everyone will hear the loud pop of the oil bubble. Hydrocarbons are Russia's main export providing more than half of its export income and the bulk of the budget revenues. Russia's 2008 budget is based on oil prices of more than $90, and similar figures form the core of the 2009-2011 budget. The Finance Ministry claims there is no reason to review the three-year budget. But then, it also said the 2009-2011 budget would be deficit-free even if oil prices fell to $70, which is approximately what Urals crude now costs. The Russian economy may have a deficit budget and a negative trade balance, for the first time in several years. This means the government will have to dip into reserves to pay for budgetary programs and for the growing amount of imports. The state will be unable to adjust the wages of public-sector workers to inflation, and pensioners may not receive the planned 30% increase in 2009. Paradoxically, fuel prices in Russia remain very high, even though they have fallen in the United States following the plunge in oil prices. The increase in jet fuel prices in Russia in August-October has led to a crisis in the airline industry with flights delayed or cancelled by the hundreds and ground services denying maintenance services to debtors. This is not surprising, as it is not the market but the insatiable appetites of oil companies that regulate fuel prices in Russia. In mid-summer, when oil cost $140, prices of jet fuel were higher in Russia than on the London exchange. Now that global prices have taken a plunge, large oil producers want to make up for their losses by shifting the burden to their Russian customers. In the last few years, the government pretended not to notice the pricing games of the oil companies. Officials sometimes chided crude producers, but did not do anything to stop the growth of domestic prices. This is logical because the oil sector is one of the drivers of the Russian economy, tax deductions from domestic hydrocarbon sales make up a substantial part of budget revenues, and Rosneft, the largest crude producer, is controlled by the state. Fuel consumption continued to grow despite rising prices in Russia. But the economic crisis has forced the government to cast a fresh look at the problem and admit that unjustifiably high commodities prices are increasing the outlays of Russian companies and making their output and services uncompetitive. President Medvedev has described the situation with jet fuel prices as unacceptable and instructed the Russian government to take decisive anti-trust measures to regulate them, up to and including the launch of criminal proceedings. The task has been turned over to the Federal Antimonopoly Service and law-enforcement agencies. Deputy Prime Minister Sergei Ivanov, who is responsible for the fuel sector, has said that since oil prices dropped by half, domestic fuel prices should be reduced accordingly. We will see in the next few days if this was a direct order or another mild chiding.

MOSCOW, October 17 (RIA Novosti) - Investors withdrew $33 billion from Russia in August-September, Russia's finance minister said on Friday. "In August-September, investors took a total of $33 billion out of Russia," Alexei Kudrin said, speaking in the State Duma, the lower house of parliament. He said the amount represented dollars that investors had bought from the Russian Central Bank for rubles and then taken out of the country. Russia's financial system has been affected by a global credit crunch which started in the U.S. and quickly spread to Asia and Europe leading to record losses on Russia's financial markets, rising interest rates and a liquidity shortage. The minister also said national welfare funds would be used to buy stock in Russian companies. "Next week, we will start investing 175 billion rubles [$6.7 billion] from the National Welfare Fund [into buying stock]," said Kudrin. The State Duma approved last week anti-crisis packages worth a total of $86 billion. The government earmarked $50 billion of budget funds to banks and firms to refinance foreign debt, and some $36 billion to key banks in subordinated loans.

MOSCOW (RIA Novosti foreign news commentator Ivan Zakharchenko) - Meeting in Brussels to discuss the global financial crisis, the 27 EU leaders held separate debates about relations with Russia. Relations have deteriorated because of Moscow's intercession in Georgia's attack of South Ossetia two months ago. Russia, however, is not making a drama of the EU's failure to agree on Russian-European partnership negotiations. France, which currently holds the EU rotating presidency, insisted on continuing talks with Russia. Paris and Berlin appreciated Russian peacekeepers' timely withdrawal from Georgia. Italy even suggested that Russia should become a member of the European Union. For all that, the parties didn't manage to arrive at consensus. The "opposition," represented by Great Britain, Poland, the Baltic countries, Denmark, Sweden and the Czech Republic, considered it premature to improve relations with Russia and suggested monitoring the developments in the Caucasus. As a result, the EU debate was postponed until November 10, which means it will be held four days before the Russia-EU summit in Nice, France, at the foreign minister level. "We don't take it as a tragedy. If the European Union needs more time to prepare for talks, we have patience. It took the EU a year and a half to prepare to launch the talks, after all," Russia's EU envoy, Vladimir Chizhov, stated during a video link between Moscow and Brussels. The new Russia-EU agreement is to replace the Partnership and Cooperation Agreement, which expired in late 2007, but was automatically extended. At the emergency summit on Georgia in Brussels on September 1, EU leaders decided to suspend negotiations on a new basic agreement between Russia and the European Union, as a sign of support for Georgia. Initially, it was Poland and Lithuania that blocked the launch of the talks, which finally started in Brussels on July 4. According to Mr Chizhov, in November the matter of resuming talks with Russia will be considered along with a report on EU-Russia relations, which is now being prepared by the European Commission. Both Moscow and its European partners need stable relationship, and they are aware of this. The EU accounts for over 50% of Russia's foreign trade. Russia ranks third (after the U.S. and China) among EU exporters (export volume totaled $197 billion in 2007), and fourth among those consuming EU production (EU imports to Russia amounted to $87 billion in 2007). At the same time Russia is the leading gas supplier to the EU, ranking second in oil and petroleum products supplies. Europe depends on energy imports to such an extent that it reacts painfully to any global disturbances in this sphere. Europe imports over 80% of its oil and 75% of its gas. Analysts predict that in the near future the EU's dependence on energy imports will only increase. In this situation it would be reasonable for Europeans to develop a partnership with Russia to ensure the energy security Europe needs so much. In other words, Europe's energy security depends on Russia, and it can be achieved only by building normal relations regardless of disagreements on some or other issues. Problems should be addressed during constructive negotiations, rather than resorting to "punishments" or demarches like freezing the talks on a new EU-Russia partnership agreement.

17 Oct. 2008 - Asia Times by John Helmer - MOSCOW - The first sign of a Russian economic crisis is a line of desperate people, pushing and shoving outside a locked door, on which a scribbled sign has been posted indicating that the cash those outside thought they owned would be unavailable until further notice. In the classic Soviet tradition, a handful of enterprising individuals would go to the back door to see what could be arranged out of the glare of publicity and with a little bribery for those inside. There they were told the truth - their money had gone.
So far, as the financial crisis continues to engulf the world, only four or five Russian banks have gone to the wall, visibly - KIT Finance, a small St Petersburg investment institution connected to cabinet ministers; Bank Soyuz, the cash box of Oleg Deripaska's aluminum-based holding; EvrasiaTsentr ("Eurasia Center"), a tiny Moscow lender; and Globex, a slightly bigger retail deposit bank, also in Moscow. All have been swiftly secured, without the distress becoming too public or a line of angry depositors forming outside. The sale of Renaissance Capital, a fifth investment house, for a fraction of its pre-crisis value, was another distress sign, but not in the mass market.
The apparent calm reflects Russians' confidence in the state. Since the earlier financial crises of the post-communist period were all triggered by the weakness of the state treasury, Russian depositors believe their savings are relatively secure this time because state reserves are huge and the state banks flush. And the depositors are right. They can also hear their leaders assuring them that the state budget will be used to revive and re-stimulate domestic investment and demand. A decade ago, former president Boris Yeltsin let the International Monetary Fund dictate massive cuts in government spending while letting his brand new oligarchs ship the untaxed profits of their export concessions in oil, gas, steel, nickel and aluminum to safe havens abroad. This time there is no danger of the first type of disinvestment. The second type is also less likely, because President Dmitry Medvedev and Prime Minister Vladimir Putin control the oligarchs and not the other way round.
Nonetheless, there is a crisis queue right now; according to Vnesheconombank (VEB), a state financial institution, at the last count there were 55 applicants for help standing outside the door. Until this month, the 55 - 20 banks and 35 industrial corporations - were among the most powerful and richest enterprises in the country, whose shares made their proprietors the richest men in Russia and in Europe. VEB has a history of servicing lines of desperate Russian enterprises. Begun in 1922, it was the first state trading bank after the communist revolution had wiped out privately owned, commercial banks and initially handled short-term financing needs for export-import transactions. By the time the Soviet Union ended in 1991, VEB was responsible for all foreign debts of the defunct state. Renamed the Bank for Development in 2007, it has been revived as the conduit through which the vast cash reserves and special wealth funds of the government can be channeled into the domestic economy. Not since the 1920s has VEB played the role of peak power banker to Russian commerce. Then and now, that's a unique political role, and those on the present VEB board have their own special standing in the current factional alignment between the Kremlin of Medvedev and the White House (as the prime ministry is known in Moscow) of Putin. Putin is chairman of the VEB board. Under him sit eight members, including Victor Zubkov, first deputy prime minister and the senior official in charge of domestic consumption and agriculture; Sergei Ivanov, a former intelligence officer, defense minister, and now supervisor of the military-industrial complex; and Dmitry Kozak.
Kozak, a St Petersburg lawyer, was until this week obliged to cool his heels as the junior minister of regional development. On Tuesday, he was promoted by Medvedev to be minister in charge of the preparations for the Sochi Olympic Games to be held in the winter of 2014. Although that job remains a provincial one, and Kozak has not quite escaped the exile from Moscow into which he was sent in September 2004, he is a powerful figure for the faction that opposes the ambitions of Deputy Prime Minister Igor Sechin and his allies. Sechin, a former Kremlin assistant to Putin, is now the deputy prime minister in charge of resources, energy and industry. In that position, he supervises the concessions through which the oligarchs control their oil, gas, metal and mining empires. Those who have challenged Sechin in the past - cabinet ministers, the head of the state oil pipeline company, the head of the state tanker fleet, as well as St Petersburgers Ivanov and Kozak - have all been beaten, and many forced into exile. For some, opposing Sechin has led to prison or foreign asylum.
The first challenge to Sechin since Medvedev became president in May was the clash between British Petroleum (BP) and TNK-BP, controlled by Mikhail Fridman. As Fridman openly pointed out, BP had tried to oust Fridman and his co-shareholders by making a secret pact with Gazprom to buy them out. What Fridman didn't say was that Medvedev, formerly chairman of the Gazprom board, and his legal counsel at Gazprom, Konstantin Chuichenko, had encouraged BP to believe it would be supported. BP then made the mistake of trying to play Kremlin politics. Fridman rallied Putin and Sechin, who also serves as chairman of Rosneft, the state oil producer. Medvedev saw the lineup, and the outcome was inevitable. BP was defeated, and TNK-BP emerged with Fridman to call the shots on how this oil company will be managed in future.
Fridman and his diversified conglomerate of banking, oil, mining and other assets has also consolidated his relationship with Medvedev. On present indications, Fridman's core business, Alfa Bank, is "in great shape - cash on hand, unexposed and gaining market share", an insider claims. "We see the current environment as an opportunity to increase our market share in our retail, commercial and investment banking businesses." Fridman is also the only commercial banker publicly known to have met Medvedev since the crisis broke. That was on October 6. The following day, Medvedev met with and the state bankers - from SBerbank, VTB and VEB and the head of the central bank head.
Such visible signs are clues. Calculations of how much paper value the Russian oligarchs have lost in the crisis create mind-boggling numbers, but their accuracy is questionable. That's because they don't discriminate between the gross wealth generated by stock market value and the wealth that is net of debt. Leverage is now the key to the survival of Russia's biggest enterprises and the oligarchs who control them; the lower the leverage, the higher the survival chances. But if oligarchs lack short-term liquidity or access to credit, they face loss of assets, dwindling of their cash piles and re-nationalization - that is the transfer of their concessions to competitors. What passes through the money window of VEB is therefore the real evidence of how the distribution of power may be changing in Russia today. Sechin, it should be noted, is not a member of the VEB board. This creates a more level playing field at VEB for those aspiring to enlarge their concessions, and attack those concessions Sechin protects. This is now the revolutionary dynamic of Russian politics. It is also governed by simple arithmetic. Legislation enacted by parliament last week for the emergency stimulus of the Russian economy provides up to US$50 billion in loans from VEB for the refinancing of foreign debt which Russian banks and other companies have raised but face trouble repaying or refinancing in the current crisis. That's the amount in the vault, behind the locked door, in front of which stands the queue of 55. The notice on the door says that credits will be issued on a discretionary basis, priced at no less than 5% over the benchmark London Interbank Offered Rate, and - here's the crunch - no more than $2.5 billion for a single applicant. According to VEB chairman Vladimir Dmitriev, the aggregate borrowing applications already amount to more than VEB has agreed with the government and central bank to lend. Who gets refinancing, and how much, is thus a crucial test of how stable the current oligarch system is, and how likely the concessions they administer may be about to change. VEB has promised the queue that within 18 days it will decide on all applications filed by October 25.
The first test puts Sechin on the defensive, for it is his Rosneft whose financing need is the largest and most urgent. Rosneft absorbed the oil production assets of the defunct Yukos when its founder Mikhail Khodorkovsky went to jail and Yukos was convicted of tax fraud and wound up. The company now owes $11 billion in short-term debt, and $23 billion in total debt. Only Gazprom is more heavily leveraged, with $21 billion in short-term debt and $61 billion in long-term debt. According to news repots in Moscow, Rosneft has applied to VEB for $4.2 billion in emergency cash; LUKOIL, controlled by Vagit Alekperov, for $2 billion; Fridman's TNK-BP for $1.8 billion; and Gazprom for $1 billion. At the moment, LUKOIL has total debts of almost $9 billion, and short-term pressure for $2.3 billion. TNK-BP owes $1.9 billion in aggregate, but only $277 million must be funded soon. Rosneft is under the heaviest immediate pressure. This pain translates, for Sechin's rivals, into potential political opportunity. If Sechin stumbles in the Rosneft refinancing, then his rivals in government may argue that Rosneft should be reorganized. That would mean a new state team taking over from Sechin loyalists. Rosneft must pay $750 million of debt by December 31 and $2.4 billion three months later. Given that the price of oil is falling, and production is not increasing to offset this, nor foreign demand for oil exports, Rosneft must test the full extent of its political clout to secure cash. It has already refinanced $2.35 billion of debt on September 17, using 4.67% of its shares (out of 9.44% treasury stock) as collateral. Whatever VEB decides to loan Rosneft, the company has other state lenders to whom it can turn. There are reports that one option is a $2 billion credit line from a consortium of Sberbank, the state savings institution; Gazprombank, which is owned by the state through Gazprom; and VTB, a state controlled bank. More credits might be available bilaterally from Sberbank and VTB. In addition, Rosneft is negotiating an export finance facility with Chinese banks that is tied to the flow of crude oil to China, currently running at 10 million tonnes per annum (192,000 barrels daily). China wants much more, but overland delivery by pipeline through eastern Siberia is taking time to build. Tanker delivery by sea is costly, and no longer so profitable to arrange for traders such as Gunvor, which dominates Rosneft's marketing of oil. The Geneva-based Gunvor is owned by Gennady Timchenko, a close ally of Sechin. What happens to him, and their alliance, is now in the balance.
Gunvor has told Asia Times Online it is seeking finance to expand Timchenko's stakes in the Baltic energy trade, including a new Russian oil terminal at Ust-Luga, as well as rail transportation of oil, tanker fleet operations, and gas exports. The decline of Russian equity values has reached the level where the underlying asset value is based on a price of a barrel of oil of $50 to $60, industry analysts have told Asia Times Online. If this materializes in the export markets, the industry will see Rosneft demanding an end to trade discounting under the market price. It will also cause a significant delay in the sale of shares of the merged and privatized tanker fleets of the two state-owned shipping companies, Sovcomflot and Novorossiysk Shipping Company (Novoship).
Merged, as Sechin has arranged, and privatized as Timchenko wants to see, the combination of Sovcomflot and Novoship makes one of the world's largest oil shipping companies. If Rosneft catches a cold, Russian ports, pipelines, and fleet companies, which depend on it, may begin to suffocate. "According to the exchange quotes, the share price of Novoship has dramatically fallen even from the price of Sovcomflot's minority share buyout offer," said Kirill Kazanli, a Troika Dialog analyst in Moscow. "Sovcomflot proposed $3.36 per share, while the current price is around $2 per share. The market for these shares has simply disappeared." Kazanali told Asia Times Online that an international IPO for the Russian tanker group is now unlikely until 2010. Alexei Bezborodov, a leading transportation analyst in Moscow, says that the valuation cut reflects the oil price now, and tanker rates later. "I think their revenues are dependent on freight rates, not on oil prices. And freight rates don't always correlate with oil prices, although now they do. There is a lot of news about the dramatic fall in freight rates and growth in tanker availability. But as Sovcomflot and Novoship both operate on long-term freight contracts, their revenues won't be affected immediately. They have contracts roughly until May 2009." According to Kazanli, excess capacity and falling tanker rates will strike as Sovcomflot and Novoship must pay for new vessels. "They have very big new-building portfolios for the next two to three years, and a long-planned expansion of tanker capacities. This is definitely not a very attractive configuration for the market for the next two years."
Rosneft and Gazprom are at the head of the line in front of VEB's loan window. But close behind them are all of the oligarchs, representing all of Russia's mineable resources, power sources, industrial assets, and consumer demand. Oleg Deripaska, who controls the state aluminum champion, is looking for $10 billion, divided between United Company Rusal, and his holding Basic Element. Vladimir Potanin, the controlling shareholder of Norilsk Nickel, Russia's largest mining enterprise, argues that VEB should not lend Deripaska money he borrowed to start a hostile takeover against Norilsk Nickel. The application process for state funding obliges Medvedev and Putin to make a choice between oligarchs and their competing demands. And this in turn triggers the choice of whom they prefer. Enterprises and assets which were once handed out by Yeltsin, in return for little more than a bribe, are now passing back to the state, stripped of their cash, heavily indebted, their shares or property mortgaged and potentially forfeit to foreign lenders. The last time such a momentous policy choice materialized in Russia was in 2003, when oil was less then $20 per barrel; the US was preparing to attack Iraq and lower oil to $13 per barrel; and Khodorkovsky proposed selling Yukos to a US oil company. For the five succeeding years, the oligarchs have largely avoided positioning themselves under the chopper that decapitated Yukos and Khdorkovsky. Now reason and cause may be different; but the stakes for Russia's future are just as high, and the axe is still as sharp. Read Putin's lips carefully. Last week, he said: "We should refinance only those credits which were involved for realization of investment projects or acquisitions of shares in Russia." That means he intends to make a choice. Oligarchs with famously expensive houses in London or the French Riviera, English football teams, steelmills in the United States and aluminum smelters in Nigeria, need not apply. Disinvestment in Russia, job cuts, transfer pricing of profit abroad - these are criteria for passing over an applicant for bail-out finance from the state. "The crisis has shown," said Sergei Chizhov, a former federal oil minister, "that without the aid of the state, Russian companies realize that they cannot survive. I do not exclude that Rusal can be nationalized." The implication is that those of Russia's leading corporations left penniless outside the VEB loan window, when it closes, face re-nationalization. For this to happen requires another revolutionary shift of Russian political and financial power. Don't mistake how stationary the VEB line looks to be, for how rapidly this revolution is moving at this very moment.

RBC, 09.10.2008, Moscow 17:10:49. – Russian Prime Minister Vladimir Putin believes that the United States will not be able to regain its leading position in the world economy after the crisis, he said during a meeting with deputies of the Communist Party faction in the State Duma. Putin agreed with faction leader Gennady Zyuganov's statement that the United States had lost its leading position and the U.S. crisis would continue. Confidence in the U.S. as the leader of the free world, as well as in Wall Street, has been undermined forever, the Russian PM said. He added that it was not only his personal opinion, as European leaders, heads of central banks, finance ministers, and experts spoke about it as well, be it disguised or blatant.

Oct. 06, 2008 - Kommersant - Vice Premier Igor Sechin has set to mastering a new business field, the power engineering. Sechin will head the BOD of Inter RAO UES, which is expected to turn into one of the country’s giants by 2015. The key business of Inter RAO is overseas operations and French Electricite de France will soon become its co-holder and partner. As to Sechin, he chairs the BOD at Russia’s oil company, Rosneft, and the control over Rosneft and Inter RAO will enable this powerful vice premier to pursue the independent energy policy. A political liaison of both companies is a soft variant of Gazprom, the analysts say. Inter RAO released the list of 20 candidates to the BOD. Igor Sechin is the obvious frontrunner and exactly he is likely to chair that body. The EGM will elect the BOD October 23 and the results are expected to be made public on the same day. Inter RAO UES is Russia’s monopoly for energy export and import; it owns facilities of roughly 8,000MW capacity both in Russia and overseas. Russia’s nuclear energy agency Rosatom holds over 57 percent in Inter RAO, minor holders (former minors of RAO UES of Russia) have 38.5 percent and the treasury stocks account for around 4 percent. The company’s worth stood at $1.06 billion, according to Friday quotes on RTS. The plans are that Inter RAO will step up facilities to 30,000MW by 2015 and boost capitalization to $14 billion. So far, Sechin has never been the BOD member at an energy company. But he heads the BOD of Rosneft. A new authority will widen Sechin’s control over the fuel and energy sector of the country to the extent that nears the power of Russia’s gas monopoly Gazprom that is aggressively acquiring energy assets and with which Rosneft has been long competing for influence. According to the analysts, Sechin’s personal control over Inter RAO signals the government has revised its attitude towards the company. Nowadays, Inter RAO is more a lever of influence than a certain business undertaking. It could be viewed as the continuation of gas expansion but through softer methods. Gazprom arouses fear but no one is scared of Inter RAO. Besides, the expansion of the kind matches Sechin’s positon, whereby “not all energy assets should go to Gazprom but Russia must have everything.” The investors have appreciated Inter RAO potential. The company grew 1.4 percent on RTS Friday contrary to the index decline of 7.09 percent.

Oct. 06, 2008 - Kommersant - Russia has sent an enquiry to Great Britain for the extradition of Mikhail Gutseriev, founder of the Russneft company accused of tax evasion and illegal entrepreneurship, reports RIA Novosti information agency, citing a statement from the Russian Interior Ministry’s Investigative Committee. Gutseriev has denied the charges against him. Gutseriev announced the sale of his company, Russneft, in July 2007. In August 2007, a warrant was issued for his arrest. An international warrant was issued at the end of the year. In April 2008, deputy chairman of the Interior Ministry Investigative Committee Oleg Logunov stated that Gutseriev was living in Great Britain and occasionally visiting Azerbaijan. He added that the issue of his extradition would be settled through Interpol. Affiliates of Oleg Deripaska’s Basic Element holding acquired Russneft. They have been waiting for over a year for permission from the Federal Antimonopoly Service to finalize the deal.

MOSCOW, October 6 (RIA Novosti) - The Russian stock market gave in to panic on Monday with the MICEX dropping 18.6% to 752 points and the RTS falling by 19.1% to 866.39 points - the worst losses since the 1998 crash. Russia's financial system has been affected by a global credit crunch which started in the U.S. and quickly spread to Asia and Europe leading to record losses on Russia's financial markets, rising interest rates and a liquidity shortage. Sergei Sheikov, managing director for corporate clients at the Olma Company said: "Monday became one of the blackest days for most market participants - for the first time since 2005 the RTS index closed below the psychologically important benchmarks of 900 and 1,000 points." Losses for many blue chip stocks exceeded 20% with Norilsk Nickel shares worst hit as they plunged 30.2%. The losses forced the closure of the MICEX, Russia largest index, and RTS three times on Monday. Fears regarding the spread of financial crisis caused all world markets to plunge, which contributed to Russia's market losses. Britain's FTSE 100 experienced its worst day since 1987 as stocks plunged 7.85% and France's Cac 40 index fell 9.04%, and in the U.S. shares fell below the 10,000 point level for the first time in four years as they shed 4.65%.

RBC, 03.10.2008, Astrakhan 13:30:52.In light of the global financial crisis, many international regulations may be revised, Russian Economy Minister Elvira Nabiullina told a Caspian Sea summit in Astrakhan, a major city in southern European Russia. International financial architecture as a whole will inevitably change, Nabiullina asserted, and the role of traditional financial investment institutions, financial organizations, and separate currencies will be reconsidered. The minister stressed that the creation of effective multilateral economic ties within the Caspian Sea region was especially important in this context. She reiterated that trade between Russia and Azerbaijan grew 56.5 percent to $1.256bn in January-June and Russia-Kazakhstan trade rose 28.4 percent to $11.6bn. Russia's trade with Turkmenistan (excluding natural gas trade) surged 2.3 times to $464m in the first seven months of 2008, whereas Russia-Iran trade stood at $3.3bn in 2007, up 53.7 percent from the year before.

MOSCOW, October 3 (RIA Novosti) - Russia saw $16.7 billion net capital outflow in July-September, the Central Bank said on Friday. Net capital inflow in Russia stood at $40.7 billion in the second quarter of the year while net capital outflow reached $23.2 billion in the first, leaving the country with $0.8 billion in net inflow for the year to September. Deputy Economic Development Minister Andrei Klepach said on Monday that capital inflow into Russia in 2008 would be less than $30 billion. According to Central Bank and Finance Ministry forecasts, net capital inflow into Russia this year was expected to total around $40 billion. Net capital inflow into Russia totaled $25.5 billion in January-August 2008, including around $4.6 billion in August. Alexei Ulyukayev, the bank's first deputy chairman, earlier said net capital inflow into Russia in January-September this year would reach $20 billion, with net capital outflow in September hovering around August levels. The International Monetary Fund has said that net capital inflow into Russia this year would reach between zero and $15 billion.