Dollars flood into Moscow as Russian success story dazzles investors

AFP ^ | 10-13-03

[Brian S]

MOSCOW, Oct 12 (AFP) - Oil men and investment bankers are throwing money around expensive nightspots in Moscow these days as investors crowd into Russia again to get a slice of the action in one of the world's hottest economies.

With the Moscow stock market already at all-time highs after rocketing past a level not seen since before the 1998 financial crash, fresh euphoria erupted when Moody's upgraded Russia's credit rating Thursday to investment grade.

"Russia's economy is extremely solid and its prospects are excellent," enthused Christopher Granville of the Moscow-based brokerage United Financial Group, hailing the move as a "strong formal stamp of approval."

Only five years ago, badly-burned foreign investors deserted the country when Russia defaulted on its debt on August 17, 1998, sending stocks and the national currency into a devastating tailspin.

The Russian market lost 90 percent of its value in 1998 while the ruble shed 80 percent in the last six months of that year.

But under President Vladimir Putin, a tough-talking former KGB colonel who took the reins of power from his ailing predecessor Boris Yeltsin at the end of 1999, Russia has turned the page on that bitter chapter.

On the back of high world oil prices, Russia's battered economy took off with a vengeance and now in its fourth year of consecutive growth, gross domestic product expanded nearly seven percent in the first eight months of 2003, on a par with China.

With the nation's coffers swelled by petrodollars, Russia has accumulated international currency reserves of more than 62 billion dollars (54 billion euros).

And adopting tight fiscal discipline, the Putin administration has used the windfall oil revenues to pay back its foreign debt, lowering Russia's debt-to-GDP ratio from nearly 100 percent in 1999 to 33 percent today.

These prudent policies have paid dividends and today investors are back in business.

Investment funds are directing massive flows into the Russian stock market, whose performance is the envy of Wall Street, and the Moscow RTS index has risen 75 percent on the year.

Russia, the second-largest oil exporter after Saudi Arabia, has become a magnet for Western majors looking to replenish dwindling reserves and in a spectacular display of investor confidence, BP invested 7.7 billion dollars this year in the Russian TNK oil company.

That could be dwarfed soon by the world's biggest oil company, ExxonMobil, in talks over paying a reported 25 billion dollars for 40 percent of YukosSibneft, Russia's top oil and natural gas producer in the final stages of a merger.

"Putin is an able manager, he's popular and there is increasing consensus around the new system, which is delivering good gains at the moment," commented Al Breach, chief economist at Brunswick financial house in Moscow.

"There is a determination among the policy-making establishment not to go back to the bad old days," he added.

Some commentators worry however that the authoritarian-leaning Russian leader and his allies from the secret services have set the clock back for democratic freedoms in Russia.

"In a certain sense it's good if compared to the anarchy which existed under Yeltsin, when there were no rules of the game, and a lot of instability, " said Yevgeny Volk, Moscow director of the US-based Heritage Foundation think-tank.

"But it is dangerous when you have certain clans in power which don't feel accountable to the electorate. They use this managed democracy for their personal ends and vested interests," he added.

An ongoing Kremlin standoff with Yukos, whose billionaire head Mikhail Khodorkovsky has been financing opposition parties, prompted fears of a review of the murky privatization deals of the 1990s that would undermine private property rights.

Another concern is that Russia has not diversified away from its energy sector -- exposing it to the volatility of oil prices -- and most of the economy remains in its inefficient, Soviet-era state.

While there are exceptions such as fruit-juice makers "they are still islands of competence in an ocean of inefficiency outside the oil sector," Christof Ruehl, chief economist at the World Bank's Russia office, told AFP.

Likewise structural reforms, especially of the banking sector, which in a market economy oils the economic engine, are not moving forward.

"The economy is on the right track but it is not out of the woods yet," Ruehl concluded.

hm/yad/wai

Russia-economy-investment-growth-forex

[eno_]

Maybe we should try this Kapitalismus thingy here. Flat tax, privatization of government assets... Could work? Ya think?

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[GOP_1900AD]

Oil men and IBs are throwing their (and even moreso, OUR!) money AWAY!

[GOP_1900AD]

Hello comrades, maybe we try NEP thinky again, good idea, da?

[RusIvan]

You beleive they are more stupid then you? I don't think so.
I believe while you scare yourself about "russian threat" they just make money for yourself using opportunity. At the end they will be rich but you will be same poor and scared:).

[ChadGore]

Flat Tax Bump

[RightWhale]

Probably many fortunes will be made in Russian corporations, but spotting Enrons would be even harder there than it was here and there would be more Enrons there.

[singletrack]

Until they clean out the Russian mob and other criminals anyone who invests there is a fool. Oilmen and stockbrokers don't seem like a great start. I could be wrong so invest heavy if you believe. Except for vodka and spaceflight I still don't see much that Poland or Viet Nam can't do better now.

[Green Knight]

So why didn't Russia succeed as much as it's doing, now, when it had that punitive tax code?

[Truth666]

There are many economic reasons to invest in russian stock market. But it all starts with a moral issue - the Russian government under Putin has set very high moral standards, in particular about TRUTH.

[FreedomCalls]

Russia's biggest exporters.

Russia's largest companies on the stock market.

[GOP_1900AD]

So far I've made quite a bit of money, but very little of it from Russia. If anything, I've lost intellectual capital and money there. One of my investments, a US high tech company, entered into a joint venture with Boris Babayan (the so called "Cray of Russia," and, not mentioned at all by most here in the West, a designer of computer models for nuclear weapons designed to destroy the West...) in which there has been no restriction on proprietary information. The duped Western investors, having visions of peaceful Perestroika, were *so* eager to see the Reds turn a new leaf, that they were in there *before* the "end of the USSR" sewing up this deal. Back then, I was also among the duped. Suffice it to say, it probably comes as no surprise that not only do the Russians now have their own miraculous instances of the particular technology involved in this deal, but so too do the ChiCOMs. By now, the Kremlin and its allies also know exactly how best to attack the West's high tech systems. All because of some stupid hippie computer geeks who got approached at a technical conference in the USSR, and thought they would then go on to negotiate "world peace" on their own (or was it, whorled peas?).

[Poohbah]

Maybe we should try this Kapitalismus thingy here. Flat tax, privatization of government assets... Could work? Ya think?

If we can get the Marxist-Leninists and Marxist-Buchananists to go for it.

[RusIvan]

Al right I know who is Babayn and you have your right to be sceptical. But it was soviet busuness.
Today it is all gone. Russian economy is boomimg and those people made money. Let them.

By now, the Kremlin and its allies also know exactly how best to attack the West's high tech systems. All because of some stupid hippie computer geeks who got approached at a technical conference in the USSR, and thought they would then go on to negotiate "world peace" on their own (or was it, whorled peas?). ==

You are ecxagarating a lot. WHat high tech system those computer geeks could reveal? If you mean PC computers then I tell you that I remember that we have everything latest at that time. I used personal computer starting from year 1986. It was soviet built ISKRA computer fully compatible with IBM PC XT.

[shaggy eel]

,,, and then, there's exports.

[witnesstothefall]

1986

So what are you saying, the Russians stole the American invention much earlier? Or that they invented it themselves?

[GOP_1900AD]

FYI - the time frame for the MCST (Babayan's org) is 1991 to present. Apparently, these days, they are doing quite a bit of work for the oil drillers and strategic miltiary rocketeers.

[GOP_1900AD]

I feel slighted... how about us Marxist-Washingtonists, Marxist-Hamiltonists; Marxist-Jacksonists and Marxist-Goldwaterists? Come on guys, please don't leave me out!

[eno_]

How about we remove the great plank of obese government from our own eye before we diagnose why the successes of Russian capitalism are not as bright and shiny as they appear to be?