Russia Hit the Rocks Hardest

By Matthews, Owen; Nemtsova, Anna | Newsweek International, October 6, 2008 | Go to article overview
Save to active project

Russia Hit the Rocks Hardest

Matthews, Owen, Nemtsova, Anna, Newsweek International

Byline: Owen Matthews and Anna Nemtsova

The market crash is due in part to Georgia, even if Putin doesn't think so.

By rights, this year's Sochi Economic Forum should have been a victory lap for Vladimir Putin. Russia's president turned prime minister had just, in his own words, "punched the face" of upstart Georgia, and a year of record oil prices had boosted Russia's currency reserves to $700 billion.

But instead of triumph, Russia's premier business-schmooze event was deep in gloom. Since the Georgian war in early August, an estimated $45 billion in foreign investment has left Russia as spooked investors have fled. Now Russian stocks are 57 percent off their May peak--compared with the average emerging-markets hit of 30 percent.

Putin was quick to blame the United States for the market's crash: "A systemic breakdown has occurred in global finances," he told an audience of businessmen, bureaucrats and oligarchs. "This is because of the unsatisfactory economic and financial policies of the world's leading economies, including the U.S." As for the 30 percent difference between Russia and other emerging markets, Putin just ignored it, insisting that Russia was in "a rather stable political and social situation."

Investors beg to differ. What with Georgia, the falling price of oil and a growing record of abuse of foreign investors, Russia seems more and more a broken BRIC. President Dmitry Medvedev tried to stabilize the market by promising a $44 billion credit line to secure banks, and even offering $19.6 billion to buy up flagging shares. But with inflation rising, business costs soaring and the state apparently unwilling to protect investors, the promises aren't working.

That said, Putin is partly right: the market troubles are not all of the Kremlin's making. A 28 percent drop in the price of oil certainly helped drive down Russian stocks. And many foreign investors have reined in their emerging-market portfolios in response to a credit crunch back home. But markets have fallen farther and faster in Russia than anywhere else except China (where red-hot stocks were overdue for a major correction). And while there are still plenty of longer-term China bulls, investor confidence in Russia is now almost non-existent. At least two major Russia funds, the Nikitsky Russia Fund and Hermitage Capital, have pulled out of Russia for good over the past year.

Investor confidence was already falling long before Russia's surprise invasion of Georgia.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Russia Hit the Rocks Hardest


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?