In his annual address to the nation on Thursday, Russian President Vladimir Putin announced that the country's reserve funds, usually earmarked for investment in state projects, should be used to bail out troubled Russian banks. In doing so he revealed just how grim the prospects for financial institutions have become following the rouble's collapse. The Russian private sector appears to be on state-funded life support.
In particular, the move strongly suggests that the Russian banking system has been running out of collateral that can be used to get dollars from the central bank. Access to dollars is critical because the banks took out foreign-currency loans from investors that they have to pay back in the same currency. Current estimates suggest Russian businesses need to repay $35 billion this month.
With the Russian ruble’s value at historic lows and the country’s central bank predicting an imminent recession, President Vladimir Putin struck a combative tone in his annual address to the Federal Assembly in Moscow on Thursday. Criticizing international sanctions imposed after Russia’s invasion of Ukraine, he said, “talking to Russia from a position of force is an exercise in futility.”
If Putin meant to instill confidence in the health of the Russian economy among his listeners, he probably lessened the effect by practically begging Russians with assets overseas — even assets obtained through potentially illegal means — to bring their money home.
“I propose a full amnesty for capital returning to Russia,” Putin said, according to an English translation of his remarks provided by the Kremlin. “I stress, full amnesty.”
“It means,” he continued, “that if a person legalizes his holdings and property in Russia, he will receive firm legal guarantees that he will not be summoned to various agencies, including law enforcement agencies, that they will not ‘put the squeeze’ on him, that he will not be asked about the sources of his capital and methods of its acquisition, that he will not be prosecuted or face administrative liability, and that he will not be questioned by the tax service or law enforcement agencies.
“We all understand that the sources of assets are different, that they were earned or acquired in various ways. However, I am confident that we should finally close, turn the ‘offshore page’ in the history of our economy and our country. It is very important and necessary to do this.”
Putin's "full amnesty" is a pretty crazy maneuver. I agree that it's a reflection of weakness, not strength.
So he's told his gangsters (ikh tam mnogo!) "bring your money home, mob bosses, it'll be fine."
Only, it's not fine at all. First, Russia's economy is shrinking and its currency is collapsing. If I have billions in the comparative safety and stability of Western banks and investments, the advantage to me of bringing this money to Russia is what, exactly??? Second, just a few weeks ago Putin stole an oil company from another oligarch and had him arrested.
Russia is a lawless tyrannical state. If you are moderately wealthy, you probably have some hope of protecting your property. If you are an average person, or extremely wealthy, they may come for your property at any time.
PS -- Russia's Urals crude is selling for about USD 67.50 / bbl
I give praise to the French in refusing the Mistral ships to Russia. It might be that Canada will purchase them in Russia's stead. It is money out of my pocket because of my holdings in defense contractor stocks, but I put my money where my mouth is. I would still rather see them blown out of the water in an audacious display of will. With the will of "Keyser Söze"
If the Canadians purchase the ships , likely the Russians would pirate them on the open seas claiming them as theirs. Shoot them out of the water by every civilized country as though Comanche attacking a wagon train. Perfect pay per view event
Well done to the French Minister of Defense, who said that the Mistral ships might never be delivered to Russia.
When the Malaysian airliner was shot down by Putin's henchmen, I immediately thought, "Putin is finished."
In the days and weeks that followed, it seemed that Europe would disappoint my hopes ... but I think that "the Rubicon was crossed" on that day, only it has taken time for the effects to show.
Those who wanted to pretend that Russia's conduct "isn't so bad" became less and less comfortable doing so. And Putin, being the brutal criminal he is, doubles down and doubles down again. If he had "jammed on the brakes" after MH17 and made sure that the crash site was handled in accord with civilization (which surely was in his power to do!), the outrage of the West might have been blunted. Instead, he permitted his Donbas apes to make an appalling display of barbarism that would have done credit to the Mongol hordes.
If Putin had decided in August or even September to stop the fighting in Donbas, he could have gotten all of the really costly sanctions lifted, and kept Crimea as his "prize". But again he doubled down, saying only a few weeks ago that Russia will not permit the Donbas rebels to be defeated!
Today, I think of the slaughter of the innocents aboard MH17 as having made a crack in the deep structure of a dam. The dam still stands, but below its surface is eroding second by second ...
Nobel laureate economist Paul Krugman wrote today about parallels between Russia 2015 and Venezuela 1983 (in that year, Venezuela exploded into hyperinflation and its currency collapsed, becoming nearly worthless).
Krugman reported that in Moscow, 10-year bonds are now at 12.67% (the comparable US rate is 2.27%, and has been falling during 2014). The high rates in Moscow reflect (at least in part) a lack of confidence in Russia's ability to pay its future bills.
Krugman asks why Russia is so vulnerable to falling crude oil prices, even though it looks strong on paper (with current account surpluses and more credit than debt).
A source of weakness: "But there are a lot of external debts all the same, reflecting private sector borrowing — and foreign currency reserves are dropping fast in part thanks to private capital flight."
He observed that Venezuela in the early 80's "was a petro-economy which had consistently run external surpluses. But it was nonetheless a vulnerable debtor, because all those external surpluses and more had in effect been recycled into overseas assets of the corrupt elite."
Sound familiar? In theory, Russia has "good" fiscal governance with balanced budgets and all that stuff that many believe is vital for the economic health of country. But Putin's regime is founded on corruption: he could never cure it, because it undergirds his strength and success. And that corruption has helped to keep Russia weak, even where it looks outwardly strong.
I was in Venezuela in the early 1990s before the Bolivar went into a devalued currency spiral. The country offers a very low price on subsidized gasoline for its citizens (pennies to the liter). It was the only time where the hotel business was as corrupt as the government that I experienced. The hotel where I stayed at tried to submit a bogus hotel bill to my credit card by passing on the information to another hotel. I was able to prove that the other transaction was bogus because the date on the credit card bill was after I had left the country.
The Russian government is considering financial aid to UTair, said Deputy Prime Minister Arkady Dvorkovich. 'We are discussing this,' he said.
The airline's problems come amid a serious fall in the value of the rouble amid sinking oil prices and Western sanctions. Alfa-Bank submitted four new unpaid debt claims, with one claim exceeding $405,000, against UTair and UTair-Leasing to the Moscow Arbitration Court.
This follows earlier claims for $11.8 million in unpaid debt.
Several courts have registered a bankruptcy petition against the airline by Avialeasing, as well as debt claims by YUGRA SPb, airports of Yekaterinburg, Perm, and Samara.
UTair - the third biggest airline in Russia - has embarked on a programme to cut is costs by around $180 million within a year.
Based in Khanty-Mansiysk, the airline is a crucial lifeline to several Siberian regions.
My estimate for today's Urals benchmark crude is about USD 62.50 / bbl
The ruble has broken another all-time record for weakness at 54.85 / USD
I've been comparing the ruble to the Argentine peso, which was the world's weakest major currency in 2014 ... before Putin's brutal campaign of military aggression against his neighbor (Argentina defaulted on its sovereign debt this year). Compared to one year ago, the ruble has fallen 23% MORE than the wretched peso.
When will the Russian people wake up, and smell the rotting corpses and stinking sewage on which the Putin regime is founded?