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Tuesday, March 31, 2009

World Bank predicts 4.5% decline in Russia's GDP in 2009

MOSCOW, March 30 (RIA Novosti) - Russia's gross domestic product (GDP) may decline by 4.5% this year, the World Bank said in a revised report published on Monday. "With a much worse global financial outlook and oil prices in the $45 a barrel range, Russia's economy is likely to contract by 4.5% in 2009, with further downside risks," the World Bank said in its Russian Economic Report. The Bank's previous estimate, released in November last year, predicted 3% growth in Russia in 2009. Russia's GDP grew 5.6%, year-on-year, in 2008, the country's top statistics body said in February. Most of the global economic crisis's adverse effect on Russia is expected to be concentrated in the first two quarters of 2009, the World Bank said in its report. "As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely," the report said. According to the report, the current crisis in Russia is likely to be deeper in terms of growth deceleration and longer than the 1998 turmoil. However, "Russia's sound management of public finances and large fiscal and reserve buffers provide important cushion," the report said.

Friday, March 27, 2009

G20: Russia to play peripheral role at summit

Russian president Dmitry Medvedev poised to replace officials loyal to Vladimir Putin 26 Mar 2009 - Telegraph.co.uk - Russia's ambitions of resurrecting its superpower status have received a jolt after Dmitry Medvedev, the country's president, was effectively told he would only play a peripheral role at next week's G-20 summit in London.
Just months after holding Europe to ransom during a gas dispute with Ukraine, Russia has discovered that continental energy dominance does not translate into commensurate influence in the debate over how to tackle the global economic crisis. Russian officials were said to be angered after the leak of a British government document that appeared to divide G20 members into two lists of descending importance. While three of the world's four largest emerging economies, Brazil, India and China, found themselves on "List A", the fourth - Russia - was relegated to second division status, alongside much smaller economies like Mexico. Britain has denied dividing the summit into two tiers, but Russian officials are allegedly upset nonetheless. "There is frustration over these lists," said an official close to Russia's finance ministry. "There is a belief that Britain is trying to trivialise Russia's contribution at the G20 for political reasons as a time when the two countries have found much common ground on economic issues." Russia's apparent relegation may well have a political undertone, although Western European countries might argue that the fault for that lies with the Kremlin itself. Theoretically, Russia should have powerful European allies at the summit. On paper at least, it has aligned itself with France and Germany on some of the most important issues that G20 leaders will discuss. Like Berlin and Paris, Moscow has rejected American calls to pour more money into the global economy through a second wave of stimulus and is instead backing new financial regulation to avoid a repeat of the crisis. But at the same time Russia has also alienated potential European allies by using the summit to push through what many see as an anti-US agenda. Since the beginning of the crisis, the Kremlin has persistently accused the United States of "economic egotism" and called for a new international financial architecture that would minimize American influence on the global economy. While Russia's calls for an overhaul of international financial institutions has won backing even from the United States, world leaders have baulked at Moscow's G20 proposals to scrap the US dollar as the world's main reserve currency and drastically reduce Washington's influence in general. Russia wants to see the dollar either replaced with an IMF currency unit -- a proposal one Moscow-based strategist called as mad as returning to the gold standard -- or, failing that, is demanding that world central banks start holding roubles in their reserves. Despite cautious Chinese backing for a similar proposal, Gordon Brown has given short shrift to the Russian idea. The European Union also appeared irritated that while the world was looking for ways to solve the economic crisis, Russia seemed more interested in using the summit to boost its political power at the expense of the United States. "It is unhelpful," said one European diplomat. Russia has also caused dismay ahead of the summit after Vladimir Putin, the country's prime minister, threatened to review relations with the EU after Ukraine made a deal with European partners to overhaul its energy pipeline infrastructure. Russia fears the move would undermine its ambitions to controlling energy in Europe from source to delivery point. Analysts in Moscow said that Russia's geopolitical ambitions had over-reached themselves because the country lacked the economic clout outside the field of energy to make the world pay it the attention it wants. "Russia is on the periphery of the debate on how to end the financial crisis because of the relatively small size of its economy and its limited share of international trade," said Mikhail Rogozhnikov, an economic analysts at the institute of Public Projects in Moscow.

Tuesday, March 24, 2009

Chinese central bank backs Russian idea for new reserve currency

BEIJING, March 24, 2009 (RIA Novosti) - The chairman of the People's Bank of China has spoken out in support of Russia's proposal to create a new global reserve currency as an alternative to the U.S. dollar, Xinhua news agency reported on Tuesday. Zhou Xiaochuan wrote in an essay posted on the bank's website that the goal of the international monetary system is to "create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies." Russia earlier submitted a proposal to the G20 summit that could see the IMF examining possibilities for creating a supra-national reserve currency, as well as forcing national banks and international financial institutions to diversify their foreign currency reserves. "We believe it is necessary to consider the IMF's role in this process and also define the possibility and the need to adopt measures allowing for Special Drawing Rights (SDRs) to become an internationally recognized super-reserve currency," Russia's proposal read. Hu Xiaolian, a vice governor of the People's Bank of China, said on Monday that China was ready to discuss Russia's proposal of a new global reserve currency at the G20 summit. During the event, Chinese President Hu Jintao will meet Russian President Dmitry Medvedev and U.S. President Barack Obama. The G20 summit, involving developed and emerging economies and international financial institutions, will be held in London on April 2 with the aim of finding ways to overcome the ongoing global financial crisis.

Russian PM Putin threatens to review relations with EU

SOCHI, March 23, 2009 (RIA Novosti) - Russia will start reviewing its relations with the European Union should Moscow's interests be ignored, Prime Minister Vladimir Putin said on Monday. Russian Energy Minister Sergei Shmatko said earlier in the day that Russia had been effectively excluded from talks at an international investment conference in Brussels on the modernization of the Ukrainian gas pipeline network, adding that the conference, convened by the European Commission, was limited to discussions between Ukraine and the EU. "If Russia's interests are ignored, we will also have to start reviewing the fundamentals of our relations," Putin said. "We would very much like for things not to reach this point." However Ukrainian news agency Unian said Kiev and Brussels intended to involve Moscow in the modernization of the network if Russia wanted to take part in the project. "Ukraine, just like the European Union, has the definite intention to attract Russia as a partner in this large reconstruction and modernization program," Prime Minister Yulia Tymoshenko said. The Russian premier also told journalists that a declaration on the gas market adopted in Brussels by Ukraine and the EU was poorly thought-out and unprofessional. Putin said the European Commission had refused to combine efforts with Russia to jointly allocate funds to Ukraine, whose economy has been badly hit by the global financial crisis. "We discussed at meetings uniting the efforts of Russia and the European Commission, but we were told that the European Commission has no money for Ukraine," he said.

Wednesday, March 18, 2009

New charges against Khodorkovsky

03-18-2009 - RIA News - A Moscow court rejected on Tuesday a request from defense lawyers to drop new embezzlement charges against Yukos founder Mikhail Khodorkovsky and his business partner. Khodorkovsky and Platon Lebedev, serving prison terms on tax evasion and theft convictions described by many critics as politically motivated, now face a new trial, on charges of embezzlement and money laundering totaling about $50 billion. The court also rejected the defense's request to return the case for further investigation, and scheduled hearings on the new charges on March 31. Preliminary hearings in the new case against Khodorkovsky, 45, and Lebedev, 42, who are serving eight-year sentences, started in Moscow on March 3. The defense lawyers have described the charges as "ridiculous" and said prosecutors had no evidence to support their case. On Tuesday, lawyers said in a joint statement: "How can the charge of stealing 350 million tons of oil exist, if this insane case's 188 volumes [of case materials] contain no document, no line, no hint as to even one missing ton or kilogram?" The request to suspend confinement for the former businessmen during the trial was also turned down, as was a request to remove part of embezzlement charges due to the expiry of the period of limitation. "The court has ruled to turn down all the appeals lodged by the defense during the preliminary hearings," the Moscow City Court's press secretary Anna Usachyova said. A lawyer acting for Khodorkovsky, Vadim Klyuvgant, said the defense had not decided if it would appeal the court rulings. Klyuvgant said most appeals had been rejected as premature. Lebedev's lawyer, Yelena Liptser, said Moscow's Khamovniki Court would be unable to bring a just verdict on the second set of charges, as there had been numerous violations during the investigation, as well as during preliminary hearings. "There were so many violations that it makes it impossible to bring a fair ruling, and this outrage should be stopped," she said, adding that an appeal would be made to the European Court of Human Rights if her client was convicted on the second set of charges. The defense team acting for the Yukos founder and his business partner earlier said they planned to summon Finance Minister Alexei Kudrin to testify. "Kudrin signed a series of regulatory documents ... Being law-abiding citizens, Khodorkovsky and Lebedev were guided by them [in their business decisions], and we would like Kudrin to give testimony at the trial," Konstantin Rivkin, who is acting for Lebedev, said on March 11, without elaborating further. The lawyers earlier demanded the removal of prosecutors Dmitry Shokhin and Valery Lakhtin from the case, saying they had been involved in the businessmen's first trial and were biased. They also accused the presiding judge of bias and requested his dismissal. Viktor Danilkin refused to step down, saying there were no grounds for him to do so. Once Russia's largest oil producer, Yukos collapsed after charges of tax evasion led to the company being broken up and sold off to meet debts. The bulk of the company's assets were bought up by state-run oil company Rosneft

Thursday, March 12, 2009

Russian tycoons fall off Forbes rich list amid credit crunch

NEW YORK, March 12 (RIA Novosti) - Low commodity prices and stock declines amid the global credit crunch have slashed the net worth of many of Russia's super-rich, sending them down the rankings in the Forbes rich list published on Thursday. According to the magazine, Russia now has only 32 billionaires, down from last year's 87. None of them made it into the world's top 20 this year, compared to four in 2008. "Russia became the epicenter of the world's commodities bust, dropping 55 billionaires - two-thirds of its 2008 crop... Together with the 32 who managed to stay on the list, Russian billionaires and former billionaires lost $369 billion," Forbes said. Oleg Deripaska, ranked last year as Russia's richest man and the world's ninth richest, has seen much of his wealth disappear, due partly to falling aluminum prices and the heavy debt burden of his business empire, Forbes said. His personal wealth has shrunk from last year's $24.5 billion to $3.5 billion, ranking him 164th in the world. Mikhail Prokhorov, who sold most of his stake in the world's largest nickel company, Norilsk Nickel, to Deripaska before the company's value plummeted, is now Russia's richest man, with $9.5 billion, and is ranked 40th in the world. Chelsea FC owner Roman Abramovich has also been hard-hit by falling metals prices, seeing his share in steel giant Evraz lose two thirds of its value. His fortune has more than halved, to around $8.5 billion, which still keeps him among Europe's top 25 billionaires. Alexander Lebedev, who bought London's Evening Standard last year, has seen his fortune fall from last year's $3.1 billion to below $1 billion. Other high-profile victims are real estate magnate Kirill Pisaryov, down $5.5 billion to $600 million, Russia's richest woman Yelena Baturina, down $3.3 billion to $900 million, and fertilizer tycoon Vyacheslav Kantor, down $1.9 billion to $700 million. The number of billionaires in Moscow has fallen from last year's 74, which had put it in first place globally, to 27.

Wednesday, March 11, 2009

Russia ‘Not Yet on Brink’ of Downgrade, Moody’s Says

March 11 (Bloomberg by Emma O’Brien) -- Russia is “not yet on the brink” of a credit-rating downgrade by Moody’s Investors Service as the ruble and foreign reserves stabilize and the government resists taking corporate debt obligations. The ratings firm has no current plans to follow Standard & Poor’s and Fitch Ratings, which both cut their debt ratings for Russia since December, according to Jonathan Schiffer, Moody’s lead analyst on Russian sovereign debt. Moody’s rates Russia at Baa1, three levels above non-investment grade and a step higher than equivalent ratings from S&P and Fitch. “Relative to where they were a couple of months ago, things are looking better for Russia, they’re no longer in free fall,” Schiffer said in a telephone interview from New York yesterday. “They would seem to have the resources to deal with debt payments for the next 12 to 18 months.” The ruble has gained 2.7 percent against the dollar since the end of January, paring a 35 percent slide in the previous six months that caused the central bank to drain more than a third of its foreign-currency reserves since August to slow the depreciation. Investor confidence is returning after oil, Russia’s main export earner, rebounded 1 percent this year and the central bank deterred speculators with pledges to defend the currency and restrict bank lending. The government is insulating the country’s finances from the debt burden of Russian companies. First Deputy Prime Minister Igor Shuvalov said yesterday that the government won’t guarantee taking over companies’ debt, a month after state lender Vnescheconombank said it will stop issuing loans to help companies repay foreign debt. Not Taking on Debt After giving loans to companies such as United Co. Rusal, the aluminum producer controlled by Oleg Deripaska, the government will no longer provide bailout cash to oligarchs and business tycoons, said Arkady Dvorkovich, President Dmitry Medvedev’s economic adviser, according to a Wall Street Journal report March 9. Rusal and steelmaker Evraz Group SA benefited from $11 billion in government funds last year. “From the point of view of the sovereign rating, it’s a good thing as it means that the government’s not taking onto its books all manner of other debts,” Schiffer said. “Going forward, the Rusals of the world are going to have to find their own solution.” Reserves rose $2.4 billion to $384.3 billion in the week to Feb. 27, as the strengthening ruble limited the need for the central bank to spend its foreign-exchange reserves. The $820 million decline of reserves in February was the smallest monthly drop since August. Arresting Drop Russia’s reserves, the world’s third-largest after China’s and Japan’s, have fallen 36 percent from a record $598.1 billion in the second week of August when Russia’s war with neighboring Georgia led investors to shun the country’s assets. Investors have withdrawn more than $300 billion from Russia since August, according to BNP Paribas SA data. The Micex stock index has slumped 49 percent in the period as Urals crude, the country’s chief export oil blend, fell 70 percent from a record $142.94 a barrel in July. Russia is “seen as going in a good direction rather than a bad direction,” Schiffer said. “They no longer have $600 billion, that’s clear, but they still have a reasonable amount of money. The rate at which the reserves decline is slowing is a good thing.” State Debt Moody’s, which raised its rating on Russia in July from Baa2, lowered its outlook on the rating in December to “stable” from “positive” because of the reserves attrition and lack of action to stabilize the banking system. S&P cut its debt rating for Russia for the first time in nine years that month and Fitch followed in February with its first downgrade of Russia in more than a decade. Both rating companies reduced Russia to BBB, two steps above the high-yield, high-risk category, citing capital outflows and declining reserves. State foreign debt dropped 9.8 percent last year to $40.5 billion as of Jan. 1, according to the Finance Ministry. That leaves the country “in a reasonable position at the moment,” Schiffer said. Banks such as OAO Sberbank and VTB Group are “not in great difficulty” and state-linked companies such as OAO Gazprom, the world’s largest gas company, and OAO Rosneft, Russia’s biggest oil producer, are likely to have enough access to funds to be able to pay their own debt, Schiffer said. Gazprom has $7.3 billion of debt due this year and Rosneft has $3.1 billion maturing in 2012, according to Bloomberg data. ‘Managing Better’ “Some countries are going to manage better than others and Russia seems to be in the latter category at this stage,” Schiffer said. “The issue is, can they pay their debt? They should be able to pay that for quite some time to come.” The ruble traded at 39.4375 against the basket, down 0.4 today and snapping a two-day advance. That’s still 3.8 percent stronger than the 41 level that Bank Rossii said it would defend in January when the central bank brought the ruble’s “gradual devaluation” to an end. Russia’s transition to a “dirty float” of the ruble is a “step in the right direction,” said Schiffer, adding Russia will probably eventually be forced to move to a full free float of the currency as the global crisis continues. In a dirty float, a central bank intervenes sparingly in a currency, only when it is judged necessary to avert an economic shock. Basis for Recovery The stabilization of the ruble and oil prices provide a “good basis” for recovery in Russian equities, Goldman Sachs Group Inc. analysts wrote in note today, echoing comments by UBS AG yesterday. Russian shares will play “catch up” with other emerging markets as investors target the stocks because they are cheap, the UBS report issued yesterday said. The benchmark Micex Index slipped 1.1 percent to 742.21 at 2:35 p.m. in Moscow, after closing yesterday at a four-month high. Crude oil fell for a second day in New York.

Monday, March 02, 2009

Medvedev’s Golden Hundred

February 27, 2009 - Russia Profile by Vladimir Frolov - Last week the Kremlin publicized a list of 100 potential appointees to senior government positions—the top part of a much more extensive list of people making up the presidential personnel reserve, which Dmitry Medvedev sought to establish right after taking office last year. What is the significance of Medvedev’s activism in personnel policy? Is it a sign of his growing strength or a sign of desperation over his inability to change the entrenched bureaucratic system? Medvedev said that he had personally approved the first 100 candidates and planned to meet with them in the near future. He nominated one of the candidates on the new list, the 33-year-old Federation Council Senator Andrei Turchak, as governor of the Pskov region. Fifity-year-old Garry Minkh, the oldest person on the list, was appointed the Kremlin's envoy to the State Duma last week. An extensive lineup of Russia’s top business executives was included in the top 100 list, including former RusAl Chief Executive Officer (CEO) Alexander Bulygin, Yandex CEO Arkady Volozh, VTB-24 CEO and former Finance Minister Mikhail Zadornov, Sistema CEO Leonid Melamed, Vimpelcom/Beeline CEO Alexander Izosimov, and Lev Khasis, the CEO of the X5 Retail Group, which runs the largest chain of supermarkets in the country. Other candidates included four State Duma deputies (three from United Russia and one from the Communist Party), an assortment of young technocrats from government ministries, and even well-known economic liberals like Sergey Guriev, the provost of the Russian Economic School. Women such as Olga Dergunova, the former head of Microsoft in Russia and a senior executive at the state-owned VTB Bank at present, account for ten percent of the candidates on the list. None of the candidates is an active or former member of the security services, the pool from which Vladimir Putin used to draw most of his men into government (Igor Barinov, the Duma Deputy from United Russia who opens the top 100, served in Russia’s special forces, but has no KGB background). In an unusual occurrence, the top 100 list was publicly presented to the media by the Kremlin’s Chief of Staff Sergei Naryshkin, who promised to reveal the entire list of the presidential personnel reserve. The Kremlin is trying to convince the public that it knows how to respond to the growing personnel crisis in the country, and is prepared to significantly broaden the base from which it draws talent. Last week, Medvedev fired four regional governors and replaced a cabinet minister (Alexey Gordeev from the Ministry of Agriculture, a holdout from Boris Yeltsin’s era, was appointed the new governor of the Voronezh region) in an effort to boost the effectiveness of the regional governments in handling the financial crisis. Medvedev later told the Federation Council that “there will be an ongoing rotation in the cadre. In a situation where the impacts of the crisis are not subsiding but intensifying, the leaders of the Russian regions are required to have the ability to be able to work under these new conditions - to be able to work collectively and in a highly disciplined way,” he said. Citing anonymous sources, the Vedomosti daily reported that Medvedev plans to tap his list to overhaul much of the Russian political elite as soon as next month, when “some major changes in the government are planned.” Where do prime minister Putin and his friends from the “siloviki” stand on this? Have they signed off on the list, or do they not really care about it, since they know that it is intended largely for public consumption and will not be used in real personnel decisions? Is this a “parlor trick,” or a real effort to replenish the elite? How will this effect Russia’s political system and the government’s handling of the economic crisis? Will personnel reshuffles in the regions help stave off large scale social protest? What is the meaning of bringing star business executives and economic liberals into government? Is it a sign of new openness to talent from outside of the traditional elite structures, or a desire to maintain a semblance of political choice? Are there international precedents for Medvedev’s presidential personnel reserve for public service? Is there a precedent in Russia’s own history? How is this issue dealt with in Western political culture? Is this in any way similar to the U.S. presidential transition?

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