Maybe. Here is a bearish view - down, down, and more down because
of corruption... I'm an optimist - as long as valuations and
political situation (the greatest danger now) support it. Russia
faces elections soon, and the ruble devaluation is not
something politicians want. I have read that up
to 70%-90% of fresh berries,
apples, poultry, etc. are produced by Russians on their dachas
for consumption, not bought, because salaries are too low or are
delayed. Is there much need for devaluation
under these conditions? I have no idea. Russian labor is on
average 10 times cheaper than US. While CHV and XON go higher,
Russian oil and other firms have lots of room for restructuring and
improving their efficiency even at these oil prices.
-Vi
Russia Mends Ways for IMF, But 'Oligarchs' Still Dominate
Parliament wrestled with reforms this week. But graft still
needs to be tackled.
Russian President Boris Yeltsin and his entourage of young economic
reformers are facing an almost impossible choice.
They can continue to coddle a limping economy burdened by
widespread graft and inefficiency. Or they can implement much-needed
tax reforms, restructure their crushing internal debt, and slash
rampant government spending.
The first option carries the danger of imminent financial meltdown.
The second risks setting a match to a powder keg of popular
frustration.
The lower house of parliament, or Duma, is dragging its feet. With
billions of dollars hinging on passage of a government austerity
package, lawmakers continued to be bogged down in acrimonious debate
at press time.
Most observers agree that Russia's hefty new loan package has
brought a welcome respite to the country's troubled economy. A serious
cash shortage, compounded by growing social and political unrest, was
threatening to plunge Russia into chaos.
On Monday, the International Monetary Fund (IMF), World Bank, and
Japan announced an agreement on $17.1 billion in new loans for Russia,
adding to $5.5 billion in existing loans.
The promise of rescue was enough to send Russian financial markets
soaring Monday and Tuesday, while high interest rates on treasury
bills were slashed nearly in half.
The bailout package alone will not solve Moscow's problems,
however.
''The main value of the loans is psychological,'' says Al Breach,
an economist at the Russian-European Center for Economic Policy in
Moscow. ''It will calm people down, avert panic, and restore
confidence in Russia's markets.''
Although outside forces, such as the worldwide drop in commodities
prices and the backlash from the Asian financial meltdown, undoubtedly
have exacerbated Russia's woes, the main cause of its distress is
corruption at home.
A small number of business and banking leaders with close ties to
the government control the bulk of the country's financial resources,
as well as the major media outlets.
After financing Yeltsin's reelection campaign in 1996, these
''oligarchs'' have demanded their share of the spoils. They receive
them in the form of tax breaks, advantageous terms for the
privatization of state companies, and official indulgence of
questionable accounting practices.
All this has drained money from the state coffers and fostered
widespread anger and frustration among the population.
''The government has been subsidizing its friends,'' says Peter
Ekman, professor of finance at the American Institute of Business and
Economics in Moscow. ''This cozy relationship between top members of
the government and the 'oligarchs' has to end.''
Unless Russia's energetic government team, led by Prime Minister
Sergei Kiriyenko, can break the oligarchs' stranglehold on the
country, all reform efforts may lead to failure.
With plenty of cash and access to the airwaves - and, of course,
their entree into the halls of political power - they continue to
exert considerable influence.
''Kiriyenko will not be able to do anything serious,'' says Andrei
Piontkowsky, director of Moscow's Center for Strategic Studies. ''The
nexus of power, money, and the mass media will keep everything the way
it was.''
That could be bad news for Russia. The IMF has attached a series of
conditions to the funds it is lending. First among them is passage of
the government's austerity package by both houses of parliament. The
upper house gave its approval last week. But the bill faced a tougher
fight in the Duma, as lawmakers rejected several key planks of the
austerity package.
The austerity measures are also likely to meet fierce resistance on
the ground. The government has pledged to cut spending and raise tax
revenues, which will put even more pressure on some sections of an
already impoverished population. Protests and strikes are already
sweeping the nation - and could worsen.
The skittishness of foreign investors is also holding back the
development of Russia's fledgling market economy, analysts say. And
the emergency loan is unlikely to tempt back those who fled at the
onset of the crisis.
Russia may be running out of time. If it fails to enact reform now,
it could find itself without a financial safety net during the next
crisis.
''When the situation repeats itself in three months to a year,
there will be no more bailouts,'' Professor Ekman at the American
Institute says. |
