MONTREAL - The difference of emphasis between Russian President Dmitry
Medvedev, whose public statements more and more underline the need for economic
rationality and transparency, and Prime Minster Vladimir Putin, who takes a
different tack, remains in evidence as the economy recovers from precipitous
decline.
In this connection, it is to Medvedev's advantage that First Deputy Prime
Minister Igor Shuvalov has said, following on US President Barack Obama's
reversal of the George W Bush-era decision to install missile defense in Poland
and the Czech Republic, that Moscow has received indications from the US that
its accession to the World Trade Organization may come as early as 2010.
Outstanding issues include intellectual property rights and embargoes of
strategic items such as cryptographic equipment
and barriers to US agricultural foodstuffs.
This development may encourage whoever looks to the longer term, but it will do
little for the domestic economy for some time, other than perhaps give Moscow's
equity markets a short-term boost. This they could use, having stalled for the
past two weeks while other world stock markets have continued to rise.
Two weeks ago, the dollar-denominated RTS index passed its June 2 short-term
high of 1,180 in the course of a short-term rally that began on September 4
from a level of 1,064; over the following 10 days, it rose no less than 17.5%
to 1,247. Since then it has struggled to make further progress, closing on
Tuesday at 1,249.
Its sister index, the rouble-denominated MICEX, has neither done so well nor
confirmed this move. On Tuesday, it closed at 1,203, still a few points below
its June 1 high. By contrast, the MICEX has rallied significantly through its
1,150 level of September 23, 2008, which marked the last short-term recovery
before its precipitous drop to 514 at the end of October, while the RTS has yet
to penetrate its congruent short-term top at 1,305.
Short-term technical indicators remain favorable on balance, and the overall
charts point to continued strength. Indeed, Bloomberg News reports that
analysts at UBS, Goldman Sachs and JP Morgan Chase all foresee strong growth in
the Russian equity markets over the next year.
The broader economy does not look like sharing that prosperity, at least for a
while. Also according to Bloomberg News, the country's August gross domestic
product (GDP) fell 3.9% from August last year, down from 6.4% in July. It was
down 10.9% year-on-year in the second quarter, with manufacturing and
investment being the hardest hit sectors: the other big economic drivers are
construction, consumption and energy and raw materials.
Russia's GDP for 2009 is now projected to fall by up to 8% from last year, a
worsening of earlier estimates that saw a decline of only 6-7%. The World Bank
foresees unemployment at 13% and 6.2 million people leaving the middle class
for lower social strata. The consensus outlook for 2010 expects little or no
overall economic growth.
External demand will continue to support exports, but domestic demand remains
under pressure, both from knock-on effects of the weak labor market and from an
end to industrial restocking. Undoubtedly for such reasons, Shuvalov said in a
recent statement to the Duma (parliament) that the government's stimulus
spending would continue for the foreseeable future.
Reserves from the state oil fund have obviated the more difficult choices that
the state would otherwise have had to make, but the incipient recovery remains
hostage to the world price for oil and raw materials. If these falter, then the
government may be forced onto the world capital markets to seek loans.
The rouble has faced pressure to appreciate with the rise in oil prices,
following the January 2009 decision of the Russian Central Bank to widen the
band within which the currency is permitted to move. (See
Rouble joins Russia's pointers to decline, Asia Times Online, December
4, 2008.)
At the same time, the continuing elevation of world market prices for oil and
materials could reduce the imperative for necessary structural reform in the
economy, aiding Putin as against Medvedev and militating against longer-term
growth prospects. Meanwhile, the country's banking crisis has eased but remains
a weak point that could sabotage all present and future progress.
But the more things change, the more they stay the same. The new trial against
former Yukos chief Mikhail Khodorkovsky, designed to avoid his release from
jail, continues, while IKEA's travails with institutionalized corruption in
Moscow recently made the front page of the New York Times business section.
The newly announced decision of St Petersburg governor Valentina Matviyenko to
give an exemption from zoning laws will permit the construction of the
400-meter Okhta Center, planned to be the headquarters of the Gazprom oil unit
Gazprom Neft. That skyscraper would become Europe's tallest building and could
lead to the delisting of the city's center as a United Nations Educational,
Scientific and Cultural Organization World Heritage Site.
Already, local activists have started to call it "Putin's Needle" by invidious
comparison with "Ulbricht's Needle", after the long-time head of East Germany's
Socialist Unity Party, the moniker given during the Cold War to a skyscraper
overlooking the Berlin Wall in East Berlin surmounted by a rotating restaurant.
Meanwhile, Putin has publicly and unilaterally assured the Russian public that
any differences in view between himself and Medvedev will be resolved by the
time of the next presidential election in 2012 and that they will decide
together who will stand as candidate.
Dr Robert M Cutler(http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and the University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland, and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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