Russia mulls tapping capital markets to help finance Moscow’s yawning public deficit

November 5th, 2009 4:36pm

By Stefan Wagstyl, the FT’s eastern Europe editor

Among the many would-be borrowers planning to raise money from the capital markets before the current rally fades is the Russian government.

Alexei Kudrin, finance minister, has been talking to bankers and fund managers in London about a proposed bond issue to help finance Moscow’s yawning public deficit. He will not want to be reminded that the last time the Russian authorities tapped the market was shortly before its 1998 default.

Nobody is suggesting that the same could happen again - given the careful way that Russia has managed its accounts in the last decade, stashing away surplus oil and gas export revenues for a rainy day. But those reserves are draining away fast - hence Mr Kudrin’s visit.

One key element has changed little since 1998 - the country’s dependence on oil and gas. Repeated promises to diversify the economy have gone nowhere. The current crisis has clearly not been bad enough for Russia to force any serious policy changes. And now that oil has recovered to around $80 a barrel, up from near $30 earlier this year, the pressures are easing rapidly.

In the short-term, that is good for Russia - and will help in getting the bond away. But in the long-term, it delays the development of a diversified modern economy able to repay its bondholders whatever the financial climate.

Russians, Pakistanis and Tories in Manchester

October 6th, 2009 11:19am

I am in Manchester at the last Conservative Party conference before the next British general election. The Tories should be jubilant because they are all but certain to win and return to power, after thirteen years in the wilderness. There is certainly a buzz about the place. But the party is trying to avoid any hint of triumphalism. Champagne has been banned from the conference hotel, to avoid television pictures of champagne-swilling toffs, celebrating prematurely in the midst of a recession. My colleague Phillip Stephens attempted to buy a bottle of champagne at bar at the Midland Hotel (purely in the interests of research) and was turned away. Frankly, he was lucky not to be handcuffed.

While most conference-goers are understandably focussing on the British political battle, people from all over the world are drifting through Manchester this week, to get a sense of Britain’s government-in-waiting. Last night I went to a dinner with Boris Nemtsov, the former deputy prime minister of Russia, and now a leading figure in the opposition. I was fascinated to hear what Nemtsov had to say about the Putin-Medvedev relationship. American officials I have spoken to are very intriuged by what they see as a nascent power struggle between the Russian president and prime minister. They point to Medvedev’s recent published critiques of lawlessness in Russian society and interviews with the independent press, as a sign that he is pushing back against Putin. The Americans even think that Medvedev might run against Putin for the presidency in 2012. Continue reading "Russians, Pakistanis and Tories in Manchester"

Further reading

July 28th, 2009 1:34pm

Peacekeepers declare war on climate change, boy scouts in reserve: Richard Gowan in Global Dashboard

European-Moroccans and the lives they lead: Charlemagne’s notebook in The Economist

Diplomacy 101 from Joe Biden: This post from Daniel W. Drezner in Foreign Policy presciently foresaw that the Russians would be distinctly unamused by Joe Biden’s remarks

Further Reading

July 22nd, 2009 1:12pm

Self-Fulfilling Prophecy - Christina Larson in The New Republic: A Journal of Politics and the Arts

Obama meets the Lobby - Stephen M. Walt in Foreign Policy  (Walt returns to the subject of his bitterly controversial book, “The Lobby”)

On Versions of Goodness - Bagehot in The Economist

The New Scramble for Africa - Mark Weston in EMEA Finance

Someone give the FT a dose of valium, please - Daniel W. Drezner in Foreign Policy

Listening to Obama’s nukes guy

July 10th, 2009 11:32am

Gary Samore is the kind of sane, well-informed and low-key professional who makes me glad that Obama is now in control of US foreign policy. He works on the National Security Council and has a long and complicated title to do with arms control and nuclear non-proliferation, but he says the president refers to him as “my nukes guy”, which about sums it up. That means that Samore spends his days grappling with some of the most sensitive dossiers in US foreign policy - in particular Iran, Russia and North Korea.

Yesterday he was in London on his way back from the Moscow summit and he gave an on-the-record briefing at the International Institute of Strategic Studies. Naturally there are limits to how frank you can be in such a setting, but I still thought he had several interesting things to say:

First, the nuclear-arms reduction deal agreed in principle in Moscow is essentially a modest first step. The START (strategic arms reduction) treaty runs out at the end of the year, and it is important to have an interim agreement on further reduction - if only to keep the mechanisms for mutual inspections and co-operation going. If they can nail down all the details on this initial relatively modest reduction in nuclear weapons, Samore hopes that Russia and the US will then be able to negotiate a deal for much deeper cuts in nuclear-weapons stock-piles. He says that at that point Russian concerns about missile defence will become more valid. The Americans argue that the system they are working on is so modest that it could only be effective against a country with a very small number of nuclear missiles - such as, potentially, an Iran that went nuclear. Continue reading "Listening to Obama’s nukes guy"

Obama and Netanyahu in public and in private

May 18th, 2009 8:00pm

A senior European diplomat I met last week predicted that the Obama-Netanyahu talks would be “very tough in private, but very calm in public.” Well, the two leaders have just emerged and staged a brief press conference and - in public - they were indeed leaning over to be nice to each other.

Netanyahu, often self-confident and aggressive in private, was a real pussy-cat. He was clearly eager to sound reasonable and optimistic. There were no dark warnings about impending Armageddons. Instead he talked about a moment of unique opportunity in the Middle East because Arabs and Israelis “see a common threat”. Perhaps it was just a different way of talking up the threat of Iran - but it sounded more positive. The Israeli leader also kept emphasising what a great friend of Israel Obama is; there was no overt effort to question the president’s committment to Israel’s security - even though what Obama had to say (and his manner) was very different from the back-slapping, unquestioning support for the Israeli point of view that George W. Bush used to offer. Continue reading "Obama and Netanyahu in public and in private"

Russians sing an ode to energy diplomacy

May 14th, 2009 12:42pm

Officially, Russia does not use energy as a political weapon - and the gas cut-offs to Ukraine are no laughing matter. Unofficially - well, take a look at this video recorded in a Moscow theatre earlier this year.

Pressing the re-set button in Georgia

March 25th, 2009 12:51pm

As diplomatic gaffes go, it will be hard to surpass Hillary Clinton presenting Sergei Lavrov, the Russian foreign minister, with a “Re-set” button. This was meant to signify a fresh start in US-Russian relations. But unfortunately the Russian words next to the button actually translated as “Self-Destruct” - which more or less confirms the most paranoid Russian views of what the Americans have in mind for them.

Still - translation problems aside - America’s intent is clear. The Obama administration wants a new and better relationship with Russia. They want Russian help on all sorts of tricky issues, in particular Iran. If at all possible, the Americans want to cool down old arguments over issues like missile defence - and Georgia.

Unfortunately, it may not be possible. A new crisis over Georgia is looming, and could erupt quite soon. On April 9th, large-scale anti-government demonstrations are scheduled to take place in Georgia. The opposition are demanding that President Mikheil Saakashvili resign. That would suit the Russians extremely well - since they loathe Saakashvili. The Russian government is also convinced that there was an American-hand behind the Rose and Orange revolutions in Georgia and Ukraine. They will doubtless be giving support - and perhaps more - to the anti-Saakashvili opposition in Georgia in a couple of weeks time. Even without outside assistance, the demonstrations could easily turn violent - on both sides.

Turmoil in Georgia and the possible downfall of Saakashvili would present the Obama administration with an acute dilemma. Saakashvili still has many friends in Washington - and there would be lots of pressure to come to his support, particularly if it was felt that he was falling victim to a Russian-engineered coup. But a new crisis over Georgia would mean that the thaw in US-Russian relations had lasted little more than a few weeks.

Cutting the gas, again

January 7th, 2009 7:43pm

The newspaper headlines in London proclaim that the temperature will drop to -10, and that Russia has just cut the gas supply to western Europe - again. And yet the reaction here, seems rather less alarmed than the first time this happened back in 2006.

Why? For three reasons, I think. First, bad news is always slightly less shocking, the second time around. Second, there is now more of a sense that this is a genuine economic dispute, as much as a Russian power-play. There are real arguments to be had about Ukrainian debts to Gazprom, and the price Ukraine pays for its gas.

But the most important reason is that Europe is actually rather less in thrall to Russian gas than we first thought. In Britain, just 3% of our energy needs are met by Russian gas. Pierre Noel of Cambridge University summarised the situation rather neatly in a recent paper  for the European Council on Foreign Relations called “Beyond Dependence: How to Deal with Russian Gas”. Continue reading "Cutting the gas, again"

Unrest in Russia

December 21st, 2008 9:29pm

Funny, how quickly things can go sour. The Russian government is the latest to face social unrest, linked to the global economic crisis. As blog-readers might have gathered, I was in Ukraine last week - and a Russian economist mentioned to me that there were demonstrations in Vladivostock against the new tariff on car imports. The FT is now reporting that the trouble is spreading.

More broadly, the Russian government is facing a serious economic crisis on several fronts. Just six months ago, its huge pile of almost $600 billion in foreign reserves seemed a symbol of the country’s new-found strength. But they have got through roughly a quarter of that in just three months - mainly through supporting the rouble. At this rate, it will all be gone well before the end of 2009. That is not an entirely implausible scenario, because the fiscal pressures on the Russian government are only likely to grow over the next year. Official projections are still that the economy will grow by about 3%; but private-sector economists in Moscow are talking about a deep recession. With oil down at just over $40 a barrel, the cash-spigot has been turned off.

There is a danger that, as the government comes under increasing fiscal pressure, it will be tempted to raid the foreign reserves for ordinary budget spending - espescially if the alternative involves cutting social spending and risking further popular unrest. Local governments are also likely to be screaming for financial support from Moscow.

The whole Putin phenomenon has been based on oil wealth and economic growth. So what happens now?