Russia’s new swagger leaves west groping for right response

[phoebe]

http://news.ft.com/cms/s/01a32126-99b2-11da-a8c3-0000779e2340.html

snip

As finance ministers head to Moscow for this weekend’s first big meeting of Russia’s presidency of the Group of Eight industrialised nations, hopes have largely evaporated that Russia would make a special effort this year to prove the doubters wrong about its fitness to hold that post.


Instead, Russia’s presidency has got off to a bumpy and defiant start. Having made energy security its top theme, Russia on its first day in the role turned off gas supplies to Ukraine and Moldova after they refused Moscow’s demands for hefty price increases.

Moscow has also clamped down on non-governmental organisations in the face of US and European criticism. And it has picked a fight with the UK, a G8 partner, over spying allegations that seemed designed mainly to support Russian claims that NGOs are being used as fronts for foreign intelligence

snip

But the hand-wringing over how to deal with Russia is most intense in Washington. There are particular concerns over the west’s perceived lack of leverage now that Russia is no longer dependent on World Bank and IMF loans.

more
apologies if already posted

looks as if Bushco has their hands full at the moment..

[Selatius]

1. Sounds like possible blowback from using the World Bank/IMF on them

They managed to get away from being raped by interest on IMF loans, and now Russia has a thuggish president who isn't afraid to pick fights with western powers. I wonder how Russia's economy would have done had they not accepted help from the IMF/World Bank. Maybe their economy wouldn't have collapsed leaving people nostalgic for the days of strong leaders.

[xchrom]

2. hey they had the world bank/imf treatment so

wanna get a little of their own back.

we were highly unconcerned when so many of their poor were suffering during that time.

why should they care about us?

i'll bet there are some other nations who wanna get some back too.

[phoebe]

3. found a good article referring to Russia's "Black Tuesday"

http://www.okno.com/ewltr/archive/vol3/ru-ruble.html - hard to beleive it was some 11 years ago..

snip

Typically, one of the central triggers to the crisis emerged from politicking in the bureaucracy. The relatively tight fiscal and monetary policies which had successfully brought inflation down to moderate levels were relaxed over the summer when government ministers caved in to pleas for handouts from agricultural and industrial producers. The Central Bank issued credits amounting to an estimated 7 trillion rubles in July and August alone. This has and will continue to push up inflation, which had fallen to 4% per month in August and has since increased to 10% in October. The inflation sparked by these credits prompted the Central Bank to allow the ruble to adjust by dropping in value from 2,000 to the dollar earlier in the summer to nearly 3,000 to the dollar at the beginning of October. A weaker ruble would mean it would take fewer dollars to pay for the budget deficit caused by the increased credits and to pay delayed salaries. It would also serve to protect domestic industry by making imports more expensive.

In September, the Central Bank announced that it would stay out of the currency market in order to preserve its foreign exchange reserves. The scale of previous intervention was revealed on 27 September, when the Bank announced that reserves had fallen below $5 billion after $2.5 billion had been spent in the preceding two months. The Central Bank's unwillingness to intervene led to widespread doubt of the government's commitment to defend the ruble, boosting demand for dollars even further. On Black Tuesday, the Bank intervened only a little, and rather late, in order to halt the ruble from dropping below 4,000 to the dollar. The recovery two days later was partially due to renewed Central Bank intervention. The Bank also raised short-term interest rates to 170% from 130% to help curb currency market speculation.

snip

The government is trying to negotiate with the IMF for $8 billion in stand-by and other credits for this year and a further $6 billion to help stabilize the ruble in 1995. The IMF will most likely not deliver the credits until the government shows that it can cut spending to hold the budget deficit to 5% of GNP next year (compared to 11% at present) and reduce inflation to about 3% per month or less. The government is determined to follow through on its promises to the IMF but is feeling pressure from a wide range of groups, including labor (over unpaid wages), industrial managers, pensioners, etc. The situation intensifies the budgetary struggle with parliament, which will heat up after Mr. Chernomyrdin presents the government's budget to parliament at the end of October. The proposed budget is extremely tight, requiring cuts in almost every sector of the economy.

Western governments will have to agree to support a social safety net if they want to convince Russian politicians to cut subsidies to failing industries. Meanwhile, the politicians are going to be under even more pressure to issue credits in the face of price increases instituted during and after Black Tuesday. These increases in regulated prices are likely to survive challenge, resulting in higher prices across the board. This "cost-push" inflation will further jack up the costs of industry and lower the buying power of employees' wages. Many people with fixed pensions and low wages already cannot afford basic foodstuffs. These people comprise a large fraction of the electorate, and they are ultimately the ones who choose to vote for a reformer like Grigoriy Yavlinskiy or a neo-fascist like Vladimir Zhirinovsky.



Russia appears to have its fingers on the control switch for oil flow which does not sit well with Europe or the US which has major plans to build pipelines guarded by military bases all over the eastern bloc.

[cliss]

4. "Russia's new swagger"

OK: let's review the reasons why Russia would be feeling defiant against the west.

a) Russia has a fairly low per capita income. Acording to our standards, they would be considered a poor country.
b) Russia has a very high mortality rate. Their population is actually decreasing! They are only expecting around 140 million in 10 years, a net decline.
c) They have tons of problems with pollution, alcoholism, smoking, even aids.
d) Russia's satellite states are not feeling much better. They're disgruntled, unhappy. There are some real powderkegs ready to blow.

Now on to the good stuff:
a) Russia has lots of oil. They also have natural gas. They've got lots of natural resources. Whew, Russia is huge, and there are lots of still undiscovered good stuff. This will bring them revenue, and power.
b) They have made friends with America's enemies. Don't forget: the world is re-aligning itself against the U.S. It looks like a shakedown, just what Bush wanted: you're either with us or against us.
c) Most importantly: the US is seen as a "hollow superpower". That "enemy" side may very well start growing in power, while our side starts to sink.

[bemildred]

5. Having weakened Bush's hold on the center or the board,

tying Bush's defenders down in protecting his "advantage" there, Pooty-Poot begins advancing his Kings' Knight's Pawn towards the 8th rank on it's own now open column.