Magazine article Business Credit

Hot Spots: Russia

Magazine article Business Credit

Hot Spots: Russia

Article excerpt

The economy finished the year 2003 on a strong note and will undoubtedly put in a good performance in 2004 ax well. Its growth in 2003 was about 6.8%, and the expansion over the past four years averaged an impressive 6.1% annually. For 2004, the pundits currently expect a gain of at least 5.5%, and this seems to be a cautious prognosis. Undeniably, the expansion lias been and will continue to be oil-&-gas-fired. This has conjured up the risk that the authorities may not pay sufficient attention to the non-oil economy.At this point, though, one has the impression that they arc very much focused on strengthening activity outside the hydrocarbons sector. Also, there is no real risk that world market prices for petroleum and natural gas will dive so steeply in the year ahead that Russia will have difficulties coping with the repercussions.

Brent crude averaged USD 28.80 per barrel in 2003, kept high by war in Iraq, turmoil in the Middle East, and OPEC policies. This marker price could probably fall to an average of USD 23.00 pb in 2004 without putting much of a crimp into Russian economic progress. It would take a plunge below USD 14.00 pb to trigger a real crisis, and on present trends this appears extremely unlikely.To hoot, the government has created a special oil stabilization fund that is to cushion the country against intermittent, sharp declines in petroleum quotations. This fund, which replaces a "financial reserve" established tor the same purpose (and reportedly worth more than 170 billion rubles as of end-2003), will be fed with "windfall revenues" from oil exports at prices higher than USD 20 a barrel for Urals grade.

Earnings from oil, gas, metals and other materials gained Russia last year an export record of USD 134.4 billion, for a 25% increase over 2002.They made it relatively easy for the country to service its external debt and build up official international monetary reserves, which the Central Bank put at USD 77.8 billion as of December 26. CB officials nowadays issue such numbers with a note of caution, saying that at least some of the increase has been due to inflows of "hot money" that tends to be volatile and can easily take to flight.

At that, while reserves had fallen abruptly after the October 25 arrest of Yukos chief Mikhail Khodorkovsky, the Central Bank registered for the fourth quarter a net inflow of USD 2.5 billion in private capital. For 2003 as a whole, the Bank reported a new outflow of just USD 2.9 billion, compared to one of USD 8.1 billion in 2002, one of USD 14.8 billion in 2001, and an average of USD 20 billion annually during the preceding decade. In other words, despite the Yukos affair, investor confidence in Russia today is considerably stronger than it used to be. This includes the confidence of Russian entrepreneurs in their own country.

This confidence is supported by the prospect of political stability. Much as the international press bemoans the "autocratic tendencies" that have developed under President Putin, the simple truth is that for Russian business-and, in fact, for the vast majority of the people-the existence of a strong central government in Moscow is much better than the chaotic scene that marked Russian democracy under Boris Yeltsin, especially toward the end of his rule. . . and there is certainly no denying that Russia today has a very strong central government.

When parliament resumed its sessions after the December 7 elections, it took only a brief period of horse trading for the Kremlin to establish a rock-solid power base in the Duma that easily commands a two-thirds majority. …

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