Tag: ruble
Putin Manages To Stabilize Ruble, But Russian Economy Still Staggers

Putin Manages To Stabilize Ruble, But Russian Economy Still Staggers

By Carol J. Williams, Los Angeles Times (TNS)

MOSCOW – Russia’s ruble has been on a roller-coaster ride, posting the second-biggest drop in value of world currencies in 2014, then bouncing back this year with the highest rise against the dollar, euro, pound and yen.

The ruble’s dizzying comeback, though, is due neither to an economic boom nor to sustainable intervention by the Russian Central Bank. And it came at a steep price.

Steadying the ruble at about 50 to the dollar has drained the country’s hard-currency trove of $150 billion, more than a quarter of the reserves on hand at the end of 2013. Those cash infusions have done little to cheer Russian consumers or businesses: Inflation remains at more than 16 percent and the European Bank for Reconstruction and Development predicts that the overall economy will shrink by 4.5 percent this year.

And stabilizing the ruble was achieved only after President Vladimir Putin shook down Russia’s oligarchs for what he considered their fair share toward arresting the currency’s tumble, a tactic unavailable to the stewards of a free-market democracy.

“There is no strategy and no vision. It’s all ‘live for today,'” said economist Sergei Guriev, a former rector of Moscow’s New Economic School living in self-imposed exile in Paris.
Russia’s disappearing middle class and the working poor are paying the price for the Kremlin’s economic fiddling, Guriev said. He points to an average 10 percent drop in real income last year, a jump in mortgage defaults and rising food and utility prices.

A $500 billion, decadelong military modernization program augurs even grimmer years to come.

Car sales in Russia dropped 42 percent in April from the same month last year, the Assn. of European Businesses reported last month. The share of Russians who can afford no more than the absolute necessities has soared to 20 percent, the highest since polling on the subject began a decade ago, the Nielsen research firm reported last month.

Even during the 2009 recession, the report noted, only 7 percent of respondents said they could afford nothing more than food and shelter.

“But people know not to blame Putin. They know it is all the fault of Obama and the Ukrainian fascists that they have to suffer economically to confront these evil people,” Guriev said, mocking the prevailing public attitude molded by a lavishly funded propaganda campaign on state-run television.

“In Russia we say that there’s the television and there’s the fridge,” said the economist, who until last year was part of the Kremlin’s financial inner circle. “People believe what they see on television, but when they don’t see anything in the fridge they stop believing. If the government doesn’t have the cash it needs and sees that its propaganda is no longer convincing, it may embark on a new military adventure to make people believe again.”

The economy was ticking along with healthy growth in most recent years until Russian troops seized Ukraine’s Crimea region in 2014. The United States and the European Union imposed sanctions on Moscow for its violation of international law and its neighbor’s sovereignty.

Those measures, which cut off international lending and blacklisted dozens of Kremlin kingpins, have coincided with the decline of world oil prices to half their value of a year ago. And in spite of repeated pledges by Putin to diversify the economy since he first took office in 2000, Russia remained dependent on oil and gas sales for more than half of its income when the latest financial crisis hit.

The government in April revised its 2016 budget to take into consideration the decline in expected energy revenue, which originally had been calculated at $100 a barrel for oil. The deficit spending now envisioned for next year will eat up an additional $200 billion from the hard-currency reserves, and more if the military modernization project continues to be exempt from the budget cuts forced on almost every other economic sector.

Putin has micromanaged the financial crisis in much the same away as he has guided the country’s geopolitical strategy. He summoned his nation’s captains of industry to the Kremlin for an emergency session Dec. 16, when the ruble was trading at 80 to the dollar. According to the RBK business journal, he told them that the ruble’s collapse threatened their welfare as well as that of the country and that they had an obligation to repatriate the money they had stashed in foreign banks.

There was no official edict issued, and the journal observed that the Kremlin has limited means of controlling how oligarchs or ordinary citizens handle their finances.

Putin did declare a “capital amnesty” after the December meeting, and the State Duma, the lower house of the parliament, has been struggling since then to draft legislation aimed at assuring offshore depositors that repatriating their capital won’t lead to investigations of whether they came by it legally. A history of nationalizations, corruption and asset seizures has undermined faith in the security of Russia-based wealth, explaining the flight of more than $150 billion in capital last year alone.

But lost on none of the oligarchs was the unspoken threat of reprisals if they failed to do their part to halt the ruble’s free fall. Memories were still fresh of the September house arrest of oil magnate Vladimir Yevtushenkov and seizure of his assets, not to mention the 10 years that former billionaire Mikhail Khodorkovsky spent in prison for challenging Putin’s political domination.

The billionaire owners of Lukoil, Severstal, Norilsk Nickel and three dozen other major enterprises had converted enough of their hard-currency holdings by late February to boost the ruble’s value to about 60 to the dollar. Igor Sechin, head of the oil monopoly Rosneft, told the Tass news agency that he had sold $93 billion for rubles in 2014.

The winter run on the ruble was triggered by the converging effects of sanctions and the nadir in oil prices that flirted with $45 a barrel in December. Oil has lately traded for about $60 a barrel.

(c)2015 Los Angeles Times. Distributed by Tribune Content Agency, LLC.

AFP Photo/Alexander Nemenov

European Leaders Warn Against Too Much Economic Pain On Russia

European Leaders Warn Against Too Much Economic Pain On Russia

By Carol J. Williams, Los Angeles Times (TNS)

The European Union’s unanimous resolve to punish Russia for its aggression in Ukraine appeared to be cracking as French, German, Austrian and Italian leaders voiced concern at an alliance summit of inflicting too much pain on Moscow as its economy tumbles.

French President Francois Hollande was the first to step out of the 28-nation bloc’s collective drive for further sanctions on Russia when they were discussed at a summit in Brussels on Thursday night.

“There were no new sanctions (adopted), because there should not be,” Hollande told reporters after the session. He said the leaders had agreed to maintain the status quo in hopes of seeing the Kremlin follow through on recent hints that it is pressing pro-Russia separatists in eastern Ukraine to honor a shaky cease-fire.

If Russian President Vladimir Putin delivers on his recent calls for peace in embattled eastern Ukraine “then there is no need for new sanctions — on the contrary, in that case we should think about how we too could begin to de-escalate,” Hollande said, according to the Deutsche Welle news agency.

France is one of the countries whose own economies have been hit by the sanctions against Russia. Delivery of two Mistral aircraft carriers built under contract for Russia has been canceled by Paris in conformance with a European Union and U.S. ban on sales of weapons and military assets to Russia.

Hollande’s appeal for the European allies to keep sanctions relief on the table as a carrot to reward any positive changes in Russia’s behavior toward Ukraine struck a chord with others in the alliance.

The European Union’s new foreign policy chief, Federica Mogherini, warned that pushing Russia into a deeper economic crisis was in nobody’s interest.

“The fact that Russia is in a difficult situation from a financial point of view is not good news, not for the Russian citizens, not for Ukraine and not for Europe and the rest of the world,” she said after the Thursday night meeting.

Austrian Chancellor Werner Faymann and Italian Prime Minister Matteo Renzi also expressed their opposition to any further economic pressures on Russia, which has seen its currency, the ruble, battered by the sharp fall in global oil prices and withering capital flight as foreign investors scuttle their Russian operations.

German Chancellor Angela Merkel has been heading the camp of EU leaders committed to keeping the economic pressure on the Kremlin until Putin reverses his illegal seizure of Ukraine’s Crimea region and makes visible efforts to keep Russian arms and fighters out of eastern Ukraine.

But on Friday, Der Spiegel magazine published an interview with German Foreign Minister Frank-Walter Steinmeier in which he appeared to be siding with Hollande and other leaders who worry that excessive sanctions could backfire.

“It cannot be in our interests that the situation spin totally out of control,” Steinmeier said of the economic turbulence in Russia, where consumer buying power has shriveled and dollar-based loans suddenly saddle many borrowers with unbearable debts.

To those who want to force Russia to its knees with further sanctions in the misguided belief that will bolster European security, “I can only warn against it,” said Steinmeier, a veteran diplomat of the Social Democratic Party in governing partnership with Merkel’s conservatives.

Thursday’s gathering of EU leaders was the first chaired by former Polish Prime Minister Donald Tusk, who recently took up the mantle of European Council president. Poland and the former Soviet republics of Latvia, Lithuania and Estonia have remained steadfast in their views that the sanctions pressure should be maintained on Russia until it withdraws from Crimea.

The United States and the European Union have imposed targeted sanctions on Russia and its proxies in the separatist-occupied areas of eastern Ukraine, including visa bans for scores of officials and Kremlin insiders and restrictions on energy trade, banking and military sales and cooperation.

Russian troops invaded Crimea, home of Russia’s Black Sea naval fleet based on what was leased territory from Ukraine, in late February after a pro-Europe rebellion toppled Ukrainian President Viktor Yanukovich, a close Kremlin ally.

Putin, who opposes Ukraine’s pivot toward an EU alliance after decades of tight economic integration with Russia, has referred to the ouster of Yanukovich as a coup d’etat and routinely casts the new Ukrainian leadership as a throwback to the former Soviet republic’s collaboration with Nazi Germany during World War II.

AFP Photo/Alexander Nemenov

Putin Says His Grip On Power Is Firm And Economy Will Rebound

Putin Says His Grip On Power Is Firm And Economy Will Rebound

Moscow (AFP) – President Vladimir Putin vowed on Thursday that Russia would rapidly recover from its financial crisis and said his grip on power was firm, even as new Western sanctions and a run on the ruble pile on the pressure.

The Russian leader, who is locked in a confrontation with the West, showed no willingness to change tack on Ukraine and dismissed the possibility of the country’s elite turning against him.

Sanctions-hit Russia is grappling with a ruble collapse seen as a major test for Putin, whose pact with voters has been based on the relative prosperity brought by years of high oil prices.

“Yes, these are not easy times,” Putin told his end-of-the-year news conference, acknowledging that oil prices could keep falling.

He said Russia would adjust to low oil prices, but he gave no recipe for turning the economy around.

“Under the most unfavorable world conditions, such a situation can last two years,” Putin said.

“It could improve earlier, too,” he said, praising efforts by the central bank and the government to stabilize the ruble.

Putin appeared tense at the start of the three-and-a-half-hour news conference but quickly recovered to show he was a man in control and even said he didn’t regret letting his archrival Mikhail Khodorkovsky out of prison last year.

“Godspeed, let him work,” Putin said, referring to the former billionaire who has said he is ready to replace Putin and lead Russia in times of crisis.

The president also laughed off the threat of a coup.

“As for palace coups, calm down,” Putin said in response to a question about whether he could be ousted.

“We don’t have palaces therefore we cannot have a palace coup. We have the Kremlin official residence, it’s well-protected, and this is also a factor of our state stability.”

But more importantly, Putin stressed, a majority of Russians supported him.

“People in their hearts and minds feel that we and me in particular act in the interests of a majority of the Russian population.”

Signs have been emerging over the past weeks of discontent among some officials in the top echelons of power over Putin’s confrontation with the West and mounting economic trouble.

In a hugely bold interview with Vedomosti business daily published Thursday, economy minister Alexei Ulyukayev admitted that the government lacked a coherent plan to deal with the crisis.

“I guess we found ourselves in a perfect storm, and I guess it’s not an accident,” he said. “Because in some way we prepared this storm ourselves,” he added, noting that US sanctions would likely last for decades.

The governor of the southern Krasnodar region, Alexander Tkachev, said that Russia was now paying for its “political conquests”.

Putin admitted that Western sanctions over Moscow’s involvement in the conflict in Ukraine — where 4,700 people have died in fighting between Kiev’s forces and Moscow-backed separatists — contributed “25-30 percent” to the economic turmoil.

But he said Russia’s troubles should not be put down to the annexation of Crimea, asserting that the West’s goal was to undermine Russia’s independence.

“Crimea has nothing to do with this,” Putin said, accusing the West of treating the rest of the world as “vassals” and comparing Russia to a bear.

“As soon as they have torn out its claws and teeth, then the bear won’t be needed at all — they will make a stuffed figure out of it.”

“We are protecting our independence, our sovereignty and our right to exist.”

The Russian strongman made clear that his position on Ukraine has not changed, branding Kiev’s military campaign against Russian-backed rebels in the east a “punitive operation”.

“It is indeed a punitive operation. But it is being conducted by the current Kiev authorities,” Putin said, side-stepping a question from a Ukrainian journalist.

The reporter accused Putin of conducting a “punitive operation” in Ukraine and asking how many regular troops the Russian president had sent in to prop up the separatist insurgency there.

Putin conspicuously chose not to reply to the journalist’s question on Russian troops, saying instead: “All people who perform their duty following the call of the heart or participate in the fighting voluntarily are not mercenaries because they are not getting any money for it.”

Putin sought to fight off an accusation by a Russian journalist that his policies are deeply polarizing and have triggered mounting tensions in Russia.

“All my actions are aimed at bringing our society together and not dividing it,” he said.

Western sanctions over Moscow’s interference in eastern Ukraine got even harsher on Thursday.

The European Union voted in new measures aimed at isolating Crimea, while U.S. President Barack Obama is set to sign into law fresh sanctions against Russia and authorization for weapons deliveries to Ukraine.

AFP Photo/Alexander Nemenov

Russia’s Economic Woes ‘Critical’ As Ruble Continues To Tumble

Russia’s Economic Woes ‘Critical’ As Ruble Continues To Tumble

By Sergei L. Loiko, Paul Richter and Carol J. Williams, Los Angeles Times (TNS)

ST. PETERSBURG, Russia — Irina Fedulova and her husband have repaid more than one-third of their $150,000 housing loan, but they owe more than when they started — thanks to the collapse of the Russian ruble.

The loan was in dollars but “our salaries are in rubles, and we realize we can’t pay it the way things are,” the 42-year-old chemist said by phone from Nizhny Novgorod. “We are so desperate we might have to sell our three-room apartment and move into a smaller one, if we can afford it now.”

Millions of middle-class Russians are facing unexpected hardships this winter amid a 40 percent drop in global oil prices and Western sanctions aimed at punishing Moscow for its annexation of Crimea and continued threat in eastern Ukraine. The economic crisis accelerated Tuesday as the ruble, which has been in free fall since September, slid another 20 percent in value, down more than 60 percent for the year.

The central bank responded overnight by hiking interest rates from 10.5 percent to 17 percent to raise the cost of borrowing and slow demand for dollars and other convertible currencies. The move had little immediate effect beyond panicking a population that has seen its buying power shrink dramatically this year.

But the jolt signaled that Russia’s long-troubled economy, which depends heavily on oil and natural gas sales, faces high inflation and a probable recession next year.

Prime Minister Dmitry Medvedev summoned key financial and economic officials to his suburban Moscow residence for an emergency meeting to craft a further response to the currency crisis, Russian media reported.

“The situation is critical,” Sergei Shvetsov, central bank deputy chairman, told reporters as the ministers converged on Medvedev’s home in Gorki. He said the government hadn’t envisioned such a disaster “in our worst nightmares.”

The crisis poses a direct challenge to President Vladimir Putin, who rose to power after the last collapse of the ruble in 1998. He has led the country as president or prime minister since 1999 on an implicit promise that he can deliver political stability and a measure of economic strength.

Now it appears the economic chaos of the 1990s that Putin said he had overcome is returning. And with it have come questions about whether he can maintain his fierce standoff with the West over Ukraine, and even about his hold on power.

Opposition politicians who have been largely silenced since Putin returned to the presidency in 2012 have begun recovering their voices amid the escalating economic troubles.

Lawmaker Oksana Dmitriyeva of the Just Russia party blamed the ruble collapse on “chaotic and unprofessional” moves by Putin’s administration and accused the government of having “no strategy” for dealing with the crisis.

Alexei Kudrin, Russia’s finance minister from 2001 to 2011, used Twitter to blame the ruble’s slide, in part, on “distrust of the economic policies of the government.”

Western officials and outside analysts don’t expect Putin to back down in Ukraine. But some predicted the Kremlin would look for ways to ease its economic isolation from the West, even if it was deeply reluctant to be seen reversing course.

“If you are expecting Putin to say, ‘I was wrong — I surrender,’ you’re crazy. Never going to happen,” said a senior Obama administration official who spoke on condition of anonymity to discuss internal assessments. But over time, he predicted, “Putin may be looking for an off-ramp — even if he will never admit to caving in.”

The official predicted the crisis would weaken Putin’s political position in Russia over time.

“Putin’s narrative — ‘I saved Russia from chaos’ — no longer holds water,” the official said. “This is not a fatal blow, but it’s a major blow.”

But Ian Bremmer, founder of the Eurasia Group risk consulting firm, said Putin could try to sharpen conflict with the West by allowing more cyberattacks or launching aggressive military moves close to borders of North Atlantic Treaty Organization countries in Eastern Europe.

In any case, the economic fallout is likely to continue. The interest rate hike is likely to stifle new business and drive some companies into bankruptcy, bringing a surge in unemployment.

Western businesses, already deeply nervous about operating in Russia, are growing more so.

Apple Inc. announced that it would no longer do online business in Russia because the ruble’s slide could make it a money-losing proposition. Dozens of businesses tied to the international sector, such as tourism and charter airlines, have already closed their doors.

“I am extremely sorry for those who need to go abroad to seek medical assistance they can’t get in Russia,” said Oksana Shepilova, a Moscow tourist company operator. “Now they have to pay twice as much” in rubles.

The ruble’s dramatic fall Tuesday may have been accelerated by reports that the central bank intervened clandestinely in currency trading on Monday to help Rosneft, a major oil exporter run by Kremlin insider Igor Sechin, to raise 625 billion rubles, about $10 billion, in bonds at a favorable exchange rate.

Rosneft, Russia’s biggest oil company, has been particularly hard hit by Western sanctions that have forced foreign oil industry partners to withdraw from joint ventures and have cut off the company’s international financing.

Even some of Russia’s powerful oligarchs appear to be losing faith in Putin’s economic policies.

Russian tycoon Gennady Timchenko abruptly announced he was dropping out of a grand project the Kremlin had assigned to one of his companies — the $7 billion construction of a bridge to connect mainland Russia with the Crimea peninsula. The Kremlin annexed Crimea, formerly part of Ukraine, in March.

But the largest impact is likely to be on middle-class Russians who see prices skyrocketing for daily staples.

Valentin Shulzhenko, a 55-year-old engineer from Moscow, said the price of ham and bacon had nearly doubled and coffee was up 90 percent.

“Sunflower oil went up 100 percent in price, and it is not even imported,” he complained.

Andrey Baranyuk, who manufactures a brand of outdoor clothing for Russian markets, says his business is failing. He can’t get the dollars he needs to pay for materials and production at factories in Nepal.

“We have been in business a long time and have seen really bad times,” he said, “but this time I really feel there is no hope.”

In Washington, administration officials said President Barack Obama would sign legislation adding further economic sanctions on Russia. They acknowledged that it could complicate efforts to coordinate sanctions with the European Union.

The legislation adds penalties on Russia’s military and energy sectors and provides $350 million in additional military aid to Ukraine.

But U.S. officials said they didn’t believe the bill would badly disrupt U.S. diplomacy, because the administration had persuaded legislators to allow them to set aside penalties they thought harmful.

Some experts predicted Russia may try to retaliate by penalizing U.S. companies and individuals.
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(Loiko reported from St. Petersburg, Richter from Washington and Williams from Los Angeles. Kathleen Hennessey in the Washington bureau contributed to this report.)

AFP Photo/Alexei Nikolsky