Russian Economy General News: #5

sepheronx wrote:I would wager that Indias economy up until recently was stronger than Russias in terms of less reliability in foreign direct investments.  India had a very low FDI than Russia. Now Russia has a low FDI and it was a huge contributor to Russian GDP growth (even though imo it should never have been counted in first place). So India is less reliant on foreign agents than Russia was.  Now things are changing as India is pushing for more FDI which IMO is dangerous in long run.  It is also showing as dangerous for China too as China scurries to increase it or even stabilize it.  India wants it to become a China.

kvs wrote:

sepheronx wrote:I would wager that Indias economy up until recently was stronger than Russias in terms of less reliability in foreign direct investments.  India had a very low FDI than Russia. Now Russia has a low FDI and it was a huge contributor to Russian GDP growth (even though imo it should never have been counted in first place). So India is less reliant on foreign agents than Russia was.  Now things are changing as India is pushing for more FDI which IMO is dangerous in long run.  It is also showing as dangerous for China too as China scurries to increase it or even stabilize it.  India wants it to become a China.

Actually,

one of the biggest complaints about Russia's economy over the last 15 years has been the lack of FDI.   I recall endless comparisons
with how much China was getting.   The Kudrin/Gaidar/monetarist camp worships Mammon and to them money is more important
than anything else.   Incrementally developing Russia's economy through local initiative and financing was not important.   Attracting
precious western coins was.  

NATO snookered itself by not investing in Russia and even having its propaganda dog MSM  try to frighten off investors into Russia.
This helped the Russian economy to stay independent.    Compare to Poland, which is Germany's bitch.

sepheronx wrote:

kvs wrote:

sepheronx wrote:I would wager that Indias economy up until recently was stronger than Russias in terms of less reliability in foreign direct investments.  India had a very low FDI than Russia. Now Russia has a low FDI and it was a huge contributor to Russian GDP growth (even though imo it should never have been counted in first place). So India is less reliant on foreign agents than Russia was.  Now things are changing as India is pushing for more FDI which IMO is dangerous in long run.  It is also showing as dangerous for China too as China scurries to increase it or even stabilize it.  India wants it to become a China.

Actually,

one of the biggest complaints about Russia's economy over the last 15 years has been the lack of FDI.   I recall endless comparisons
with how much China was getting.   The Kudrin/Gaidar/monetarist camp worships Mammon and to them money is more important
than anything else.   Incrementally developing Russia's economy through local initiative and financing was not important.   Attracting
precious western coins was.  

NATO snookered itself by not investing in Russia and even having its propaganda dog MSM  try to frighten off investors into Russia.
This helped the Russian economy to stay independent.    Compare to Poland, which is Germany's bitch.

What? Russia was third largest in the world for FDI. Third to China and US.

Russia is battening down the hatches for a Biblical collapse in oil revenues, warning that crude prices could stay as low as $40 a barrel for another seven years.

Maxim Oreshkin, the deputy finance minister, said the country is drawing up plans based on a price band fluctuating between $40 to $60 as far out as 2022, a scenario that would have devastating implications for Opec.

It would also spell disaster for the North Sea producers, Brazil’s off-shore projects, and heavily indebted Western producers. “We will live in a different reality,” he told a breakfast forum hosted by Russian newspaper Vedomosti.

The cold blast from Moscow came as US crude plunged to $35.56, pummelled by continuing fall-out from the acrimonious Organisaton of Petrol Exporting Countries meeting last week. Record short positions by hedge funds have amplified the effect.

Bank of America said there was now the risk of “full-blown price war” within Opec itself as Saudi Arabia and Iran fight out a bitter strategic rivalry through the oil market.

Brent crude fell to $37.41, even though demand is growing briskly. It is the lowest since the depths of the Lehman crisis in early 2009. But this time it is a 'positive supply shock', and therefore beneficial for the world economy as a whole.

The International Energy Agency said in its monthly market report that Opec has stopped operating as a cartel and is “pumping at will”, aiming to drive out rivals at whatever cost to its own members. Opec revenues will fall to $400bn (£263bn) this year if current prices persist, down from $1.2 trillion in 2012. This is a massive shift in global wealth.

The IEA said global oil stocks were already at nose-bleed levels of 2,971m barrels, and were likely to increase by another 300m over the next six months as “free-wheeling Opec policy” floods the market.

The watchdog played down fears that the world was running out of sites to store the glut, citing 230m barrels of new storage coming on stream. Inventories in the US are still only at 70pc capacity. But this could change once Iranian crude comes on stream later next year.

Russia’s $40 warning is the latest escalation in a game of strategic brinkmanship between the Kremlin and Saudi Arabia, already at daggers drawn over Syria.

The Russian contingency plans convey a clear message to Riyadh and to Opec’s high command that the country can withstand very low oil prices indefinitely, thanks to a floating rouble that protects the internal budget.

Saudi Arabia is trapped by a fixed exchange peg, forcing it to bleed foreign reserves to cover a budget deficit running at 20pc of GDP.

Russia claims to have the strategic depth to sit out a long siege. It is pursuing an import-substitution policy to revive its industrial and engineering core. It can ultimately feed itself. The Gulf Opec states are one-trick ponies by comparison.

The deputy premier, Arkady Dvorkovich, told The Telegraph in September that Opec will be forced to change tack. “At some point it is likely that they are going to have to change policy. They can last a few months, to a couple of years," he said.

Kremlin officials suspect that the aim of Saudi policy is to force Russia to the negotiating table, compelling it join Opec in a super-cartel controlling half the world’s production.

Abdallah Salem el-Badri, Opec’s chief, came close to admitting this last week, saying the cartel is no longer big enough to act alone and will not cut output unless non-Opec producers chip in.

“We are looking for negotiations with non-Opec, and trying to reach a collective effort. Everybody is trying to digest how they can do it,” he said

Russia is in effect calling Opec’s bluff, gambling that it has the greater staying power. It cannot easily cut output since its main producers are listed companies, answerable to shareholders. Any arrangement would have to be subtle.

Mr Dvorkovich gave an oblique answer when asked whether Russia would ever do a deal. "We are not going to cut supply artificially. Oil companies will act on their own. They will look at market forces and decide whether to invest more or less. If prices stay low, it is in the nature of oil companies to stabilize production, or even to cut production," he said.

Whether Russia really can withstand the strain for years is an open question. The economy is in deep recession. Output has contracted by 4pc over the last year. Real incomes have fallen by 9pc. The latest gambit may in reality be a negotiating ploy.

Mr Oreshkin said oil prices of $40 would force the government to bleed its reserve fund by 1.5 trillion roubles next year, or 2pc of GDP.

Standard & Poor's says the budget deficit has reached 4.4pc of GDP, including local government shortfalls. A further $40bn is needed to bail out the banking system.

“They just don’t have the money. The deficit is heading for 5pc of GDP,” said Lubomir Mitov from Unicredit.

“The biggest danger is that the reserve fund will be exhausted by the end of 2016. They will then have to monetise the deficit or cut real spending by another 10pc. They can’t cut defence so that leaves social welfare,” he said.

Bond markets in Russia are shallow. The country cannot hope to borrow abroad on any scale as long as it is under Western sanctions.

Saudi Arabia’s leaders are fully aware of the Kremlin’s painful predicament. They appear certain that they can outlast Russia in a long duel. By the time we find out which of these two petro-giants is stronger, both may be on their knees.

Austin wrote:So what are the options when it comes to reducing expenditure ?  Cutting Social Spending and Def Spending seems the only logical choice ?

Increasing Tax at the time of recession wont be a good idea either.

Austin wrote:Well you dont want to increase tax in recession but would rather people keep that money and spend it.

Austin wrote:The Russian Finance Ministry has indicated with Average Ural price stays around $40 for 2016 then they will have to spend additional 1.5 trillion rouble from Reserve Fund , Which means they will have to take 1.2 trillion from reserver fund and around 300-500 billion from NWF.

The reserve fund will be fully depleted by end of 2016.

So what are the options when it comes to reducing expenditure ?  Cutting Social Spending and Def Spending seems the only logical choice ?

Increasing Tax at the time of recession wont be a good idea either.


I think world economy is itself entering into a deep recession , OPEC is really playing little role year , We are seeing the end game of reserve currency an effect of prolonged QE

Austin wrote:Siluanov prevent a decline in oil prices during certain periods in 2016 to $ 30

Moscow. 12 December. INTERFAX.RU - Russian Finance Minister Anton Siluanov believes that in 2016 the price of oil in certain periods can be down to $ 30.

"Before we adopt the budget, we see that the situation with the macroeconomy changes. I did not for the better. The price of oil, we budgeted $ 50 a barrel, now around $ 36-37 per barrel. It is unclear what will happen next," - he said he was at the board meeting of financial, treasury and tax authorities of Tatarstan on Saturday.

According Siluanova on the price decline may affect, in particular, there is an overproduction of oil in the world and access to the Iranian market.

"Everything indicates that low oil prices are likely in the next year to dominate and it is possible that in certain periods it would be, perhaps, $ 30 per barrel, maybe less, we do not know, - said the minister. - Because a year ago, if we were told that it would be below 40, all probably would have just laughed. Therefore, we must prepare for such difficult times for us. "

kvs wrote:
Canada does not have a reserve fund.   The USA does not have a reserve fund.   You make it sound like Russia
can't live without one.   The Russian government can burn through this luxury item to soften the blow and then do
what the rest of the "first world" does and that is raise taxes.   Perhaps people in Russia should learn to live with
income taxes higher than 13%.   That 13% figure is straight from the USSR era and has nothing to do with capitalist
reality.  

Also, fixating on balancing the budget is a 100% monetarist dogma which, BTW, no country in NATO adheres to.

kvs wrote:I think Russia is well overdue for an increase of income taxes.   People need to learn that social services and pensions are not manna from
heaven.   During the 1990s tax evasion was rampant and that was one of the justifications for a low income tax rate.   But things need
to change and tax cheats should not be pandered to.   If people don't want to pay taxes, then the government should not supply all the
welfare they expect.   A progressive income tax system needs to be introduced.    All those upper middle class whiners need to pay their
share or bugger on off to NATO.

Elvira: "The volume of corporate foreign debt payments in 2016 will be approximately 2 times smaller than in 2015. On the whole, Russia's foreign debt in 2014 decreased dramatically, it decreased by almost 30%. At the beginning of 2014 all foreign debt amounted to 729 billion dollars. US, now is 522 billion dollars. US " wrote:

Oil fall IMO is due to demand destruction. Prices will rise but not now. Think- would you sell precious depleting resource for IOUs ie dollars? At some stage -and after having some buffer of dollars- sovereign nations will let oil price fall. And as demand is drying up in the west, brent and wti prices are down. The oil producers have given up on dollar. They dont trust it anymore. How soon until the people feel the same. The high yield bond market is going to go kaboom perhaps after rate hike - too many carry trades to unwind.

Gold- what difference will it make if u buy today for 1000$ or tomorrow for 1100$ or in 12 months later for 10,000$? , Buy when there is spare cash buy it

Austin wrote:Got this in an email from a friend who is an expert on Economics and follow the trends on Oil Price fall,  Gold etc

Oil fall IMO is due to demand destruction. Prices will rise but not now. Think- would you sell precious depleting resource for IOUs ie dollars? At some stage -and after having some buffer of dollars- sovereign nations will let oil price fall. And as demand is drying up in the west, brent and wti prices are down. The oil producers have given up on dollar. They dont trust it anymore. How soon until the people feel the same. The high yield bond market is going to go kaboom perhaps after rate hike - too many carry trades to unwind.

Gold- what difference will it make if u buy today for 1000$ or tomorrow for 1100$ or in 12 months later for 10,000$? , Buy when there is spare cash buy it  

kvs wrote:

Austin wrote:Got this in an email from a friend who is an expert on Economics and follow the trends on Oil Price fall,  Gold etc

Oil fall IMO is due to demand destruction. Prices will rise but not now. Think- would you sell precious depleting resource for IOUs ie dollars? At some stage -and after having some buffer of dollars- sovereign nations will let oil price fall. And as demand is drying up in the west, brent and wti prices are down. The oil producers have given up on dollar. They dont trust it anymore. How soon until the people feel the same. The high yield bond market is going to go kaboom perhaps after rate hike - too many carry trades to unwind.

Gold- what difference will it make if u buy today for 1000$ or tomorrow for 1100$ or in 12 months later for 10,000$? , Buy when there is spare cash buy it  

Your friend understands the oil situation.   Many people including highly placed government officials in Russia simply do not.