By Alexei Polukhin
Source: Западные санкции сломали старую экономическую модель. Может, и к лучшему?
Translated by Eugene
Russia has become a two-time holder of “junk” or, put it milder, speculative sovereign rating after Moody’s — the second member of the global “big three” of rating agencies – followed Standard & Poor’s in revising the credit standing of our country.
While in the first instance the reaction of the Russian financial authorities has been relatively low-key, this time the rhetoric of the usually cautious Ministry of Finance began to approach the rudeness of the Ministry of Foreign Affairs. Anton Siluanov said the decision of the rating agency was “absolutely negative” and “politicized.” Even the former Finance Minister Alexei Kudrin, representing the opposition camp, said that he cannot understand Moody’s actions based on current economic indicators.
Indeed, there are nuances that allow one to call Moody’s decision hasty and aggressive. Firstly, the previous downgrade was announced on January 17, and most experts expected the next move only in the second quarter. Secondly, as the Russian Finance Ministry pointed out in its press release, from the beginning of February the ruble strengthened by 11% and oil by healthy 23%, while on the geopolitical front the escalation was replaced by the hope of easing, albeit timid. Thus, objectively, the things have improved a little bit from where they stood one and a half months ago, but the rating agency decided to ignore these changes. Instead, they preferred to base their prediction on the hypothesis that as the Ukrainian crisis will deepen, the Russian authorities can “make decisions that would directly or indirectly prevent timely servicing of the external debt.”
Well, of course they can. They can also introduce foreign exchange controls, and the death penalty for speculation in cash dollars. Over the last year the Russian authorities have shown that there are no limits for their actions. But precisely in the area of fiscal policy, which should be analyzed by rating agencies, there were no dramatic changes for the worse (with the exception of attacks on international payment systems, which, as far as I know, were initiated by the State Duma and successfully repelled). On the contrary, the financial authorities remained demonstrably true to liberal principles, and there were no objective reasons to suspect them of a sharp turn to autarky.
Besides, as noted by the same Ministry of Finance, Moody’s experts used wild macroeconomic assumptions, contradicting not just Russian authorities, but also the IMF, and other rating agencies. For example, Moody’s forecasts of more than $220 billion capital outflows, or 22% inflation in 2015 looked really radical. This does not mean, of course, that they are evidently false, but rating agencies rarely take major decisions on the basis of worst-case scenarios. Thus there was a clear political component in the Moody’s actions.
Perhaps in this case it was not so much about Russia’s policies, as about the US and its closest allies who are aiming, quite clearly, at weakening Russian economy. Nobody doubts that it is a long-term trend, neither in Moody’s, nor in the Russian Ministry of Economic Development. The other day, the Ministry published a macroeconomic forecast, revised beyond recognition, which was based on the “hypothesis” that sanctions will be in effect for all of 2015, although in theory they can be eliminated or mitigated in March.
However, the thesis that each new wave of sanctions will be more and more effective, should not be taken as an axiom. For example, the downgrade by two agencies should have led to a massive sell out of Russian assets, because many institutional investors simply do not have the right to keep their money in papers that are not investment grade. But in fact, this sale has already taken place. Rather, it’s time to buy fundamentally undervalued securities of large and profitable Russian companies. Indeed, the “junk rating” supposed to put a barrier to the inflow of foreign capitals, but this inflow has been absent for the past six months already, so the situation is not worsening. Yes, the “junk rating” is a deadly shot at the Western credits for real sectors of the Russian economy, which is now forced to switch to the domestic financial diet: it is known that the banking system was recapitalized to the tune of one trillion rubles, and this amount can be increased.
That is, the sanctions and related actions, such as the last-minute review of the credit rating, indicated dismantling of the current economic model, which can be described by the formula “raw materials in exchange for capital.” Russia is being forcibly taken off the “oil needle”, which is also fair to call the “credit needle.” Rating agencies are based on the thesis that our economy would not survive such a metamorphosis, primarily because the government would not be able to respond adequately to such calls. Though, they haven’t convinced anyone yet.
At the same time, the adaptive capacity of the Russian economy in the new environment remains unknown. In addition to fatty and bulging cons, the current economic situation provides some pros as well. Russian assets are cheap and therefore attractive, the devaluation led to a sharp drop in costs (for example, the dollar cost of oil production in old fields has approached low numbers characteristic to the “Arab” petroleum), foreign currency debts of the corporate sector will inevitably decline (possibly through the mechanisms of defaults, but it does change the heart of the matter), and, on the other hand, inefficient budget expenditures, excluding defense, will be cut.
But these are the exact steps that Western experts, including representatives of rating agencies, always urged us to take: cost reduction, effective management of the corporate and budget finances. Though, all this was supposed to occur through the development of institutions, the fight against corruption and institutional reform. Maybe the sanctions were imposed just to help us?
Merkel still thinks she will win the war against Russia:
“I am a hundred percent convinced that with our principles, we will win.”
Merkel is going to discover herself in violent labor problems. It is her sanctions that are killing the German economy.
And if she joins the war with military assistance to the junta, she will have surrendered totally to the Hegemon.
She has only one route out of the mess. Straight back to Putin and Russia as a partner.
I am 100% sure Merkel is in trouble. She lost face when US State Department Diplomat Nuland came to Germany and delivered a bitter tirade against her and Von der Leyen for her “Moscow BS”, otherwise known as Minsk 2. Even the Axel Springer Group (Bild, Der Spiegel) reported it.
Then there was the Hamburg elections. The CDU received 15.9% of the vote. And Hamburg is a CDU stronghold.
Now there is a report that the US expects (not requests, not suggests) EU countries to spend 2% of their GDP on weapons and armaments.
What I am reading is that the Germans want jobs, not war. There might be a regime change.
the UK has refused the 2% target for defense spending, or rather Cameron has said it wont be met, but then its an election year so maybe he got special dispensation from big boss obama to use the extra cash for bribing the population into voting for him again.
but, but … Ms. Merkel… YOU have no principles. YOU merely do what you’re told.
100%? Really? ” If humans are capable of certainty at all, it is surely of the sort that is capable of mixing with doubts.” (Stanford Encyclopedia of Philosophy)
mutti merkel was compromised by the NSA.
she is worried about her own butt.
unfortunately the german people have to cover it.
as for statesmanship and 1st class politicos DE has none, zero, nada
MERKEL WANTS TO TAKE KALINGRAD FROM RUSSIA
http://m.strategic-culture.org/news/2015/02/18/western-mediators-are-biased-toward-kiev-putschists.html Wayne Madsen Excerpts:
Merkel on Ukraine: «I can only say that if we give up on this principle of territorial integrity of countries, then we will not be able to maintain the peaceful order of Europe that we’ve been able to achieve.»
“Merkel’s propagandists, working arm-in-arm with George Soros NGO provocateurs, are working to restore German-style architecture to Kaliningrad and trying to convince younger Russians living in the exclave that they are not Russians but «Prussians.» After the restoration of the German Konigsberg Cathedral, destroyed in World War II, some Germans want to tear down the Soviet-style buildings in Kaliningrad and replace them with restored old German buildings. Already, the old Könisgberg port area is being referred to as «Hafen City» as the Germanization of Kaliningrad continues”.
Noticed that almost all comments of previous articles have disappeared (or not been migrated). That’s a hell of a lot of content that seems to have disappeared. Even the old blog site has been stripped of historical comments. Question: How is the comment migration going? Are you using an automated process or is it being done manually (Yikes!) ? What’s the ETA for the comment migration to be complete.
There were some incredible comments with with weblinks and references (from users like Daniel Rich, Stavros, and many others) that are currently unavailable, those resources and comments are valuable and we’d like them back.
The only automated method is the Blogger export facility. This took more than 4 hours just to copy the original comments. There were some failures or corruptions, and those are being done manually. Until we organise a support address, go to this thread, where the 2nd comment is from the chief moderator. http://thesaker.is/important-clarifications-about-the-new-blog/
“Reply” to that comment with the titles of articles you are seeing problems with, mentioning the problem briefly.
Thanks for caring for our blog.
Have you considered using scraping?
I guess since the old comments were removed it is no longer possible.
Moody… Russia rating status . JUNK BOND .
Moody. USA rating status. AAAAA +++++
Buy US Bonds ! Buy US Bonds ! Buy US Bonds ! Buy US Bonds ! Don’t buy GOLD ! Gold is not backed by anything !
Buy US Bonds which are backed by US Government !
Russia is BROKE ! Russia is BROKE ! Russia is BROKE ! Russia is BROKE !
Repeat after me, Russia is BROKE ! Russia is BROKE ! Russia is BROKE ! Russia is BROKE !
Is your posting sarcasm? In reality it is quite the opposite. The US is running an operating deficit of a trillion dollars a year, and annually adding about five trillion dollars to its unfunded mandates every year which is already at around seventy-five trillion dollars.
You are beating the drum to stay invested in the US right at its top.
there fixed it for you. :)
It’s quite ironic as only $38 billion in Russian government debt is in dollars (the rest is in rubles) and Russia has almost $400 billion in foreign currency reserves.
This means the junk bond rating is absolute and total BS. In short, it’s part and parcel of the economic warfare.
Of course nobody with a brain takes Moody’s seriously anymore. Unfortunately there’s still some legal requirements in place that require certain funds to pay attention to Moody’s “opinion”.
Moody’s can be sued. Perhaps some holder of Russian debt who lost as a result of the downgrade can sue Moody’s for malice and/or fraud.
Dear moderators and site admin, I’ve noticed the following flaws in the new saker.is blog site:
(1) many comments from Feb 24 to mid-to-early January are completely missing.
(2) In addition, with respect to this article, on the mobile view, the font size changes mid-article.
(3) now I am receiving warnings that I an posting comments too quickly and that I should slow down (even though my last was over 30 minutes ago)
Since you are in transition and are looking for feedback and bug reports I thought I would oblige. BTW can you supply a specific bug report/technical feedback link and form so that feedback like this can posted in a more appropriate area rather than in a general article comments section?
If you are using a mobile device, your eventual posting IP is shared with many other users of the same service. This may create problems at various points along the line. Please choose yourself a NAME and stick with it, to help out end. Also use an email address (does not need to be a real one, but to serve as a secret ID for yourself). You can use this thread for technical feedback
(edited for correct link)
I’m not sure why anyone would listen to ratings agencies that gave high recommendation for fraudulent financial instruments which caused the 2008 financial meltdown.
China has its own rating agency, Dagong.
They have basically parallel developed banking, credit card, will have a SWIFT system with Russia, are using their own GPS (BEIDOU) satellites, and are eclipsing the Asian Development Bank, the IMF and World Bank, and don’t participate in Central Banking scheme like nearly every nation does ultimately linking to the the US FED.
China saw the traps and has avoided most. (Not all.)
Russia was thoroughly sold out by Yeltsin and the Liberals, NGOs and the persistent fifth column, so its institutional fragility was sabotage Putin has been reversing, repair, replacing and building new home-grown systems.
China had the advantage of the internal Communist Party machinery to hold its nation together. They merely adopted forms of market capitalism, carefully moving into reforms of opening up to the West, but always maintaining the Chinese characteristics theme to all institutional developments.
Russia was raped and rolled until Putin came on the scene.It was a hollowed shell.
One reason why he is so vilified in the West is he is a sovereignist, not just a nationalist. He represents willing interaction with any nation or groups or alliances but won’t ceded any authority to any outside group. The rest of the non-West world sees him as the best leader because he is showing the way to the future.
Now with the hybrid/proto war on all fronts it will take longer for his reforms in some areas of social development. But the economy will be transformed.
Hundreds of billions, maybe trillions of dollars have been stolen from Russia. But the future is very bright. Forget Moodys. Russia will be a tremendous growth opportunity for many years to come.
Think of Apple when Steve Jobs returned. It had 6 weeks of cash left and it would have died.
A great leader makes an organization great. Putin and his team are about to work the same miracle.
Well said L445.As usual.
Aside. Any time frame for the dollar-ditch ceremony?
Agree. Western rating agencies should be viewed as wishful fictions.
Really!! Doncha just love the free-market bloviators who try to shipwreck their competitors by moving all the markers in the dark of night?
What despicable, hypocritical, untrustworthy pirates and mooncussers.
Why would anyone take seriously a word that these Wall Street and Treasury whores say?
Fool me once, shame on me, you know the rest . . .
THE PRIME SUSPECT IN NEMTSOV CASE IS HASTILY TAKEN CARE OF
One of the Russian sites has a very interesting information about the Nemtsov [possible] assassin, Aslan Alkhanov. He met in Kiev, just a few days before the assassination, with the leader of the Right sector, Dmitry Yarosh, specializing in these matters. As the organizer of the recent explosion in Kharkov, Alexander Kazuno, Yarosh is associated with CANVAS.
According to some sources, Mr. Alkhanov was the prime suspect in the murder of Boris Nemtsov. Next day, a body of Alkhanov was found in a private house in Klёnovskoe, a Trinity Administrative District of Moscow, with a gunshot wound in his face.
Also, there is a fascinating information about CANVAS. This organization, formerly OTPOR, received significant money from the U.S. State Department in 2000 to stage the first successful Color Revolution against Slobodan Milosovic in then-Yugoslavia. Since then, they have been transformed into a full-time “revolution consultancy” for the U.S., posing as a Serbian grass-root group backing “democracy.” Who would ever think a Serbian-based NGO would be a front for US-backed regime change?
At present, the organization renamed CANVAS is engaged in training “civil society activists” from around the world. Training is provided both in Belgrade and in the United States. There is a proven link of CANVAS with the “April 6 Movement” from Egypt and the other organizers of the “Arab Springs”. Moreover, the head of CANVAS, Srdzha Popovich, not only does not deny this connection, he is proud of his role.
Quite often, he is welcomed in the United States – he is invited to lecture at the Columbia University, and he very open about CANVAS’s role in “color revolutions.”
While the totally corrupted western rating agencies are posting their corrupted scores on Russia or whoever else the central bankers and state department wish to attack or smear, some very astute money managers/investors are very excited about Russia’s prospects especially with the governments penchant for re investing in Russian infrastructure, including it’s people and economy. Jim Rogers comes to mind right off the top; and if he is interested you can bet their are many others.
Poroshenko Agreed Resignation of the Prime MINISTER and the Entire Cabinet Yatsenyuk.
Poroshenko Agreed Resignation of the Prime MINISTER and the Entire Cabinet Yatsenyuk.
This week a metal junkyard is exhibited in the centre of Kiev. Thus the incumbent Ukrainian administration seeks to prove “the facts of the Russian aggression in Ukraine”. But in reality they only managed to prove their own ignorance and lack of any military expertise. As a result this show of the modern illusionary art is acquiring no more than polite shrugs of the astonished spectators –
Junk metal show in Kiev and Poroshenko’s mental defeat:http://www.voltairenet.org/article186896.html
Ok, the conclusion of this grotesque exhibition in Kiev is simple: the incumbent Ukrainian authorities do not have a single serious evidence proving thier hysterical claims about “the Russian aggression in Ukraine”. Both their internal and external policies are false and based on deliberate lies and erroneous presumptions. Being unable to change the bellicose rhytoric, president Poroshenko’s regime is rapidly sliding into total collapse.
Speaking of sanctions, if Russia has an alternative to SWIFT why aren’t they using it for any of their transactions?
You would think they would want to test the alternative, and start using it.
That would be the prudent course of action.
Why does the Russian ruling class insist on acting only when there is no other alternative?
If for no other reason, downgrades are appropriate for a Nation that refuse to possess even a modicum of self reliance and insists on being dependent on their obvious enemies for nearly everything.
Yet the various ratings agencies still have Ukraine’s economy at B.
‘Standard & Poors credit rating for Ukraine stands at B. Moodys rating for Ukraine sovereign debt is B3. Fitchs credit rating for Ukraine is B.’
They have not thought to downgrade to CCC+ substantial risks
I would have thought a -15.2% GDP in Dec: the last reported data, or a trade deficit more than double previous month at 3/4 billion dollars, and government reserves now down to only $5.5 billion, inflation at 28.5% and currency down 70% in last year,that Ukraine deserved at least the category of SUBSTANTIAL risk.
Of course any impartial rating would be more likely CCC extremely speculative,/i> at least.
How odd then, that at the time of the IMF getting involved, and Ukraine with gold reserves of $43 bn (mid March 2014), and monthly trade SURPLUS over $200 million, with local currency around 8 to dollar, low inflation etc….THAT the rating agencies should have declared Ukraine CCC-
This means:: Default imminent with little prospect for recovery
Obviously according to its current rating of B, Ukraine has shown huge improvement since IMF involvement……..REALLY?