Ulyukayev Says Extra $92Bln to Be Printed

19 February 2009 (The Moscow Times) The Central Bank said it would print an extra 3.2 trillion rubles ($92.03 billion) to cover this year's budget deficit without causing further declines in the country's forex reserves.

The currency slid to its lowest position against the dollar in 11 years on Wednesday, hitting 36.56 per dollar and edging close to the 41 level against a dollar/euro basket, which the Central Bank has vowed to defend with its foreign currency reserves.

Rating agencies are closely watching the size of Russia's reserves, still the world's third-largest at $383.5 billion, which lost over a third of their value because of the Central Bank's policy of gradual depreciation of the ruble.

The government keeps $222 billion of rainy day savings in foreign-currency accounts in the Central Bank and will need about $90 billion to cover the budget deficit. Many analysts say this will deplete the reserves even further.

"This suggestion is methodologically wrong," the Central Bank's First Deputy Chairman Alexei Ulyukayev said in an interview cleared for publication on Wednesday.

"Roughly speaking, our reserves will be $100 billion more in 2009 than some analysts had thought. And surely they can be used for purposes corresponding to the international definition of reserves," Ulyukayev said.

The government is currently working on a budget deficit assumption of 8 percent of GDP for this year, which Ulyukayev said would equal around 3.2 trillion rubles from the $137.3 billion Reserve Fund, part of the rainy day savings.

"At today's exchange rate, that is around $90 billion, they must be sold by the government to us ... and we will [print] 3.2 trillion rubles, which will be used to fulfill budget obligations," Ulyukayev said.

He added that the same process would apply if the government decided to use some of its $84.5 billion National Wealth Fund, also kept at the Central Bank, to issue subordinated loans to the country's struggling commercial banks.

Ulyukayev said the move would not be inflationary, as it will be compensated by a reduction in the liquidity offered to commercial banks. The Central Bank is for now sticking by its inflation forecast of 13 percent this year.

"If the government increases the budget deficit by 1 percent of GDP, that means we must reduce loans to banks by 1 percent of GDP," Ulyukayev said. "If that happens, then the impact on inflation is zero."

Ulyukayev said the Central Bank has been raising rates and cutting limits on collateral-free loans to commercial banks -- the easiest form of refinancing used by banks to borrow 1.9 trillion rubles from the regulator.

He said that for the purpose of containing inflation, the exchange rate policy at the moment was more important than fiscal policy.

"If we can dampen devaluation expectations and there will be an understanding that the exchange rate will stay within boundaries written in the budget, we will meet the 13 percent inflation target," Ulyukayev said.

Ulyukayev said inflation rates may jump in February or March, as prices for imported goods come into line with the weaker ruble, but will then stabilize.

Finance Minister Alexei Kudrin has said inflation could reach 14 percent, up from 13.3 percent in 2008.

Prime Minister Vladimir Putin said the deficit should stay within limits recommended by the Central Bank and the Finance Ministry in order not to fuel inflation.
(Comment by Michaell Baehr) The Russian's seem to be solving their monitary problems
in the time honored way of printing more money

Thousands Rally Over Economy

02 February 2009, By Alexandra Odynova, Staff Writer (The Moscow Times) Angered over mounting economic problems, thousands of people took to the streets in Moscow and other cities around Russia over the weekend to denounce President Dmitry Medvedev and Prime Minister Vladimir Putin in the largest display of public discontentment in years.





United Russia, the party that dominates Russian politics and is led by Putin, brought thousands of people to Manezh Square near the Kremlin to rally in support of Putin and Medvedev.





The largest anti-government rally took place Saturday in Vladivostok, where the Communist Party led some 2,500 people in a march against the government and a recent decision to increase tariffs on imported cars. The livelihood of many local residents depends on imported cars.





Vladivostok protesters carried banners reading, "Kremlin, we are against you," and some shouted slogans for Putin to resign, news agencies reported.





Vladivostok police kept a close eye on the unauthorized rally but did not intervene. The police violently dispersed a similar protest in December, detaining about 100 people.





In Moscow, about 1,000 Communist demonstrators gathered with signs reading "Putin's plan — Peril to Russia!" at a sanctioned rally on Triumfalnaya Ploshchad, near the Mayakovskaya metro station. Communist leader Gennady Zyuganov called on the government to abandon Western economic models and nationalize broad swathes of the economy.





The 90-minute demonstration was cordoned off by hundreds of OMON riot police, and a helicopter patrolled the sky over central Moscow.

(Comment by: Michael Baehr) LET'S GO BACK TO THE USSR!

‘Goth Butcher’ and Accomplice Allegedly Ate Girl in Pie

Two young men — one of them a butcher — have been arrested on suspicion of killing and dismembering a 16-year-old girl and eating parts of her body, Russian prosecutors said Wednesday.

Media speculation has suggested that the suspects styled themselves as “Goths” or were part of the “emo” youth culture in which young people dye their hair, have face piercings and wear hoodies and drainpipe trousers.

“Goths ‘ate girl in a pie’” was a headline in Britain’s Mirror tabloid on Thursday.

The girl disappeared after leaving her home in St. Petersburg for school on Jan. 19, city prosecutor spokesman Sergei Kapitonov said. He said she was killed that night, and that body parts believed to be hers were later found in plastic bags scattered around the city.

Police arrested Yury Mozhnov, a florist, and Maxim Golovatskhikh, ...

(comment by Michael Baehr)
The Russians are getting hungry!

style="text-align: left;">Police Investigate Calls To GM Union Leader

Police Investigate Calls To GM Union Leader

By Irina Titova

Special to The St. Petersburg Times

St. Petersburg police are investigating a series of anonymous threatening phone calls made to the head of the trade union for the city’s General Motors plant Yevgeny Ivanov, the city police press service said on Thursday.

"The police are checking the situation and questioning employees of the plant on the matter," said Vyacheslav Stepchenko, spokesman for the city police.

Ivanov said he had received at least four anonymous calls in the last few weeks with threats and demands to stop union work at the plant. Ivanov fears not only for his own safety but also for the safety of his family. Ivanov has two children.

Ivanov received the first call in early December. Later his wife received another call in which the caller said that "if her husband did not stop his activities, they knew which kindergarten one of their children attends," Ivanov said.

Two other threats followed before Ivanov went to the police.

Sergei Lepnukhov, spokesman for GM, said he didn’t know about any threats received by Ivanov.

"We need to find out more about that situation, and only then to comment. First we need to figure out if those threats have any relation to the company," Lepnukhov said.

Valery Pirozhkov, curator of the city’s Trade Union Center of the Russian Labor Confederation, said "such threats should be taken seriously."

"We have the example of Alexei Etmanov, head of the Ford car-making plant’s trade union, who also previously received threats and later had problems," Pirozhkov said.

Etmanov was attacked twice in November and considers the incident to be connected to his public and trade union activities.

Meanwhile, Ivanov said GM workers are worried about the plant’s plans to slash the working week to three days after restarting the assembly line on Feb. 9 after the New Year break.

"I know of cases when high quality workers have decided to leave the plant because they won’t be able to feed their families on the new salary. They are looking for better paid jobs," Ivanov said.

St. Petersburg’s GM plant is shortening the working week after its U.S. owners said Tuesday it is cutting production in Russia as demand declines in a market only recently described as the largest in Europe.

The cuts affect GM’s new plant outside St. Petersburg and its venture with Russian manufacturer AvtoVAZ in Togliatti. GM’s Chevrolet is the best-selling foreign car brand in Russia.

Lepnukhov said the three-day week will be in place for the next few months, AP reported.

GM opened its new $300 million plant outside St. Petersburg in November with plans to produce 70,000 Chevrolet and Opel cars a year.

But with the Russian market already contracting, the plant closed down for an extended break from Dec. 20 to Jan. 19.

Production resumed for only one week before being shut down again.

In Togliatti, the GM AvtoVAZ venture is cutting back to one shift and laying off some 400 workers, about one-third of the workforce, company spokeswoman Lyudmila Murycheva said, AP reported.

The production cuts in Russia come as GM cut 2,000 jobs at two U.S. plants and halted production for several weeks at nine other U.S. factories. The U.S. car industry is facing its worst sales slump in 26 years.

Foreign car sales in Russia rose 26 percent in 2008, continuing a trend of several years, but were down 15 percent in November and 10 percent in December.

(Comment by Michael Baehr:) It looks like Chevies arn't selling in Russia either.

Mail to:MFBAEHR@COMCAST.NET

BETWEEN ART AND POLITICS

By Nina Khrusheva, The St Petersburg Times

The fact that Russia is supposedly bad doesn’t make the United States better — or better off — at the end of George W. Bush’s presidency, when it is mistrusted by the world and is bogged down by two wars and a severe economic crisis. In this environment, is Russia a threat to the United States? Unlikely, but branding it as a dictatorship revives the old fears and diverts attention from the immense problems Washington faces today.

Barack Obama’s presidency promises to usher his country into a new era of post-unilateral decision-making, international diplomacy and coherent foreign policy making. This new era should also, perhaps, end senseless public animosity toward Russia that has continued since 1991, when the Soviet Union lost the Cold War and disappeared.

Becoming the world’s only superpower proved very damaging to the United States. It is no surprise that U.S. overconfidence bred hubris. In the 1990s, President Bill Clinton’s administration tirelessly reminded the former Soviets that they, the losers, should unwaveringly follow the lead of the all-powerful United States. President Boris Yeltsin’s privatization program was not speedy enough, at least as judged in a Washington anxious to spend as little as possible helping Russia. Any thoughts of a Marshall Plan to ease Russia’s path were dismissed in Washington as welfare for the communists.

Russia is certainly far from perfect, and its current return to authoritarianism is not all, or even mostly, Washington’s fault. But the economic arrogance from the Clinton era, coupled with the political egotism of the Bush years, was not a sound strategy, at least in terms of impact on Russia. Wagging the dog of Putinism can serve only one purpose — to appeal to the familiarity of the communist threat in order to cover up the United States’ own imperfections.

A CNN conversation with high school students once revealed that some of them equate Putin with Osama bin Laden, arguing that a diplomatic sit-down is not possible with either. What this “young generation of future policymakers” should have known is that although Russia continues to occupy 11 time zones, it’s not the Soviet Union, no longer communist or locked in self-imposed isolation from the world. But even Thomas Friedman, The New York Times foremost authority on internationalism, in one interview called Putin’s Russia “the Soviet Union.” Although Putin is by no means the ideal democrat, he is no Stalin either.

Indeed, how much better was Pervez Musharraf, the former Pakistani president whom the Bush administration hailed as a beacon of democracy even as the Taliban regrouped in his country’s tribal regions? Or Afghanistan’s Hamid Karzai, another purported democrat who arguably presides over the most corrupt government in the world? What about Georgian President Mikheil Saakashvili, a politician who under the guise of democracy has been silencing Georgians who protest his rule? Then there are of course Hugo Chavez and Mahmoud Ahmadinejad. And the United States’ own claim to fame was former Vice President Dick Cheney, a perverse constitutional theorist and modern Dr. Strangelove if there ever was one.

But Russia is the butt of political jokes, the focus of Sarah Palin’s foreign policy ire and the new Red Scare for The New York Times. And let’s not forget Hollywood, where the Russians have returned, after a brief interval, as the designated bad guys. In the latest “X-Files: I Want to Believe,” Russians are the horrible dog trainers and organ harvesters; in the 2004 “Hellboy,” the mummified Grigory Rasputin seeks to spread evil around the world; in “Hitman,” we have a bad Russian president, his criminal double and his corrupt brother; even in the Coen brother comedy “Burn after Reading,” Russia is made into an enemy, albeit a fake and funny one. In “The Golden Compass,” the latest in a series of grand fairy tales that attempted to take Americans’ mind off their troubles, the villainous animals speak perfect Russian.

We all need a good enemy. As U.S. Defense Secretary Robert Gates once shrewdly pointed out, the talk of a new Cold War fills him “with nostalgia for a less complex time.” Indeed, the world made a glib sort of sense back then — communism vs. capitalism, good vs. evil empire.

Terrorism is too amorphous, bin Laden you actually have to catch and the Arabs as the enemy is, somehow, politically incorrect.

We shouldn’t be unfair to the Chinese. They too would make an excellent adversary, but China is too mysterious for a simple us-versus-them confrontation with its middle kingdom of Jet Li, kung fu and capitalists posing as communists. China also produces toys, medicine and everything else for U.S. consumers; even if tainted, leaded or spiked, there is no living without them.

Russia, on the other hand, remains a distant land of ballet, bombs and Dostoevsky. The Cold War mystery has defrosted, but the familiarity of the threat remains conveniently alive.

What makes Russia a great enemy is that unlike bin Laden, you don’t need to worry too much about it — not yet. But if the Russians continue to be treated as if the first Cold War never ended, the new Cold War will actually arise.

Nina L. Khrushcheva, professor of international affairs at The New School University in New York, is the author of “Imagining Nabokov: Russia Between Art and Politics.”

(Comment by Michael Baehr:) Maybe you could interview Nina on "ON THE ECONOMY".

COPYRIGHT, 2009, M.F. BAEHR, SEATTLE, WA, USA

Mail to:MFBAEHR@COMCAST.COM

HTTP://WWW.COMCAST.NET/~MFBAEHR

h2>

The fact that Russia is supposedly bad doesn’t make the United States better — or better off — at the end of George W. Bush’s presidency, when it is mistrusted by the world and is bogged down by two wars and a severe economic crisis. In this environment, is Russia a threat to the United States? Unlikely, but branding it as a dictatorship revives the old fears and diverts attention from the immense problems Washington faces today.

Barack Obama’s presidency promises to usher his country into a new era of post-unilateral decision-making, international diplomacy and coherent foreign policy making. This new era should also, perhaps, end senseless public animosity toward Russia that has continued since 1991, when the Soviet Union lost the Cold War and disappeared.

Becoming the world’s only superpower proved very damaging to the United States. It is no surprise that U.S. overconfidence bred hubris. In the 1990s, President Bill Clinton’s administration tirelessly reminded the former Soviets that they, the losers, should unwaveringly follow the lead of the all-powerful United States. President Boris Yeltsin’s privatization program was not speedy enough, at least as judged in a Washington anxious to spend as little as possible helping Russia. Any thoughts of a Marshall Plan to ease Russia’s path were dismissed in Washington as welfare for the communists.

Russia is certainly far from perfect, and its current return to authoritarianism is not all, or even mostly, Washington’s fault. But the economic arrogance from the Clinton era, coupled with the political egotism of the Bush years, was not a sound strategy, at least in terms of impact on Russia. Wagging the dog of Putinism can serve only one purpose — to appeal to the familiarity of the communist threat in order to cover up the United States’ own imperfections.

A CNN conversation with high school students once revealed that some of them equate Putin with Osama bin Laden, arguing that a diplomatic sit-down is not possible with either. What this “young generation of future policymakers” should have known is that although Russia continues to occupy 11 time zones, it’s not the Soviet Union, no longer communist or locked in self-imposed isolation from the world. But even Thomas Friedman, The New York Times foremost authority on internationalism, in one interview called Putin’s Russia “the Soviet Union.” Although Putin is by no means the ideal democrat, he is no Stalin either.

Indeed, how much better was Pervez Musharraf, the former Pakistani president whom the Bush administration hailed as a beacon of democracy even as the Taliban regrouped in his country’s tribal regions? Or Afghanistan’s Hamid Karzai, another purported democrat who arguably presides over the most corrupt government in the world? What about Georgian President Mikheil Saakashvili, a politician who under the guise of democracy has been silencing Georgians who protest his rule? Then there are of course Hugo Chavez and Mahmoud Ahmadinejad. And the United States’ own claim to fame was former Vice President Dick Cheney, a perverse constitutional theorist and modern Dr. Strangelove if there ever was one.

But Russia is the butt of political jokes, the focus of Sarah Palin’s foreign policy ire and the new Red Scare for The New York Times. And let’s not forget Hollywood, where the Russians have returned, after a brief interval, as the designated bad guys. In the latest “X-Files: I Want to Believe,” Russians are the horrible dog trainers and organ harvesters; in the 2004 “Hellboy,” the mummified Grigory Rasputin seeks to spread evil around the world; in “Hitman,” we have a bad Russian president, his criminal double and his corrupt brother; even in the Coen brother comedy “Burn after Reading,” Russia is made into an enemy, albeit a fake and funny one. In “The Golden Compass,” the latest in a series of grand fairy tales that attempted to take Americans’ mind off their troubles, the villainous animals speak perfect Russian.

We all need a good enemy. As U.S. Defense Secretary Robert Gates once shrewdly pointed out, the talk of a new Cold War fills him “with nostalgia for a less complex time.” Indeed, the world made a glib sort of sense back then — communism vs. capitalism, good vs. evil empire.

Terrorism is too amorphous, bin Laden you actually have to catch and the Arabs as the enemy is, somehow, politically incorrect.

We shouldn’t be unfair to the Chinese. They too would make an excellent adversary, but China is too mysterious for a simple us-versus-them confrontation with its middle kingdom of Jet Li, kung fu and capitalists posing as communists. China also produces toys, medicine and everything else for U.S. consumers; even if tainted, leaded or spiked, there is no living without them.

Russia, on the other hand, remains a distant land of ballet, bombs and Dostoevsky. The Cold War mystery has defrosted, but the familiarity of the threat remains conveniently alive.

What makes Russia a great enemy is that unlike bin Laden, you don’t need to worry too much about it — not yet. But if the Russians continue to be treated as if the first Cold War never ended, the new Cold War will actually arise.

Nina L. Khrushcheva, professor of international affairs at The New School University in New York, is the author of “Imagining Nabokov: Russia Between Art and Politics.”

Crisis Puts Putinomics to the Test

By Anders Aslund

Suddenly, Russia stands out as one of the countries likely to be worst hit by the international financial crisis, although it entered the crisis with huge budget and current accounts surpluses since 2000 and the third-largest currency reserves in the world. It would be unfair to blame only international markets, as Prime Minister Vladimir Putin does, considering how flawed his own economic policy is.

Apart from Russia's excellent fiscal policy, just about everything has been wrong with the country's economic policy since authorities arrested former Yukos CEO Mikhail Khodorkovsky in October 2003. Shortly after this, Yukos was confiscated. The only significant short-term relief is to free the ruble so it can depreciate. Apart from the very fall in oil and other commodity prices and the international liquidity squeeze, Putin has caused the lion's share of the country's current economic problems.

Initially, Russia was hit with a huge exogenous shock when its terms of trade deteriorated sharply because of the sudden fall of oil, gas, metals and other global commodity prices. With current commodity prices, the country's exports next year could plummet by some 40 percent in current dollars, or by $200 billion. Budget and current account surpluses will quickly turn into deficits.

Russia is praised for its large currency reserves and its limited domestic leverage, but it suffers from minimal domestic financial intermediation because inept state banks dominate the financial market. The state takes money out of the country, while its big corporations are forced to borrow abroad, maximizing their currency risk. If Russia had privatized its banking system as most other post-Soviet countries, its companies would suffer from fewer currency risks.

Putin's chief project has been to develop huge, unmanageable state-owned mastodons, considered "national champions." They have stalemated large parts of the economy through their inertia and corruption while impeding diversification. In addition, they have financed themselves with foreign loans rather than equity, and this has aggravated the country's currency risks.

Russia's nationalistic energy policy after 2003 has stalled the development of major new energy investments (apart from the Sakhalin projects, which date back to the Boris Yeltsin era). Gazprom and Rosneft have financed themselves with foreign debt rather than with equity capital, accounting for almost one-fifth of Russia's corporate foreign debt of $490 billion. Gazprom's aggressive pricing and delivery disruptions have scared away customers, reducing the demand for its gas.

Huge public funds are being diverted to state corporations, which either hoard the money or siphon it off. In their new book "Putin and Gazprom," Boris Nemtsov and Vladimir Milov have offered a staggering and credible account of how Putin and his friends pilfered assets of $80 billion from Gazprom during his second term as president. Investors have taken notice, slashing Gazprom's market capitalization from $350 billion last spring to $70 billion at its nadir. Although Russia is the 46th-richest country in the world in per capita terms, it is ranked 147 out of 180 countries on Transparency International's corruption perception index for 2008. Only Equatorial Guinea is both richer and more corrupt than Russia.

Under Putin, transparency has systematically been reduced, and we no longer dare to trust the government's public statements on its currency reserves. Officially, they have declined by $163 billion, or 28 percent, from $598 billion in early August to $435 billion in early December. But when Vneshekonombank was given $50 billion of state reserves to help Russian oligarchs with refinancing, nothing was deducted from the official reserves as it should have been. In an article on Gazeta.ru on Oct. 24, Alexei Mikhailov plausibly claimed that another $100 billion or $110 billion of "other reserves" had been transferred to the banking system and were nothing but rubles. To my knowledge, no official denial has been issued. If that were correct, the reserves have fallen by more than half to less than $300 billion, but the government sheds no light on this.

Russia's largest corporations have turned out to be much more leveraged than anybody had thought. The government has made clear that it will refinance their foreign loans to secure "strategic" ownership. So far, $13 billion has been paid, out of which United Company RusAl has received $4.5 billion and Altima $2 billion, but such private pledges are huge. Vneshekonombank has $37 billion left to spend, but it has already asked for $30 billion more from the government, and more is likely. Thus, Russia can swiftly lose more than $100 billion of reserves.

Putin has persistently denied that anything is wrong with the country's economic policy, while everything but its fiscal policy has been wrong. Domestic and foreign businesspeople realize that he does not talk about reality, which undermines confidence in the Russian market. Without free public debate, rational policy decisions are unlikely.

Incredibly, the government is repeating its mistake from 1998 to maintain a pegged exchange rate in the face of falling commodity prices. Until this summer, this policy provoked speculative capital inflows that boosted the money supply excessively and propelled inflation to 15 percent. Now, the pegged exchange rate, which is probably overvalued by up to 25 percent, promotes speculative capital outflows, quickly reducing the currency reserves. Devaluations in very small steps only convince the market that a major depreciation is inevitable. The coming combination of loose fiscal policy, negative real interest rates, current and capital account deficits and an overvalued ruble is unsustainable. The incentives for capital flight are overwhelming.

The global economic crisis is testing Putin's system. He has undermined the ground under the house Yeltsin built, transforming the country into a house of cards ready to tumble. He has wasted the oil wealth rather than investing it in infrastructure, health care, education and law enforcement reform. Russia needs fundamental change; above all, it needs to uproot -- or at the very least contain -- the country's pervasive corruption, which has gotten markedly worse under Putin. Nothing would serve the country better than the retirement of the failed prime minister, but that is evidently not in the cards.

One of the few policy measures that can be undertaken with Putin still in power is to let the ruble float freely, move to inflation targeting and boost interest rates to positive real interest rates. A commodity-exporting country needs to let its exchange rate float up and down with global raw material prices to balance its foreign payments. At present, all speculators sensibly bet on a ruble devaluation, just like in 1998, which quickly depletes the country's currency reserves. When the ruble is allowed to float, it is likely to plummet. But after that, nobody knows whether it will rise or fall, and this will reduce speculation and losses of currency reserves.

Does anybody still believe that Russia's economy will grow in 2009?

(Comment by Michael Baehr)Vlad Putin wants to go back to the good old days and blame capitalism for all that ails the world.