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Claus Vistesen and I also have a number of country briefings and study papers available for download in PDF format. The latest are:

Bank Rossii Eases Further As Russia's Economy Contracts At A Record Rate

The ECB's Balance Sheet At A Glance.

Monday, September 22, 2008

Russian Government Rescue Plan Extended Over The Weekend

Russia’s finance ministry widened the emergency budget funding provision for Russia’s banking system on Sunday, suggesting that despite providing $130bn (€90bn) of additional liquidity to the country’s financial markets the banking system is still under pressure. The number of banks entitled to funding has been expanded from 3 to 28 - previously funding was restricted to the country’s three largest banks, Sberbank, VTB, and Gazprombank.

The finance ministry also said it would provide an additional 600bn rubles ($24.21bn, €17bn) in the form of 3 month credit with a minimum rate of 8.75 per cent. The funding will be auctioned today.

Russia's finance minister Alexei Kudrin met yesterday with representatives of more than 20 Russian banks, who had been arguing for such a measure to be taken since early last week. Bankers had been complaining that government credits provided to the three top banks were not being passed down to them, and that the interbank lending market was not functioning in such a way as to get liquidity into the overall banking system.

Russia's three biggest banks jointly account for some 40 per cent of Russia’s banking assets and 60 per cent of the retail deposits. The next 25 banks account for roughly 30 per cent of assets.

One evident danger with this large injection of credit and stimulus measures into the economy is that they may well prove to be inflationary, and on Saturday central bank deputy chairman Alexei Ulyukayev said that it was his opinion that the central bank’s 2008 inflation target of about 11 per cent was now out of reach.


The value of the ruble remained largely unchanged against the dollar-euro basket today, suggesting the central bank is again selling reserves to keep the currency from weakening. Bank Rossii sold $300 million of foreign currency today, according to estimates from Trust Investment Bank in Moscow, this follows central bank selling of about $15 billion last week, according to data from UralSib Financial Corp. and UniCredit SpA. The Micex stock index was up 5.5 percent today, following a 29 percent rally on Friday, on the back of the U.S. government announcement for a $700 billion bailout to remove problematic assets from bank balance sheets and following the Russian government announcement that it would buy shares in state-run companies.

2 comments:

Jesse Heath said...

is there any difference between what Russia is doing and what Kazakhstan is doing? it will be interesting to watch and see how different approaches play out...

Edward Hugh said...

Hello Jesse,

"is there any difference between what Russia is doing and what Kazakhstan is doing?"

You ask a very interesting, aand I would say fascinating question. I had never thought of putting it like this.

I have a blog on Kazakhstan too as it happens (you can find in the the list of emerging economy blogs at the top of the sidebar), and I am really quite positive about the mid-term outlook (something which I am not for Russia), although they have a big crisis on their hands at the moment.

I have a long piece on that blog entitled "Kazakhstan's Sudden Stop" which you might enjoy reading if you don't know it already. It is a bit of a mess in parts since it is very long, and I was really using it to get my ideas on Kazakhstan stright for my own benefit. Basically I learnt quite a lot writing it.

Now why do I feel positive about Kazakhstan? For two reasnons I think.

Firstly Kazakhstan is a bit like the US in the 19th century: a lot of land and resources, and an autoctonous population (in this case not the Native Americans) which is simply not large enough, or human capital wise skilled enough, to take full advantage of those resources.

Basically, the native Kazakh population represents the carrying load (in demographic terms) of a nomadic hunter gatherer type early agriculture environment. Obviously the high-tech globalised one of the 21st century can carry a lot bigger one.

So, while Russia and Kazakhstan have broadly similar demographic problems, I think Kazakhstan can better handle these going forward, since it is a much more "virgin site", and has ethnically near-relative groups in the neighbourhood (the Uzbeks, the Tajiks, the Kyrghs) who are willing to go there and work, and despite the fact that there have been issues, these groups seem much more welcome and better treated and integrated there than they are in Russia itself. So while I agree with the World Bank that inter-regional migration can help the CIS countries, I think Kazakhstan may well be the principal beneficiary, and remember migration to Russia from sources to the West, like Serbia, Moldova and Ukraine is now more or less "done" since these countries have been growing, and also have their own severe demographic problems. You can't play musical chairs and have everyone find a seat.

If you are at all interested in this topic can I recommend to you the work of Marlène Laruelle of the Central-Asia Caucasus institute. Her material, which you can find downlaodable and on-site, is really quite fascinating, and she documents the way in which Kazakh society is adapting to the newcomers.

The second factor which is important is the institutional one, and while in both cases you can point to difficulties - corruption, democratic deficits, bla, bla, bla... - I have the strong feeling that Kazakhstan is much more ready, willing and able to reform than Russia is. Russian pride makes it very difficult for them to listen to the advice coming from outside observers, whereas the Kazakhs, who have long been submissive, and accustomed to adopting a subordinate role (the comparison between Algeria and Morocco really stands out to me here, or Vietnam and Thailand) find it much easier to accept and implement third party advice.

"it will be interesting to watch and see how different approaches play out..."

Exactly. Economics at the end of the day is an empirical science, and there are always "reality checks".

Stick around and please keep commenting.