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Thursday, February 26, 2009

Capital flight from Russia reaches $40 bln in January - minister

AKSAKOVO (Moscow Region), February 26, 2009 (RIA Novosti) - Capital flight from Russia reached some $40 billion in January, although the flow of money out of the country has now ground to a virtual halt, the finance minister said on Thursday. Alexei Kudrin told a meeting at the Federal Tax Service that net capital flight stood at around $130 billion in 2008. Addressing the service earlier Kudrin said that some $200 billion had been taken out of Russia from October 2008 through to late January 2009. "Those who wanted to take it out, did so, including Russian companies," the minister said. Kudrin gave an assurance that despite the capital outflow Russia would not introduce any currency limitations and that the ruble would remain a freely convertible currency. He added that the Russian oil industry would earn an additional 800 billion rubles ($22 billion) in 2009 due to the ruble's devaluation. Speaking about Russia's GDP, Kudrin said it was expected to fall in 2009, even if oil prices rise to $55 a barrel. The current forecast is $41 per barrel. "GDP will fall, even if oil prices climb not to $41 per barrel, but $44, $50, or $55," he said. With oil prices at $40 per barrel, the Reserve Fund will last 2.5 years provided budget parameters for 2010-2011 are kept within this year's target, the finance minister said. "Later we will have to balance the budget either by cutting spending, through borrowing or tax hikes," Kudrin said. He also said the country could be forced to cut spending further if oil prices fall below $40. Under an established forecast for 2009, drafted by the Economic Development Ministry, Russian GDP is expected to fall by 2.2% and industrial output by 7.4%, if the price for benchmark Urals oil remains at $41 per barrel.

Kremlin critic slams U.S. plans to 'reset' Russian ties

Kremlin critic slams U.S. plans to 'reset' Russian tiesMOSCOW, February 26, 2009 (RIA Novosti) - A former Russian presidential aide known for his criticism of current Kremlin policy has hit out at the U.S. administration's intention to "reset" ties with Moscow. Speaking in English on Wednesday before the U.S. House Committee on Foreign Affairs at a hearing on U.S.-Russia ties, Andrei Illarionov suggested that Washington's desire to improve relations with Moscow had been met with "joy and satisfaction" by what he called 'the Russian Chekists," a reference to the former Soviet secret police organization, a forerunner to the KGB. U.S. Vice President Joe Biden said earlier this month in Munich that relations with Russia would be given a new start after years of tension between Moscow and the administration of former U.S. president George W. Bush. "It is time to press the reset button and to revisit the many areas where we can and should be working together with Russia," Biden said. The Kremlin critic told the House that Biden's so-called Munich statement had been interpreted by the Russian leadership as the acceptance by the U.S. of "the idea of the de-facto restoration of the Russian Chekists' influence and power over the post-Soviet space." Illarionov, who served for three years as an economic policy advisor during Vladimir Putin's presidency, is currently a senior fellow of the Cato Institute, Washington, DC, and president of the Institute of Economic Analysis in Moscow. He resigned from his position as economic policy advisor in 2005, saying "the country has stopped being free and democratic." He also said Biden's statement was "not even an appeasement policy that is so well known to all of us by another Munich decision in 1938. It is a surrender. A full, absolute and unconditional surrender to the regime of the secret police officers, Chekists, Mafiosi, and bandits in today's Russia." Illarionov also issued a warning about the consequences of such a "surrender." "Those who retreat and surrender will get not peace, but war, war with unpredictable and nasty results," he said.

Russian GDP down by 8.8% in January year-on-year

MOSCOW, February 24, 2009 (RIA Novosti) - Russian GDP fell 8.8% in January 2009 compared with the same period last year, the Economic Development Ministry said on its website Tuesday. "The main reasons for the economic recession in January 2009 were a considerable reduction of industrial output and investment activity, a drop in construction and slower growth in consumer demand," the ministry said. Economic Development Minister Elvira Nabiullina earlier said Russia's GDP, adjusted for seasonal factors, fell by 2.4% from December 2008. Russian exports stood at $20.2 billion in January 2009, down 41% year-in-year. Adjusted for seasonal factors, investment in fixed capital fell 1.9% in January 2009, a slower decline than December's 3.1%.

Russian Billionaire Total Halves to 49, Finans Says

Feb. 13, 2009 (Bloomberg by Alex Nicholson and Ellen Pinchuk) - The number of Russian billionaires shrank to 49 from 101 in past year as asset prices tumbled and the global financial crisis pushed the country to the brink of recession after a decade of growth. Troika Dialog Chairman Ruben Vardanian, Mirax Group founder Sergei Polonsky, Sibir Energy Plc’s Chalva Tchigirinski and OAO Polymetal shareholder Alexander Mamut are among the 51 Russians who lost their billionaire status, Finans magazine said in an e- mailed statement today. The magazine will publish its sixth annual list on Feb. 16. Ex-billionaire Tchigirinski burst out laughing when asked how he felt about not being on the list. “Nobody knows who’s going to stay or not,” he said by telephone today. Russia’s 10 richest people saw their wealth drop by 66 percent to a combined $75.9 billion since the last survey by Finans, a Russian rival to Forbes. The Price of Urals crude, Russia’s chief export earner, has fallen 51 percent since Feb. 13 last year to $44.39 per barrel today. The Micex stock market has dropped 57 percent in the past year and the ruble has plunged 29 percent against the dollar as the global slowdown hobbles demand for the country’s energy and metals exports. Now, Russia’s richest are putting up chunks of their empires as collateral for government support, or loosing them to foreign creditors, after companies tripled their international debt in the past three years.
Deripaska’s Rusal: Oleg Deripaska, the 41-year-old founder of United Co. Rusal, the world’s biggest aluminum company by capacity, topped Finans’ list last year with a $40 billion fortune. In October Deripaska was forced to cede stakes in auto-parts maker Magna International Inc. in Canada and German builder Hochtief AG to banks after the stocks lost more than half of their market value. The magazine didn’t say how much he is worth now. Rusal was able to hold on to a 25 percent stake in OAO GMK Norilsk Nickel, Russia’s biggest metals producer after a $4.5 billion bailout loan from state development bank VEB. Some of Russia’s newest billionaires who owed their fortunes to the building boom were also the first to leave Finans’ list. Eight of the 15 mentioned in the press release made their money entirely or in part in construction. Work on Tchigirinsky’s Russia Tower, designed by architect Norman Foster to be the tallest building in Europe at 612 meters when completed, was “frozen” along with other projects in November.
Downgraded: Polonsky’s Mirax Group was downgraded by Fitch Ratings on Feb. 10 to CCC, eight steps below investment grade, on concern the company will struggle to meet its commitments to pay $133 million of debt due this year. The billionaire at the bottom of the top 10 is now worth $4.5 billion, compared with $15 billion for TNK-BP shareholder German Khan a year ago. “The majority of people are happy; they like that these oligarchs are getting poorer,” Tchigirinsky said. “Mentally, after the revolution and socialism they like it, they think these oligarchs deserve it.”

Friday, February 13, 2009

Financial crisis wipes out two-thirds of richest Russians' wealth

MOSCOW, February 11, 2009 (RIA Novosti) - The global financial crisis has slashed the total wealth of Russia's top ten billionaires by 66% to $75.9 billion in the last 12 months, a leading Russian financial magazine said on Wednesday. According to Finans's 2008 rating, the combined wealth of Russia's top ten richest people was estimated at a record level of $221 billion. First place was held by Oleg Deripaska, the owner of aluminum giant RusAl, with $40 billion. (Richest Russians - Image Gallery) The 2008 list of Russia's ten richest people also included Roman Abramovich, the owner of London's Chelsea football club ($23 billion). This time last year, it was necessary to possess $15 billion to join the list of Russia's top ten richest people. That figure has now fallen to $4.5 billion, Finans said. Finans is to publish its new rating report on Russian billionaires on February 16.

Monday, February 09, 2009

Monument to 'goddess' Tymoshenko to be unveiled in Ukraine

KIEV, February 9 (RIA Novosti) - A monument to Ukrainian Prime Minister Yulia Tymoshenko is to be unveiled in the west of the country on Tuesday, a local artist told Ukraine's UNIAN news agency on Monday. In commenting on his project, Anatoly Fedirko said he was inspired by the thought that "a simple Ukrainian woman, who is beautiful and an economist by education, must survive as a politician in a hostile male environment." "It is no exaggeration to say that Yulia Tymoshenko is a goddess who needs to change her wardrobe every day regardless of the world economic crisis," he said. The monument is to be unveiled in Ukraine's western "cultural capital" of Chernovtsy on the city's Main Street. Before becoming Ukraine's first female prime minister, Tymoshenko was one of the key leaders of the 2004-2005 Orange Revolution, during which some Western media publications dubbed her "Joan of Arc of the Revolution." Prior to her political career, Tymoshenko was a successful but controversial businesswoman in the gas industry. She first became prime minister in 2005, and was named to the post for a second time in late 2007. She is also widely expected to be one of the frontrunners in presidential polls due in the former Soviet republic in 2010.

CSTO: joining forces in a crisis

MOSCOW. (RIA Novosti military commentator Ilya Kramnik) - The Collective Security Treaty Organization (CSTO) is gradually transforming itself into a full-blooded military set-up. A key factor here has been the decision taken just now at the organization's Moscow summit to set up a collective rapid-response force to help bloc members to repulse aggression or in an emergency. The strengthening of the CSTO has been one of Russia's main foreign policy successes in recent years. The process was a long and difficult one: the treaty, signed in 1992 following the collapse of the Soviet Union, remained on paper for a long time. It was not until 2000, when Russia began regaining its influence in Central Asia, that the treaty took on a life of its own. In 2002, an organization with a permanent structure was set up on the basis of the treaty. This was a time when Russia and the United States vied for a leading role in Central Asia, where the U.S. set up its bases after 2001 to supply NATO's troops in Afghanistan. The rivalry ended with the U.S. pulling out of most Central Asian republics where it originally deployed its forces. The government of Kyrgyzstan has recently decided to scrap its agreement with the U.S. on the Manas Air Base. This step will make the Americans seek new supply routes for their troops in Afghanistan. Current events show a strong desire on the part of CSTO member-countries and above all Russia to pursue an independent policy in this area, keeping third countries out. A collective rapid-response force will give the CSTO a quick tool, leaving no time for third parties to intervene. The make-up of the force is not yet defined. Russia was expected to make the largest contribution - an airborne division and an assault landing brigade. Some sources say these are units deployed in Ivanovo and Ulyanovsk, that is to say, the 98th Guards Svir Airborne Division (Ivanovo) and the 31st Guards Independent Order of Kutuzov 2nd Class Assault Landing Brigade (Ulyanovsk). Kazakhstan was to provide a brigade and become the second largest contributor. It has so far been decided that each participating country will contribute a battalion each. This is due, on the one hand, to fears that big-time players, Russia and Kazakhstan, and perhaps Belarus later, might wield too much clout, and on the other, to the insufficient economic strength of the other members to allow them to contribute more. Still, even such a limited force can deal with a number of situations - above all the suppression of terrorist and radical movements at short notice. A larger force is better fitted to fighting organized gangs or regular armies, but the CSTO is not yet facing such threats. The rapid-response force is a major but so far only one of the first steps toward creating a powerful military political organization. The bloc's future progress will depend on the ability of its member-countries to address the global crisis - without a workable economy it is impossible to build modern armed forces. In this context, Russia appears to play a much greater role and remain the undoubted CSTO economic leader despite the crisis. Russia's ability to stay economically sound and act as a powerhouse for its partners will be central to its claims to leadership among former Soviet republics and to the future role of the CSTO as one of the tools of that leadership. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

Thursday, February 05, 2009

Putin Wants Loopholes Closed

05 February 2009 - The Moscow Times by Anatoly Medetsky - Prime Minister Vladimir Putin on Wednesday ordered the elimination of loopholes that allow foreign entities to flout the government when buying into strategic companies. The law that requires government permission for such investment went into effect last year, installing the prime minister at the helm of a special commission to review potential deals. "We need to remove the gaps that allow some of our economic entities to circumvent the law's provisions and evade clearance for deals with strategic assets," Putin said, presiding over the commission's second session Wednesday. It was unclear whether by using the word "our" Putin meant foreign companies registered by Russian businessmen or any companies that already operate in the country. Putin also called for amendments that would simplify the rules for "conscientious" investors to make Russia more attractive for foreign money when the global economy bounces back. "A rather intense rivalry for investment resources will unfold in the period of a post-crisis development and recovery," he said. "And our task is to work actively on creating the most favorable conditions for bringing this investment into our economy." The work must be quick, open to the public and done in close contact with the business community, Putin said. Nonetheless, the media were deprived of access to the commission's debates on specific proposals to remove the loopholes and make the law more investor friendly. Putin's call to make Russia more competitive in attracting foreign capital echoed his statements last week in Davos, Switzerland, where he said his country would remain open to foreign investment. On Wednesday, the commission was going to review "several" potential deals in the areas of space-equipment building, natural resources and transport, Putin said. The commission had not reported on the session's outcome by Wednesday evening. In an attempt to stress that foreign investors are flocking to Russia despite the global economic crisis, Putin said they had recently filed 45 requests seeking deals with strategic companies. Putin spokesman Dmitry Peskov was unavailable for comment Wednesday afternoon. Yelena Nagaichuk, a spokeswoman for the Federal Anti-Monopoly Service, which handles foreign investors' requests, declined comment. Well-known foreign companies are unlikely to take the risks of breaking the law, said Jonathan Hines, a partner at law firm Dewey & LeBoeuf. "Any big foreign company is going to tread very, very carefully in this area and is not going to do something that might violate the law ... because the consequences of being wrong are just too grave," he said. A deal done in violation of the law is considered void. In addition, no "serious" company would want bad publicity, Hines said. "At the same time, there could be other foreign companies that fall within the law, including some companies owned by Russians," he said. "But because these Russians have invested into foreign companies, they need to comply with this law." Loopholes in the law might include situations where foreigners, without controlling the company through the management or board of directors, have such extensive veto rights that they are in control all the same, Hines said. Another possible issue is that the law allows two unrelated foreign-controlled companies to hold 30 percent each in a strategic asset, he said. "What happens if they have a secret shareholder agreement behind the scenes where they agree to vote everything the same way, that they'll control the investment together?" Hines said. In simplifying the law, the government could allow foreign investors to buy Russian assets from each other if these companies are part of the same larger group, Hines said. There may be an amendment to relieve banks, which are not strategic assets, from falling under the law just because they use encryption devices, he said. The government might also want to raise the 10 percent ceiling for investors in strategic natural resources companies, he said.

Monday, February 02, 2009

Russian government gives gloomy no-growth forecast for 2009

MOSCOW, January 30 (RIA Novosti) - Russia's GDP growth will be close to zero and budgetary revenues could decline 40% in 2009 amid the ongoing global financial crisis, a deputy prime minister and finance minister said on Friday. "Our economic growth will most likely be close to zero," Alexei Kudrin told the State Duma, parliament's lower house. "Budgetary revenues will decline by 4.4 trillion rubles (about $133 billion), or more than 5.4% of GDP," he added, suggesting Russia's budgetary revenues could decline from 10.9 trillion rubles ($321 billion) to 6.5 trillion ($191.5 billion) He said Russia would have to spend a significant portion of its reserve funds to cover the 2009 budget deficit, and increase borrowing in 2010-2011. The Reserve Fund, designed to cushion the federal budget against a plunge in oil prices, and the National Wealth Fund, to help carry out pension reforms, currently total 7.3 trillion rubles ($215 billion), the minister said. In a report on the global crisis's impact on the Russian economy prepared for parliament, the Finance Ministry said GDP grew 6% in 2008, two percentage points less than in 2007, when GDP grew 8.1%. Kudrin said that in 2009 capital outflow could hit $110 billion and export revenues were expected to go down by $200 billion to $269 billion in 2009, and imports to $245 billion. Kudrin said the state had spent 1.145 trillion rubles ($33.8 billion) on measures to support the economy, which is heavily dependent on oil and gas exports, prices for which have plummeted as the crisis has dampened demand worldwide. First Deputy Prime Minister Igor Shuvalov said the current global crisis would continue for three years, and 2009 would be the hardest year. "On the whole the situation will be rather difficult throughout 2009," Shuvalov said. He said Russia could not "withstand global trends," but pledged anti-crisis measures.

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