[Pen-l] Russia vulnerable to financial instability

[Louis Proyect <lnp3@xxxxxxxxx>]

http://www.zcommunications.org/zspace/commentaries/3584
Capitalism in One State
August, 13 2008
By Boris Kagarlitsky

When Vladimir Putin was president, he liked to give short, somewhat 
ironic answers to difficult questions. In 2000, for example, when U.S. 
television talk show host Larry King asked him what happened to the 
Kursk, Putin answered, "It sank."

Now that Putin is prime minister, he spends less time on defense and 
foreign policy matters, and much more time dealing with the country's 
economic problems.

Thus, we might ask him, "Vladimir Vladimirovich, what happened to the 
stock exchange last week?" His answer might very well be, "It sank as well."

In fact, the market has been taking a series of record plunges, just as 
it used to make record gains. So far, the global crisis has affected 
Russia's financial sector in terms of high inflation and a declining 
stock market.

It has also led to a weakening of the banking sector. It seems that 
every other week another Russian bank runs to the government asking for 
a loan from the state pension fund. Bankers probably were thinking that 
most Russians won't live long enough to become pensioners anyway, while 
the banks desperately need the money today.

The U.S. financial crisis highlights how misguided Russia's economic 
course has been. Russia invested about $100 billion of its $568 billion 
gold and foreign currency reserves in U.S. mortgage giants Fannie Mae 
and Freddie Mac. The 40 percent fall in the share prices of these huge 
lending companies raised serious questions about their solvency and 
ability to honor their debt obligations, including the $100 billion that 
Russia invested from its reserves.

Many Russian analysts, business people and government officials are 
trying to calm the public with the argument that the U.S. mortgage 
giants are a long way from bankruptcy, meaning that roughly 18 percent 
of Russia's gold and foreign currency reserves that were invested in 
those companies will not be lost. They are trying to convince us that 
the global crisis will not affect Russia. They tell us that, although 
banks and mortgage firms all over the world are struggling to survive, 
Russia's financial institutions will prosper. Although real estate 
prices are plummeting worldwide, experts say property values in Moscow 
and St. Petersburg will continue to climb, as if nothing alarming was 
happening.

In short, we are being told that Russian capitalism is self-sufficient, 
invincible and unique, not unlike Josef Stalin's view of his socialist 
society. It is not entirely clear why our government and business 
leaders so zealously tried to open Russia's markets and to pull us into 
the global economy if we now intend to lead some kind of solitary 
existence, isolated economically from whatever happens to the rest of 
the world. The main question is: What will we do when the global 
economic system collapses?

But bad news for the government is usually good news for the opposition. 
Who stands to gain here?

The liberals naively think that a fall in world oil prices will mean the 
end of Putin's and President Dmitry Medvedev's rule. But the opposition 
can seize and maintain power only if it has an alternative to offer. 
Unfortunately, it has few viable policies that differ from those held by 
the failed government.

This is the chief problem with Russia's main opposition group, The Other 
Russia: It can only muster a comical alternative parliament like the 
National Assembly and poorly attended Dissenters' Marches.

Boris Kagarlitsky, a fellow of the Transnational Institute, is a 
Director of the Institute of Globalization and Social Movements, Moscow. 
His latest book is Empire of the Periphery: Russia and the World System 
(2008)



The Moscow Times, 24 July 2008
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