Moskovskiye Novosti
Russia braces for new global financial crisis
Russia’s Finance Ministry failed to mention any oil-price related risks in the draft debt policy it released on Monday although Brent plummeted 3% on the back of the stock market plunge. A ministry statement is expected today.
Finance Minister Alexei Kudrin or his deputy Sergei Storchak initially planned the announcement for Monday, but paused to consider it, a source said.
Kudrin seems something of a clairvoyant once again, as he warned in February that oil could dive any day; he did the same in summer 2008. However, the policy document posted on the ministry website reads: “High global energy prices ensure relatively high estimated federal revenue over the next few years,” while oil prices will “grow moderately” and the ruble will “show relative stability.” Average oil prices are estimated at $93/bbl, $95 and $97 in 2012-2014. Yet the ruble started to slide as the U.S. dollar rose 2.2% in Russia exceeding the 28 ruble level predicted for 2014.
The ministry is striking a precarious balance between enjoying its position as a reliable forecaster and sounding too pessimistic. If Kudrin sounds “apocalyptic” today, he might find a queue asking for cheap funding outside his office tomorrow, said Alexei Golubovich from Arbat Capital brokerage.
The problems facing the world’s largest economy will push oil down, said Igor Nikolayev from FBK consultancy. Russia is dependent on crude exports, so when prices fall, the national currency weakens. But the ruble is weakening against a plummeting dollar, which is really alarming.
The Finance Ministry has been bracing for a new crisis for a while, borrowing abroad despite the budget surplus. This looks wise now that no more cheap loans can be expected.
Those loans could cover the impending deficit unless investors take any rash steps. Capital outflow from Russia has increased in recent days.
The authorities won’t allow the ruble to fall sharply before the elections, Golubovich said. They have the resources to prevent its uncontrollable weakening, and the Central Bank’s international reserves have almost regained their 2008 level of $596 billion.
The ruble rate is pegged to oil price which can fluctuate between $95 and $120, said Dmitry Alexandrov from Univer Capital. If S&P, which downgraded the United States, is joined by the two other leading ratings agencies, oil will fall to $95. Moody's said they would have to downgrade the rating if the U.S. government does not get the situation under control.
Russia’s budget depends on oil, but the problem is that its price often rises only against the weakening dollar. As a result, while in 2008 $70/bbl was enough to keep it balanced, now even $90 is too low. Therefore, even if Russia diversified exports, what good would that do if we are still paid in dollars?
For the first time ever, the U.S. economy’s reliability is in doubt. Investors are likely to resort to gold, pushing its price up tenfold or higher, Golubovich said.
Kommersant
Sidewalk resurfacing halted in Moscow
Moscow authorities slashed a four-billion-ruble program to resurface asphalt sidewalks with bricks in the center of Moscow by nearly two-thirds and postponed the rest of the work until 2012. Instead of the planned 1.13 million square meters of brick streets in 2011, only 400,000 square meters will be resurfaced. The city government said that suppliers cannot rise to meet demand, although brick manufacturers and contractors say that they are meeting the specified standards.
Moscow Mayor Sergei Sobyanin ordered work to stop at the end of August after a report from First Deputy Mayor Pyotr Biryukov that said that it would be impossible to meet the deadline of October 25 since suppliers cannot manufacture the required quantity of bricks in time. In addition, brick prices are growing because of rising cement prices, but plants are not free to revise their prices under the contract terms. Mr. Biryukov proposed finishing work that has already been started and working until August 25. Sobyanin supported this initiative.
Gulnara Penkova, the mayor's press secretary, said that only 400,000 square meters of bricks will be laid in 2011 – almost 66% less than planned, and the four billion rubles in funding has been slashed accordingly. The scope of work and funding for 2012 will be considered with the next urban improvement program.
The Moscow housing department said that sidewalks need to be resurfaced because one million square meters of asphalt emits about 650 tons of harmful substances in the summer heat, while bricks heat up more slowly and are safer.
Sixteen contractors and ten brick plants won the resurfacing tender.
“There's a delay, but it's not critical, 10%-15%, no more,” said Alexander Abramov, sales manager at Monolith-5, one of the largest paving brick suppliers.
Suppliers Eurocement Holding and Krost stated that they are in a position to complete their contractual obligations on time. Contractors also say they will finish their work to schedule.
Both city authorities and opponents of the resurfacing program have criticized the quality of the work. Sergei Baidakov, prefect of Moscow's Central District, rejected the work of contractors on the Kremlin embankment and had serious concerns about Radishchevskaya Ulitsa, where he ordered the “shoddy” resurfacing work to be redone. The opposition movement Left Front has picketed City Hall on numerous occasions, demanding improved quality control.
“City authorities miscalculated the time needed to perform the work,” said Alexander Morozov, co-chairman of the City and Transport interregional public organization. “The haste with which the resurfacing work is being carried out is perplexing. Perhaps asphalt really does emit fumes, but you don't see anybody resurfacing the roads.”
Yandex traffic analyst Leonid Mednikov said that the situation on the roadways would be greatly complicated if this work is not completed by autumn.
“As winter approaches, traffic jams gradually increase,” he said. “Any repair work that affects the roadway and is not completed by September 1 creates significantly more problems for motorists than it would in summer.”
Izvestia
Russian bases in Abkhazia, South Ossetia to stay for 49 years
President Dmitry Medvedev has submitted agreements on joint military bases in the republics to parliament, under which the Russian military get a 49-year lease for the land plots under the bases and the right to 15-year prolongations. The military will now start creating a comprehensive infrastructure for these bases, with communications systems and proper homes so that the servicemen can be joined by their families.
The agreements also clearly define the previously vague status of servicemen and their families. Sources in the Defense Ministry told Izvestia that the military are currently considered on a par with the “administrative and technical staff” in the Russian missions whose status is set out in the 1961 Vienna Convention on Diplomatic Relations.
“In fact, the documents seal the agreements reached between Russia and the two republics’ authorities over the past three years,” said a Defense Ministry spokesperson. “But this is an important move, because it will legalize the transfer of property which the joint Russian base is currently using on a gratis basis.”
According to the Russian military, there are about 7,000 Russian soldiers and officers in Dzhava, South Ossetia, and Gudauta, Abkhazia, evenly split between the two republics. Their armaments include light weapons, heavy and light armored vehicles, tactical air defense systems, multiple launch rocket systems, and tactical missiles. The 7th Abkhazian and the 4th South Ossetian military bases are part of the Southern Military District, which is being rearmed as a priority.
Sergei Karaganov, chairman of the Russian Council for Foreign and Defense Policy, said the agreements’ ratification will make things a great deal easier for the Russian military.
“They are currently living in a legal grey zone, although they are not complaining because their bases are located in resort areas,” Karaganov said.
He said the agreements on these Russian bases will cement the secession of South Ossetia and Abkhazia from Georgia and make peaceful reunification impossible.
“Russia should be consistent in its actions. It has recognized these republics’ independence, now Russia must safeguard it,” Karaganov said.
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