ken..Wouldn't it be funny is Putin is right and obama is wrong or left?
Well maybe not funny..but it would show the world just how bright obama is.
Russia retreats from costly bail-outs
The euro has fallen sharply on mounting fears of a financial crisis in Eastern Europe after Kazakhstan devalued by a fifth and Fitch Ratings cut Russia's debt to BBB, just two notches above junk.
By Ambrose Evans-Pritchard
05 Feb 2009
telegraph.co.uk
Both countries have seen a collapse in tax revenues following the oil price crash over the past six months. Fitch said the Russian economy would grind to a halt this year, leading to strains in the banking system.
"The scale of capital outflows and the pace of decline in Russia's foreign exchange reserves have materially weakened the sovereign balance sheet. The fall in commodity prices and the dislocation of the global capital markets has left Russian banks and companies struggling to refinance external debt," said Edward Parker, head of Fitch's team in Eastern Europe.
Russia's finance minister, Alexei Kudrin, told reporters in London that the Kremlin was preparing a fresh rescue for the banks, injecting $40bn in core capital. But he gave warning that it would not squander taxpayers' money saving every Russian company in distress. "The government is not responsible for private sector risks," he said.
This is a major shift in policy. Mr Kudrin had been mulling blanket guarantees for some 260 companies, but the Kremlin has clearly awoken to the danger that global investors will not underwrite such a strategy.
The euro dived almost 2pc against the dollar in early trading to $1.2853 as traders digested the news, fearing that rising instability in the region will increasingly spill over into core Europe. The markets are watching closely to see if the Kremlin can maintain civil order in the face of spreading protests without resorting to police coercion on a large scale.
Fitch said capital outflows from Russia had reached $94bn in the fourth quarter of last year, a pattern that "might continue if there is an ongoing lack of confidence in the country's financial outlook and institutions". Russia's foreign reserves have plummeted by $210bn from their peak last summer, falling to $385bn.
Russian companies may have trouble rolling over some $140bn of external debt (mostly dollars), especially after the 35pc slide in the rouble over recent weeks. "This will be a drain on foreign exchange reserves," said Mr Parker.
Lars Rasmussen, East Europe strategist at Danske Bank, said Russian companies had amassed $508bn of foreign debts (30pc of GDP). "There is a risk of corporates not being able to meet debt payments," he said.
The Kremlin is to announce a major belt-tightening package today as it adjusts to oil prices at around $40 a barrel. The current long-term budget is based on assumptions of oil at $95. The lion's share of the government's revenues come from oil and gas.
Meanwhile, the Kazakh central bank has finally been forced to let the tenge fall by 22pc, an inevitable move once Russia had let the rouble fall. The move raises fresh questions about the strength of the country's banks, which have to roll over half their $40bn foreign debts this year. Devaluation adds to the burden. "We cannot discount further nationalisation moves," said Luis Eduardo Costa, an analyst at Commerzbank.
Oliver Weeks from Morgan Stanley said Kazakhstan's move "reinforces the spiral of competititve depreciation in the region, forcing further devaluations." |
