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 The global recession, accompanied by plummeting oil prices, has hit the Russian economy like an angry bear, prompting large bailouts of individual companies and major weakening of the currency. But now it appears that Moscow is changing its approach to the credit crisis and going in the opposite direction taken by the U.S. and the West.
The Financial Times reports that the Russian government is planning to
switch from bailing out individual companies to supporting the economy
through the banking sector, abandoning the tack of spending advocated by the West.
The move will likely come as more unhappy news for the country's oligarchs who control many of the key industry but now find themselves running short of cash as liquidity is hard to find the world over. The FT writes: Russia's planned policy change was revealed by Igor Shuvalov, the first deputy prime minister, who said the government was deliberately choosing to allow gross domestic product growth to fall to zero or below in 2009 to stabilise the economy and maintain foreign exchange reserves. Moscow was rejecting the advice of those economists who had suggested using the reserves to finance a budget deficit of 10% of GDP to promote growth, Mr Shuvalov told investors at a closed-door meeting in Moscow. The government is even calling some of its previous bailouts a mistake, as Shuvalov "suggested that the state should not have lent $4.5bn to Rusal, Oleg Deripaska's aluminium group, on the security of its 25% stake in Norilsk Nickel," the FT said. Meanwhile, Moscow is trying to stopping the bleeding when it comes to the ruble, which has depreciated 34% since August, according to Bloomberg. Policy makers are trying to stop speculators from driving down the currency, which makes it more expensive for borrowers to pay back debt and fuels inflation, at the same time it seeks to hold down interest rates to keep the economy from contracting for the first time since 1998. Russia's central bank has been depleting its reserves to defend the currency, spending $211 billion (more than a 1/3 of its foreign-currency reserves) to support the ruble since August as foreign investors fled after the war with Georgia and oil demand plunged. - George White See FT story See Bloomberg story Categories Deal Video
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