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Will Moscow become a global financial centre?
Alexander Sergeyevich 1 November, 2008, 15:42 "One needs to explain why Russia is doing much worse than her peers in the emerging world, even worse than countries with huge external imbalances, e.g. Baltic countries and countries in South-Eastern Europe. How can a country with US$500 billion in foreign reserves get into a crisis? Russia 2008 http://www.rgemonitor.com/emergingmarkets-monitor/254175/how_can_a_country_with_us500_billion_in_foreign_reserves_get_into_a_crisis__russia_2008 Since last June Russia has been one of the hardest hit countries in the emerging world. The stock market has plunged, capital has flown out of the country and inflows have stopped. A liquidity crisis in the domestic banking sector emerged and even corporate giants in the energy sector have begun to have difficulties in refinancing or even repaying their debts. One could argue that this is hardly surprising, as the current financial crisis is a global one and thus no country will be spared. However, one needs to explain why Russia is doing much worse than her peers in the emerging world, even worse than countries with huge external imbalances, e.g. Baltic countries and countries in South-Eastern Europe. When the crisis erupted last year, the perception on Russia’s risks was low, both in the market and in the assessments of international institutions. Russia had a sizable current account surplus, coupled with a sizable budget surplus. Furthermore, having resisted pressures by international financial institutions to appreciate the Rouble, Russia accumulated a huge stock of foreign currency reserves. To provide even stronger safeguards, Russia saved oil revenues in an oil stabilization fund and had created a sovereign wealth fund to invest such surpluses. By any standards, the stock of foreign reserves was so large that any currency or financial crisis seemed close to impossible. The stock of foreign reserves covered the full stock of broad money: the central bank could withstand even a run on Rouble-denominated deposits in the banks. In terms of coverage of foreign refinancing or repayments, international reserves were extremely safe. Net of short-term foreign debt, foreign reserves still cover the total amount of deposits in the banking sector (Figure 1). Even if we were to add all foreign debt of the country, including private sectors, international reserves would remain almost as large of foreign liabilities. In summary, are we witnessing a classic self-fulfilling panic, largely unrelated to fundamentals? According to many observers, such panic could have been triggered by the conflict in Georgia and by the increasing tensions between Russia and the Western World, associated with clear authoritarian tendencies in the country and with a “statalist” approach unfriendly to foreign investors. These elements may have played a role, but they have not been the main cause of the crisis. As recently as the Spring of 2008, rating agencies were in fact pointing to the strong state as a main risk-moderating factor. I believe that the Russian crisis of 2008 is largely grounded in economic factors. The main insight for understanding the Russian crisis comes from a view expressed by Guillermo Calvo and Ernesto Talvi last year on this site “Current account surplus in Latin America: Recipe against capital market crises?” May 18, 2007, thus before the start of the financial turmoil). Calvo and Talvi, in the middle of optimistic assessments about Latin American countries, warned that risks were under-estimated and suggested that aggregate indicators such as the surplus in the current account were misleading. Their main point was that even when the country as a whole is a net lender, there might be large sectors in the economy that have large deficits and large foreign debts. In the event of a sudden stop of foreign financing, these sectors are going to be severely affected. In principle, surplus sectors could support the deficit sectors. However, this would require highly efficient financial markets. Furthermore, this transfer is unlikely to happen because if anything surplus sectors would tend to keep abroad their investment. In fact, capital flights may even increase. This view is highly relevant for the current Russian crisis. Despite a sizable current account surplus many sectors, especially non-energy sectors and non-tradable sectors, had financed their growth through foreign borrowing, either directly or through the domestic banking sector that sharply increased its foreign indebtedness. Interestingly, despite the large current account surplus, in 2006-2007 Russia had a massive inflow of capital, well above capital outflow from Russia. Such inflows were as high as 15% of GDP in 2007 (Figure 2). A key additional element of the picture is the high dependence of Russia on energy exports. The large surplus in the current account was due to booming commodity prices. Therefore, Russia benefited simultaneously from booming energy prices and easy access to foreign financing. Both elements turned around abruptly in 2008. The true trigger of the Russian crisis was the drop in oil prices that began in June 2008. Indeed, it is from that point, well before the war in Georgia, that Russia starts to get into troubles. Starting in June, the stock market plunged, capital started to flow out and a sudden stop on capital flows occurred. The real economy began to be hit very hard. The financial sector appears highly segmented. Since then, the State has intervened heavily and has de facto assumed the debt of several corporations and banks. Therefore, the causes of the crisis are not so obscure. However, are the markets punishing Russia well beyond what is justified by fundamentals. Why the spreads on CDS went above 1,000 basis points? Is a default on Russia sovereign debt around the corner? As noted at the beginning of this piece, Russia has a large stock of foreign reserves and thus sufficient ammunition to fend off even a dramatic panic by depositors. Even taking over all foreign short-term debts of enterprises and banks, the Russian government would have enough foreign reserves, either at the central bank or at the oil and sovereign funds, to withstand a run on deposits. Therefore, default on sovereign debt is unlikely. However, the market may be correctly anticipating a serious country risk in the form of nationalizations and confiscation of assets. Looking forward, government assets do not look so healthy. Not only, with declining oil prices, Russia’s current account will quickly turn into a deficit. In addition, there is a huge implicit liability of the government that is related to the enormous infrastructural investment needed to maintain production of energy (in real terms). As energy is the main asset of the country, the government needs a huge amount of resources to maintain the value of such asset. The resources set aside as foreign reserves and as oil and sovereign funds look small relative to the huge public investment needs. The true underlying fiscal position of an economy that is moving towards an encompassing role of the State in all economic sectors is very weak. Given the bottlenecks in the energy sectors, it is unclear what are alternative sources of growth for the Russian economy. In sum, the growth displayed by Russia in recent years is not sustainable and the outlook is rather grim. In contrast with the crisis of 1998, Russia may escape default on sovereign debt. However, the prospects of a fast growing Russia post-crisis looked much better in 1998 than today.
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Alexander Sergeyevich 1 November, 2008, 20:56 Looking forward,Russian government assets do not look so healthy. Not only, with declining oil prices ( at 65US$), Russia’s current account will quickly turn into a deficit( US$ 70 is the line before Russian State budget deficit). In addition, there is a huge implicit liability of the government that is related to the enormous infrastructural investment needed to maintain production of energy (in real terms). This enormous infrastructural investment have not been done since 1991! As energy is the main asset of the country, the government needs a huge amount of resources to maintain the value of such asset. The resources set aside as foreign reserves and as oil and sovereign funds look small relative to the huge public investment needs. The true underlying fiscal position of an economy that is moving towards an encompassing role of the State in all economic sectors is very weak. Given the bottlenecks in the energy sectors, it is unclear what are alternative sources of growth for the Russian economy. In sum, the growth displayed by Russia in recent years is not sustainable and the outlook is rather grim. In contrast with the crisis of 1998, Russia may escape default on sovereign debt. However, the prospects of a fast growing Russia post-crisis looked much better in 1998 than today.
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Enrique 2 November, 2008, 08:35 It looks Jon Hellevig supports a USD Monopoly because he wants to bury the only alternative for the USD: the EURO. I am proud of the EURO. It was decissive as the former Prime Minister of France, Jacques Chirac, said to guarantee an independent positio of France in Iraq: without the Euro it wouldn´t have been possible. The EURO is growing: next January Slovakia will be the 16th member state of the EUROZONE adding another 5 million people to the 320 million strong Eurozone. Even if the Eurozone economy is just over 80% of the TS, if the rest of the European Union joins the Euro, Europe wil return to be the Hub of the World Economy for the first time in a century as we are already the Hub of World Trade (for that it is necessary for the UK to join the Eurozone) Now what is taking place slowly is the Economic complement of the Monetary Union as foresaw in the Maastricht Treaty. Sorry for Hellvig but the Euro is here to stay and Iceland, which rejected it in the past, now has discovered that it is better to be part of the Eurozone. Being an slave of the US Federal Reserve as Jon Hellvig wants is not an alternative. We want to be Free.
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Alexander Sergeyevich 2 November, 2008, 16:41 * Oct 30:Russia's international reserves dropped $31 billion (in a week) the most on record, as the central bank struggled to prop up the rouble and the banking system came under threat from the global financial crisis. About $15 billion of the decline was from currency sales, while another $5 billion may have been in transfers to the state development bank (Nadorshin via Bloomberg) * Russia's reserves of foreign exchange and gold fell to $484.7 billion in the week ending Oct. 24.Russian reserves have lost 19% since the start of August as the central bank sells currency to limit the rouble's decline and investors pull money out of riskier emerging- market assets.Meanwhile the USD rally has reduced the value of Russia's euro and pound assets which make up 52% of the total stock. * Russia's two sovereign funds which are managed with Russia's reserves account for almost $190 billion of that total. Russia has been spending some of its reserves to stem outflows and has pledged as much as $90 billion to support Russian banks and corporations and help them finance their external debt * A Medvedev aide suggested that any amount above $100b was sufficient level of reserves for Russia, indicating that Russia might continue to spend its reserves(Bloomberg) * Russia has been gradually decreasing the dollar share of its reserves in favor of the Euro and shifting a portion of its reserves from deposits to fixed income, contributing to the reduction of Russia's net position with banks reporting to the Bank of International settlements * In 2007, the central bank of Russia lowered the US dollar share in first line reserves (ie not the stabilization fund) from 49 % to 47 % and increased a share of euro from 40 % to 42.4 %. the Central Bank also has lowered a share of pounds sterling in first line reserves from 10 % to 9,8 % and the Japanese yen - about 1 % to 0.8 % (via F+F) * In June 2006: 50% of forex reserves were in dollars, 40% in euros and the remainder in sterling. Previously it was believed that just 25-30 per cent of the reserves were in euros, with virtually all the remainder in dollars (FT) * Russian reserve and stabilization fund invest in government bonds (including those of government agencies) in a 45% USD 45% EUR 10% GBP allocation. 80% in government bonds 15% in agencies 5% in international institutions * reserves of foreign currency rose by almost $170 billion in 2007 to reach $384.67 billion. purchases of foreign exchange by the Bank of Russia accounted for $142.3 billion of Russia's reserve growth in 2007 with valuation changes of reserve currencies (euro, pound and yen account for $20 billion * Russia has reduced its holdings of U.S. Agency debt (mostly short-term) from around $100 billion at the end of 2007 to under $50 billion * Ignatiev: In order to sterilize excess money supply caused by growth in international reserves, the Central Bank uses a range of instruments; specifically, it attracts deposits from commercial banks and issues its own bonds. The Stabilization Fund’s role in sterilizing excess liquidity was particularly prominent between 2004 and 2005, when the Stabilization Fund resources increase was about 60% of the total increase of Russia's international reserves In 2006, and especially in 2007, international reserves have increasingly boosted by the inflow of private capital
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Alexander Sergeyevich 3 November, 2008, 09:14 * Government is studying the possibility of further lowering the duty on exports of crude oil which discouraged production and exploration even further, despite previous suggestions that falling prices would limit tax cuts. Current tax policy contributes a net loss of around $20/bbl of crude oil exported however, the tax regime might mean that Russian oil producers may fare better than their peers. * Oil Output fell 0.7% y/y in October, the 10th straight monthly decline r to 9.87 million barrels of crude a day (41.7 million metric tons a month). Output in Russia's oil heartland of western Siberia is flagging as older fields mature and producers are forced into remote regions to tap deposits. Oil companies need credit lines totaling $100 billion to make investments endangered by the global financial crisis (vedomosti via Bloomberg) * Russian oil production has been falling, for the first time in 10 years and is now under 10mbd, representing more than a 1% drop from last year. Exports are even lower than last year as domestic consumption rose. Oil output likely to increase only 0.8% in 2008, compared with a 2.5% average in the past three years as aging fields in Siberia, limited investment and higher domestic oil and gas consumption reduce output * GI: 100-billion rouble (US$4.2-billion) package of tax breaks in June included a cut in mineral extraction tax (raising the non-taxable level to $15/b from $9/b), incentives for production of high-quality and environmentally cleaner fuels, tax holidays for offshore exploration, and changes to the excise duties on high-quality oil products, Watered down proposals are likely to pass but may not go far enough to meet goal of boosting production * Weafer: The approximately $5 bln that the oil companies will receive with the previously announced cuts will have almost no impact on capex spending as cost growth is greater. A high tax burden in the sector has been the main drag on production. The Finance ministry may push for the oil tax reduction to be balanced with higher taxes on other parts of the country’s extractive industries. * OxAn: Tax structure discourages investment in energy sector as government collects all revenues above $27 a barrel (for Ural oil) * Russia's oil exports might fall from current 5.4mbd to 4.5 mbd in 4-5 years (not including 2mbd in oil product exports) * FT: oil sector output growth was only 2.8% in 2005, and 2.2% in 2006, down from 8.5% in 2000 - 2004. Significant delays to new projects due to uncertain political and investment climate. $300b of investment needed w/in 8-9 nears to maintain current oil production * Fitch: Govt seems to favor hybrid of increased state management of resources with private enterprise as a means for greater long-term efficiencies for the industry. Most of expansion debt-financed, Russian companies could be overextending themselves at a time when oil demand might fall.
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Alexander Sergeyevich 3 November, 2008, 18:51 * Russia lowered growth forecasts to 7.3%from 7.8% after the global credit squeeze spurred capital flight and oil prices declined(Bloomberg) * WEO : Growth likely to slow from 7% to 5.5% reflecting a stronger-than expected performance early in the year, rising terms-of-trade gains, and a larger-than-expected fiscal stimulus package but growth is set to weaken appreciably, reflecting slowing world demand and tightening financial conditions in 2008 * ING: So far limited effect of financial market losses - Consumption by households probably remained strong judging from the growth in retail sales (14.2% YoY) and real incomes (12.5% YoY). Disposable incomes (including pensions and social security payments) rose 6.9% YoY, comparable to average growth in recent months. Unemployment remained stable at the level recorded during the summer months, 5.3%. * ING : current credit market pressure on Russia’s economy, could cost 1.1–1.8% of GDP growth * Even though Russia failed to diversify from its dependence on oil, it may do better than its EM peers * World Bank: The economy is fundamentally stable, and the crisis temporary given the fiscal surplus of the federal budget, large FX and gold reserves, and a balanced budget policy.Fitch-Despite the efforts of the authorities, the credit crunch may lead to a growth slowdown(via ING) * Real GDP slowed to 7.6% in Q2 from 8.5% in Q1 and 9.5% y/y in Q407 due to falling industrial production, declining resource export volumes despite high commodity prices. Lower investment and the strong ruble hurt domestic producers. Trade (especially oil/gas) and construction continue to be the main drivers of growth but credit tightening and a worsening external environment suggest a more significant moderation of Russian economic growth in the second half of 2008 (GI) * Russia's growth may slip to 7.8% in 2008 from 8.1% in 2007 as accelerating inflation saps domestic demand and erodes gains in average wages(Economy Ministry via Bloomberg) * WB: Russia’s short-term economic growth has accelerated above its long term trend, defying global conditions. High oil prices, robust domestic demand and strong macroeconomic fundamentals contributed to 8.1% growth in 2007 but rising inflation and capacity and labor utilization, infrastructure constraints, and real wage increases are outpacing productivity gains, suggesting the economy is overheating * ING: some of the slowdown may be based on changes in the industrial production dataset, but real wages were flat, retail sales and investment may be slowing and still accelerating PPI indicates major cost pressures * Russia's industrial output growth accelerated slightly, to 3.2% y/y in July, from a five-and-a-half-year low of 0.9% in June. Industrial production growth slipped to 5.5% in Q2 y/y from 6.2% in the first quarter - slower than expected rebound in July suggests the June figure was not a blip and projected slowdown may be more significant than previously thought (EIU) * PMI index fell to 49.4 in September, the fifth consecutive monthly decline and the first contraction since November 2004. New orders fell for the first time in 10 years. Higher costs may finally be affecting output as employers are starting to cut workers(via Bloomberg) * Danske: construction sector, which has been very profitable in recent years b/c of rising property, domestic demand and easy money expanded 28.3% y/y. Manufacturing production added 7.6% y/y in Q1 08 (7.2% in Q4 07) but capacity constraints loom due to ageing capital stock. The current pace of expansion in the Russian economy is inflationary with domestic demand outpacing supply * OECD: Domestic demand will continue to advance strongly, but net exports will exert a growing drag as imports surge while energy export volume growth is held back by supply constraints * IMF: consumption to moderate in 2008 but should remain the main source of demand, led by still-strong gains in real income. Investment should also rise strongly, led by construction and public capital spending. Tighter budgetary stance and exchange rate appreciation will be necessary to cool domestic demand. * external factors (especially capital inflows) main growth drivers in 2007 may be less favorable in 2008. Lower foreign investment, inflation reducing consumer purchasing power and quality of investments to weigh on growth in 2008 Oct 29, 2008
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Alexander Sergeyevich 3 November, 2008, 18:52 * Oct 31 : The Rouble weakened 1% to 27.1050 per dollar bringing its decline this month to 5.7% * Oct 20: Following devaluation rumors, the CBR cut the currency swap facility, which increased foreign banks’ demand for ruble liquidity and pushed up local interbank rates to over 20%. It also appreciated the rouble by 1% against the basket. This may prevent capital outflow (Alfa) CBR was already intervening in the fx market * With the oil price falling and Russia's growth slowing, rouble depreciation may be inevitable but the CBR wants to make sure it doesn't fall to quickly - It has been good at managing the semi-flexible exchange rate and has the reserves to try to preserve it even if it ultimately opts for a devalued rouble and lower interest rates * KIT: currency swap transactions helped investors keep and increase currency positions, increasing demand for dollars. The CBR reduced the volume to RUR50 bn on Monday and RUR30 bn on Tuesday (from a recent volume of several hundred billion rubles) replacing them, with other resources: unsecured loans to banks (with ratings not lower than B-). Investors cut off from currency swaps and lacking access to unsecured loans, faced a short-term substantial liquidity gap which they tried to meet on the interbank market. But devaluation should not be ruled out * current rates for short-term NDF contracts (up to 3 months) do not solely reflect exchange rate expectations but actually reflect growing dollar demand from hedge funds against the backdrop of a global capital outflow from emerging markets. Longer term NDFs though reflect exchange rate expectations (Uralsib) * An increase in the instability of the ruble exchange rate could trigger a flight from banking deposits and decrease banking sector liquidity (Alfa Bank) * Russia’s ruble has weakened 4.8% to the U.S. dollar in September but it has depreciated by less than other commodity currencies (CAD, AUD, NOK)(Uralsib) * Central bank has been intervening to prop up the rouble * KIT: Local companies may be tempted to exchange rubles for another currency on the back of stock market instability - exacerbating the roubles decline * DBR : More rouble volatility in the coming weeks is likely with little upside potential for the currency before the Georgian conflict fades. Yet CBR's has plenty of reserves to defend the rouble * Ulyukayev (CBR): currency purchases in August totaled about zero as the bank bought and sold currency. It bought around $100 billion so far this year(via Bloomberg) * the negative inflation figures (rose to 15% y/y in August) contributed to elevated demand for foreign currency on the exchange rate market, putting pressure on the ruble exchange rate (Alfa) RTS fell another 8% Sept 3/4 * Until the 4th, the CBR had allowed the RUB to fall beyond the point against its EUR/USD basket where the central bank intervened in early August (BNY) * In July, the Russian central bank was trying to slow the rouble's rise and inject two-way liquidity by widening the trading band to detract hot money. It widened the band from +/-0.85% to +/-1.2% around the central parity rate. CBR tripled the volumes of its daily interventions in the FX market to offset the rise in the demand for roubles on the back of the higher hydrocarbon prices * MS: FX policy shifted towards flexibility with upcoming tax cuts to help overcome the resistance of energy exporters to appreciation but Resistance to appreciation should not be underestimated * In longer term, Russia intending to speed up process to inflation targeting and free float of rouble
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SrpskiCrnogorac 6 November, 2008, 10:35 In the foreseeable future, that should be impossible, because Russia´s economy is too small (no market depth, liqidity.). But I believe in the potential of Russia´s enormous human capital, so that it could be one of some global financial centers in the long run, while the main financial center will be that country with the biggest gdp, maybe China. But Russia should already begin to play an innovative role. The current crisis is a good time to begin with it, because the USA and GB made already clear, that they are not interested in effective reforms of the global financial system. Russia should now work on a regional financial system including CIS, India and China. All trades must be made in the currencies of the trading partners and by that circumventing the dollar as a vehicle currency. The currency trading should be made via an electronic real time platform similar to those of inter-central bank businesses. Central banks of the participating countries should cooperate closely as liquidity providers if needed. Supervision of financial institutions must be standardised in all participating countries. There must not be taxes for inter-bank businesses, so that one can forbid banks to make business in off-shore centers and with banks from off-shore centers. Such a market would be the most innovative market in the world and serve as an example to the world. The system could provide a financial stability, which could at a later stage attract Europe to participate in it. But if Russia thinks it could simply copy the western system in order to transfer the profits which that system generates to their financial oligarchs, then you should forget it and take care, that EBS does not succeed in being the trading platform for the rouble.
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Alexander Sergeyevich 6 November, 2008, 12:58 What could we expect from G20 Summit at November 15th 2008? * Nov 15 G20 meeting in Washington will be next of a series of summits to assess responses to the financial crisis and agree on a common set of principles for reform of the regulatory and institutional regimes - G20 includes developed and developing countries and is thus more representative than than G7/8. Discussion will likely focus on assessing short-term stabilization efforts, specific regulatory and capital market reforms, institutional structures (including the role of the IMF) * the advertised purpose is ambitious, heads of state and government are the wrong people to be fixing the international financial system, and five of the countries are misfits (Canada, Italy and South Korea, Australia, Argentina should withdraw to avoid over-representation of regions) (Rieffel) * A range of goals/priorities have been proposed: to redesign the institutions that supervise and regulate international capital flows and world financial markets, not to write new rules for these markets. Policies improve when politicians delegate technical decision, such as interest rate setting, or financial supervision, to independent bodies - and avoid punitive measures(Alesina/Giavazzi) * set a financial framework to achieve global goals in macroeconomic stability, economic development, environmental sustainability and trade for development. Financial priorities are capital adequacy standards, financial reporting, system-wide risk management, and new lender-of-last-resort capacities and empowering and funding the IMF through a Tobin tax on international transactions (Sachs) * focus on the immediate problem of stabilizing financial markets. Other pressing global problems, from climate change to poverty and underdevelopment, will only make deliberations less productive and may make concessions (especially from the U.S.) harder to achieve. Pragmatic reforms (in follow up finance official meetings) could include clamping down on regulatory arbitrage, raising capital requirements, procyclical regulatory regime, using taxes and regulation to drive transactions in credit default swaps and other derivative instruments into an organised exchange. (Eichengreen) * country bankruptcy code to enable orderly sovereign debt restructuring, making the capital adequacy requirement counter-cyclical and stricter regulations of tax havens and private equity funds. Meanwhile a vastly strengthened IMF without a serious reform of its missions and its governance structure would be problematic(Chang) * “Basel III” making capital requirements on banks countercyclical not procyclical, replace the option of self-regulation of banks with external regulation and International guidelines for guaranteeing deposits should perhaps be coordinated (Frankel) * The objective should be to turn the IMF into a body where national authorities agree on the outlines of what each of them will legislate. An international agreement made in the IMF will lay down minimum standards that all countries will ensure.(Williamson) * after the last global crisis, in 1997-98, the only important reforms were national ones (Mallaby) * future of the financial system including the risk of entering into Smoot Hawley II (trade protectionism and capital controls) depends on political choices (King)
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Alexander Sergeyevich 6 November, 2008, 13:04 The West wants that Russia goes to the East - isolating herself from Europe, # Medvedev’s visit to Kazakhstan and China, his first foreign trip since becoming Russian president, highlights growing ties between Russia and its Eastern neighbors (RFE). Russia and China recently signed a protocol ending dispute over their border in which reportedly Russia made most of the concessions (FT) # Moscow is eager both to retain its grip on Kazakhstan’s abundant energy reserves (TOL) and highlight China's growing importance as a counter-balance to the U.S. and EU (Bloomberg) # Economic ties between China and Russia are rising - bilateral trade increased to $48b in 2007 and may rise to $80b in 2010 (Bloomberg). Chinese exports to Russia have outpaced imports but Russia hopes to export more oil to China by making use of the Kazakhstan pipeline (Bank of Finland) # Kazakhstan-Russia trade reached $16.3b in 2007, a 27% increase over 2006, and nearly triple the size of the 2003 (TOL). Russia and Kazakhstan recently launched $1b regional development fund (EM) # Mongolia - Russia bilateral trade hit $677m in 2007, up 28.3% against 2006 (RIA). Russian Rosneft supplies more than 90% of Mongolia’s oil and Russian enterprises already own 49% of Mongolia’s national railway and its largest copper and gold mining companies (WSJ) # ISN : A recent meeting of BRIC nations - Brazil, Russia, India and China - hosted by Moscow, discussed alternatives to western policies, particularly in Kosovo and Afghanistan and accused the West of undermining global food security. However, BRIC alliance has not been able to back its rhetoric with practical moves so far # Medvedev and his Chinese counterpart, Hu Jintao, denounced the U.S. plan to deploy a missile-defense system in Europe (Bloomberg) # Russia's relations with the Western countries have been strained over NATO expansion, status of Kosovo, missile shield in Cen Europe and Russian gas monopoly
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Enrique 8 November, 2008, 04:56 Alexander, Russia CANNOT isolate from Europe as it represents 40% of the European surface and 15% of the European population (105 million people in Europe, more than Germany´s 82 million.) Russia also represents 40% of the Asian surface but JUST 1% of the Asian population (36 million people, less than South Korea´s 49 million.) and the Russian population in Asia is decreasing. And, if you take into account that the fastest markets of the World are in Asia, it is logical that the Russian Federation increases its position in Asia having the priviledge to be both at the center of the Sea of Japan and next to Central Asia. Russia has a priviledged access to Asian markets which no European nation has (even if we would like): Vladivostok, Irkutsk, Khavarovsk.
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David 8 November, 2008, 13:35 Look carefully at the near term and long term economies of the US, EU and Asia, specifically the amount of debt they are amassing. For the next 10 years, these countries grow will be limited as they try to reduce the debt burden. The debt can only be repaid via higher taxes (which will reduce comsumption) or reduced government spending, which is a hugh drag on growth. Russia is the only country with a growing economy, that is growing with a surplus. And from what I can see, although Russia is using it's surplus to help the Russian economy, the government is intent on maintaining an overall surplus. Now, projecting GDP growth rates forward, and factoring in the debt reduction in the US, EU and Asia, it becomes even clearer to me, that within the next 4 - 6 years, Russia will become the worlds financial superpower.
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Timothy Paul Walsh 9 November, 2008, 07:18 Moscow's rebirth as the Great city of Russia opposes the favouring in the past of Saint Petersburg, the capital until 1918. Both cities are full of the wonders of Russia's History, but Moscow seems to represent something of a warning. American politics idolises the market and the roughshod approach to architecture, ephemeral and ugly constructions. Russia must attempt to harness artists, stonemasons and Russian architects who are willing to express the Russian genius. Cities as far flung as Kiev and Asian capitals want to create economic truimphalism above taste. Despite this I hope Russia buries any idea of playing second fiddle to the West. A strengthened Rouble and a vibrant business community is ideal but so is a public works programme; building and maintaining theatres, rail as is planned for Sochi 2012. Add to this a stengthening of cities around Russia with a rebirth of cafe life like the heyday of the Silver Age of Pasternak. Ecomonic growth will evitably follow the human urge to live in the harmonies of bustle and repose. Russia and Moscow should aim to foster the textile industries and know the world can't see to trust China for quality. A few years ago I spoke to some Russian artists and I was relieved to hear they studied in the proper way, seven years of artist's apprenticeship. If Moscow could like other Russian cities and towns hold memory and economy together, most of the rest shall follow. Putin and now Medvedev stand at the door of the new era. How will we make good in the days to come. Look behind but refresh leaving some Great monument to an age. Make what is good to paraphrase W.B. Yeats. Form a building to match Russia's confidence, but remember building to much upwards you may be Babel. Remember your poets, O Russia.
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Sevodnya_Net 11 November, 2008, 14:41 Timothy Paul Walsh: Who writes your scripts? Hilarious stuff :-) Next time I see Putin scratching his head or Medvedev looking a little spaced out I'll mentally place a little speech bubble next to their heads ("Akhmatova, Yevtu-yevtu. no don't tell me it'll come" :-) )
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Alexander Sergeyevich 11 November, 2008, 16:02 Enrique I agree with you : Russia belongs to Europe. But politically Russia is now isolated from Europe simply because the valuesofRussia are radically different from Europe. Russians in their majority have still a soviet mentality, democracy in Russia doesn't exist but an autocracy which is in fact a KGB Inc state because most of her leaders are coming from KGB and have their mentality - and these same leaders own Russian main enterprises. Russia - because of her attack , invasion and occupation of Georgia - is now considered as a potential threat of Europe security and then is considered as an enemy and not as a partner. At least for the next two decades. Europe will be in the decade to come- with Ukraine and Georgia and probably Belarus and Turkey - more than 750 millions people. Then Russia is only a part of Europe. You wrote:" Russia also represents 40% of the Asian surface but JUST 1% of the Asian population (36 million people, less than South Korea´s 49 million.) and the Russian population in Asia is decreasing." It is the reason the new strategy of Europe is to oblige Russia to deal with Asia because Asia could absorb the East part of Russia easily. More dependent Russia will be with China for example, weaker they will be to attack Europe ( included Ukraine, etc ) You wrote:" And, if you take into account that the fastest markets of the World are in Asia, it is logical that the Russian Federation increases its position in Asia having the priviledge to be both at the center of the Sea of Japan and next to Central Asia." I disagree because, by far, the main partners of Asia are EU and USA and they don't need to go through Russia at all. However it is true that Kazakstan could have direct contact with China but it is more difficult that they get connection with Europe . But if USA and Europe they will force Russia not to block - as they are trying with Italy and with Georgia - to block the road ( pipe line) between Central Asia and Europe ( included Azerbadjan, Georgia, Turkey or Roumania). You wrote:" Russia has a priviledged access to Asian markets which no European nation has (even if we would like): Vladivostok, Irkutsk, Khavarovsk. " Yes but it is not all a priviledged because Asia doesn't need Russia to send goods to USA, idem for Europe. However it is true it could be shorter through Russia - but Russia is an enemy - then it is much better for Europe to go through the sea. Of course it is in the interest of Russia to be part of Europe - but their leaders and probably the great part of the population have decided to be anti-western, to consider the West as their enemy. The West is the alliance between USA and European Union who has no risk to be broken - other way there will be no defense system in Eruope.
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SrpskiCrnogorac 11 November, 2008, 21:35 "The West wants that Russia goes to the East - isolating herself from Europe" No, the West fears a Russia which orientates eastwards. One can also read it in Brzezinski
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