So how’s the Russian power grab working out?
The Financial Times’ Charles Clover reports that Russian capital markets have had better days: Investors pulled their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures showed yesterday. Russian debt and equity markets have also suffered sharp falls since the conflict began ...
The Financial Times' Charles Clover reports that Russian capital markets have had better days: Investors pulled their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures showed yesterday. Russian debt and equity markets have also suffered sharp falls since the conflict began on August 8, with yields on domestic rouble bonds increasing by up to 150 basis points in the last month.... Alexei Kudrin, finance minister, said the capital flight had largely subsided and would be more than made up for by projected inflows. Russia’s foreign currency reserves, at $581bn, are the world's third largest. “There is nothing that has happened that could cause us to change any of our plans,” he said. But the ebbing of foreign investor confidence will make it harder for Russian companies to raise debt and equity finance since foreign sources account for a disproportionate share of long-term capital for Russian corporate borrowers. “The market is vulnerable to foreign capital flight,” said Kingsmill Bond at Troika Dialogue, the investment bank. “The major Achilles heel of the Russian market is that there is very little domestic long-term capital.” Partly as a result of the Georgian conflict, yields on domestic rouble bonds have increased in the last month by between 75 and 150bp, Mr Bond said. The key word in that last sentence is "partly." Over at Foreignpolicy.com, Clifford Kupchan explains the other factors:
The Financial Times’ Charles Clover reports that Russian capital markets have had better days:
Investors pulled their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures showed yesterday. Russian debt and equity markets have also suffered sharp falls since the conflict began on August 8, with yields on domestic rouble bonds increasing by up to 150 basis points in the last month…. Alexei Kudrin, finance minister, said the capital flight had largely subsided and would be more than made up for by projected inflows. Russia’s foreign currency reserves, at $581bn, are the world’s third largest. “There is nothing that has happened that could cause us to change any of our plans,” he said. But the ebbing of foreign investor confidence will make it harder for Russian companies to raise debt and equity finance since foreign sources account for a disproportionate share of long-term capital for Russian corporate borrowers. “The market is vulnerable to foreign capital flight,” said Kingsmill Bond at Troika Dialogue, the investment bank. “The major Achilles heel of the Russian market is that there is very little domestic long-term capital.” Partly as a result of the Georgian conflict, yields on domestic rouble bonds have increased in the last month by between 75 and 150bp, Mr Bond said.
The key word in that last sentence is “partly.” Over at Foreignpolicy.com, Clifford Kupchan explains the other factors:
As far as portfolio investors and the Russian stock market are concerned, the main tipping point was the four days following July 24, when TNK-BP’s Robert Dudley left the country, and shortly after that, Putin went after the steel company Mechal and took about $6 billion off its capitalization. Those behaviors really rattled investors and caused a steep dip in the Russian stock market. The war’s effect has been less dramatic.
More broadly, I think Russia as an island of stability and a safe haven from the credit crunch—that perception of Russia is on life support. Essentially over. There’s been four reasons: TNK-BP, Mechal, the Russian government’s willingness to use administrative means to break up cartels and implement de facto price controls (which means there’s more strategic risk in consumer sectors as well as strategic sectors), and fourth is the war. When you add those four together, the investment climate has taken a real, real hit over the last month.
This ain’t 1998: Russia’s not going to collapse anytime soon. But it’s hard to see this as a viable developmental model either.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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