[A-List] Russia Talks of a Stability Beyond Ties to the U.S.

["Yoshie Furuhashi" <critical.montages@xxxxxxxxx>]

<http://www.nytimes.com/2008/01/25/business/worldbusiness/25ruble.html>
January 25, 2008
Russia Talks of a Stability Beyond Ties to the U.S.
By ANDREW E. KRAMER

MOSCOW — In almost a decade since the Russian debt crisis of 1998,
finance officials here have amassed an enviable war chest with the
largest per capita currency reserves in the world while paying down
nearly all sovereign debt.

They are now describing Russia as the most insulated from the ill
effects of a United States recession among the chief emerging-market
economies, an extraordinary role for a country on its knees not so
long ago.

Russia will be an "island of stability," Finance Minister Aleksei L.
Kudrin boasted this week at the World Economic Forum in Davos,
Switzerland.

Foreign currency reserves of $478 billion, derived from windfall oil
profits, are now the largest in the world per capita among big
economies and will "play the role of an air bag" for the country, Mr.
Kudrin said, as quoted by the Russian Information Agency. "Russia will
soon be the focus of attention as a haven of stability."

Some large banks are agreeing, though cautiously, that Russia seems to
be the strongest of the so-called BRIC leading emerging-market
countries, a group that also includes China, India and Brazil. Russia
stands out as potentially least susceptible to an American recession
based on trade, reliance on international capital markets and the
degree to which growth is driven by exports.

"Russia is probably more insulated than other BRIC emerging-growth
economies," said John A. Thain, the new chief executive of Merrill
Lynch, who was visiting Moscow on Wednesday.

Mr. Thain added the caveat that "the world is a very interconnected
place, and we saw all the world's equity markets react negatively."

To be sure, a steep downturn in crude oil prices below a now
improbable $50 a barrel would flatten Russia's growth, according to
Julia Tsepliaeva, Merrill's chief economist for the republics of the
former Soviet Union. (Oil settled in New York on Thursday at $89.41,
up $2.42.)

Russian officials and Moscow-based equity analysts have been strong
proponents of the idea known as decoupling, which holds that some
developing nations are strong enough and self-sufficient in the face
of the declining dollar and waning American influence to part ways
with Washington economically, amid a reordering of global finance.

The theory was debunked somewhat by the worldwide stock sell-off this
week, including the downturn on the Russian Trading System stock
exchange, which was off 20 percent from a high on Dec. 12 before
rebounding 4.8 percent on Thursday. In its gyrations, it has largely
mirrored big European and Asian exchanges.

Yet other evidence is emerging that at least some investors are
differentiating between emerging markets based on their degree of
vulnerability to an American recession and are opting for Russia.

Last Friday, a day when investors pulled $4 billion out of emerging
markets in general, Russian-dedicated funds had a modest inflow of
$30.7 million, according to EPFR Global, a company based in Cambridge,
Mass., that monitors global fund flows. Russian funds have recorded
inflows for 19 consecutive weeks in the face of worsening United
States economic news.

"It has been suggested by a number of strategists that Russia is among
the more attractive among emerging markets," Brad Durham, managing
director of EPFR, said in a telephone interview. "It is one of the
least correlated to the United States economy."

This results in part from Russia's minuscule trading relationship with
the United States and the sour political relations between the
countries over NATO expansion, missile defense and energy policy,
among other issues.

Russia's exports to the United States account for only 3 percent of
its total, compared with 16 percent to Brazil, 19 percent to India and
21 percent to China, Mr. Durham said. Its largest trading partner is
Germany, a leading customer for Russian natural gas.

In the long term, this will work to Russia's disadvantage by isolating
the country from the benefits of exposure to the world's largest
economy, said Yaroslav Lissovolik, chief economist at Deutsche Bank
here. In the short term, it will cushion the country from an American
downturn, he said.

--
Yoshie
<http://montages.blogspot.com/>