Monday Business News

Woes cast doubt on Russian image 
Agence France-Presse . Moscow 

A drumbeat of bad economic news in Russia this week, ending with a 13 per cent crash on Moscow’s stock markets, has shaken the country’s image as a resurgent powerhouse sheltered from global turmoil.
  ‘Happy New Year 1997!’ the Kommersant daily wrote in its front-page headline Saturday, noting that Russian stocks had fallen to an 11-year low, returning to levels not seen since the eve of the devastating 1998 financial crisis.
  Falling even further than most Asian and European markets in a grim day for investors worldwide, Moscow’s RTS and MICEX exchanges were down over 13 per cent Friday when regulators froze trading until Tuesday in a bid to stop the panic.
  The two markets have lost about three-quarters of their value since posting record highs in May, pushed downward by global financial turmoil and a plunge in the oil price, the key element behind Russia’s rapid growth in recent years.
  Crude futures slumped as low as 61.00 dollars per barrel in London trading on Friday despite an OPEC production cut, coming down from record highs of above 147 dollars this summer.
  That has cast doubt on whether Russia can maintain its hard-won economic stability, given that the government needs an oil price of 70 dollars per barrel to maintain a balanced budget in 2009.
  The Standard and Poors ratings agency weighed in by revising its outlook on Russia’s long-term sovereign credit rating from ‘stable’ to ‘negative’ on Thursday, citing a costly financial bailout and massive capital flight.
  The government has pledged close to 200 billion dollars to ease the effects of financial turmoil, while officials say 33 billion dollars were taken out of the country in August and September alone.
  In another ominous sign, the ruble fell to a two-year low against the dollar on Friday, an unwelcome development in a country where memories of 1990s devaluations and hyperinflation are still fresh.
  The damage has begun spilling over into the so-called ‘real economy,’ with steelmakers announcing layoffs and production cuts and property developers putting the brakes on big construction projects.
  But government officials have remained upbeat, arguing that Russia’s huge foreign currency reserves — worth more than half a trillion dollars, amassed during the days of high oil prices — will help it ride out the crisis.
  ‘We did not allow ourselves to be caught unawares by the financial crisis,’ Prime Minister Vladimir Putin said at a meeting with foreign investors this week, contrasting Russia’s prudence with the ‘unpreparedness’ of the West.
  President Dmitry Medvedev assured Russians on Thursday that the country could still avoid a broad slowdown.
  ‘I will tell you honestly, Russia has not yet been caught in this whirlpool and has the opportunity to escape it,’ Medvedev said in a video posted on the Kremlin website