Timothy Birdnow

Timothy Birdnow

One of the things I enjoy most in this world is saying “told ya so!“ Well, this piece in Russiblog proves me right! With as much childishness as I can muster I now say nya, nya, nya! Told ya so!

I argued in Drill Here Drill Now Helped End the Russo-Georgian War, my piece at Pajama`s Media, that the slide in oil prices, started by the efforts of Republicans to threaten competition by drilling offshore and in ANWAR, has seriously hurt the Russian economy, and that is the reason they have backed off in Georgia. Many commentors-including a bunch at Free Republic-scoffed, claiming that the war was immaterial to the Russians financially. Well, they are obviously wrong.

Here is the article in it`s entirety:

September 17, 2008

Market Failure in Russia: America’s Problem, Nobody’s Problem or Doomsday?
Yuri Mamchur

Russia and the rest of the world have both suffered a terrible week in their stock markets

A misleading calm prevailed in Russia this week after two days in which the Russian stock market crashed and another two days in which the market was closed. The recent plane crash in Perm, the worst in years, was bigger news in Russia than the sinking markets. Russia’s news media presented plummeting share losses in a matter of fact manner, while wondering how the Russian government was going to respond to this harsh new economic reality. Markets remained closed on Thursday.

Russian markets fell 17 percent Tuesday, the biggest drop since 1998, bringing market levels to their lowest point since 2005. Gazeta.ru published these illustrative numbers at the moment of the unscheduled early closures of the dollar-denominated MICEX and ruble-denominated RTS stock exchanges: shares of VTB dropped by 32.5%, Sberbank (the largest bank by deposits in Russia) 20.9%, FSK 27.6%, Transneft 24.1%, Tatneft 15%, Lukoil 13.5%, Norilsk Nickel 8.2%, Severstal 8.7%, Gazpromneft 8.2%, etc.

Wednesday brought some clarity when Russia’s Central Bank announced that, starting on September 18, the rates of the minimum obligation reserves for credit organization dealing with private parties (in rubles) will be lowered by 4 percent, from 5.5% to 1.5%, while for obligations of non-residential banks (in rubles and foreign currencies) the rates will drop from 8.5% to 4.5%, and for all other obligations, from 6% to 2%. Later, starting in 2009, these rates will be slowly increased.

Overall, Russian experts were quoted as praising these actions. “Central Bank did exactly what the market was expecting it to do, but almost too radically — 4 percent points is too much liquidity,“ said Elena Sharipova, an economist with Renaissance Capital, one of the leading investment banks in Russia. “We are expecting that tomorrow there will be 200-250 billion of additional rubles ($8.4 $10.4 billion). That’s a noticeable injection. The rate cuts will affect all the banks — small, medium and large ones. Everyone is going to get money proportionally to their reserves,“ she said.

“Russia’s government will lend the country’s three biggest banks, OAO Sberbank, VTB Group and OAO Gazprombank, as much as 1.13 trillion rubles ($44 billion) for at least three months to boost liquidity,“ reported Bloomberg.

Some experts say that a lot of what has happened to the market is the Russian government’s fault. “Our government did too much for this crisis to happen,“ said one analyst who was quoted anonymously in an interview with Gazeta.ru.

Said another economist, also quoted anonymously, “Just remember the not-so-careful statements about metallurgical companies and the indecisiveness regarding the tax cuts. All this negativity had a strong impact on the investment climate for foreign investors. We entered unprecedented situation because of the concerns regarding [the bankruptcy of] Lehman Brothers and AIG and the consequences for the entire investment and insurance markets.“

No news agency in Russia directly linked the market failure to the war in Georgia, despite the fact that a huge outflow of foreign capital followed the recent rise of international tensions in the Caucuses. The usually anti-government newspaper Moskovsky Komsomolets [Moscow Komsomol - not to be confused with the popular tabloid Komsomolskaya Pravda - RB] published a short front page article titled USA is Satisfied with the Failure of the Russian Market and Withdrawal of the Capital from Russia. The MK mocked William Burns, US Undersecretary of State for Political Affairs, for saying that Russian markets were paying for the “unwise decision of the Russian government to invade Georgia.“ According to Burns, in part due to the war in Georgia, the Russian stock markets lost a third of their value. However, the Russian stock market began its decline well before the war started in August, and was already showing signs of volatility even as global oil prices reached unprecedented levels in July 2008.“

End article

I love being right!