The Great White Swims, the Capital Flies
Sometimes it’s hard to keep up. Yesterday, the Russian Central Bank reported that capital outflows from Russia totaled $50 billion in the first quarter, nearly equal to last year’s total of $60 billion (which was already a high number). Check that: today the RCB updated the number to $63.7 billion. What will it be tomorrow?
Last ruble/dollar to leave: please turn out the lights.
No wonder Putin is soliciting donations to the comment box on how to arrange a quick turnaround of the Russian economy. Too bad he doesn’t understand he is the biggest money repellent in Russia (with the exception of the dirty money that sticks to him like glue.)
Given this, it is rather remarkable that Russia is urging companies that have listed abroad to delist and trade on the Moscow exchange exclusively instead. Deputy PM Igor Shuvalov promises that Russia will create “attractive” conditions for Russian companies that come home.
Good luck with that.
It is ironic, given that in the mid-2000s in particular Putin’s Russia was encouraging its companies to list abroad.
No doubt that this is driven in large part by fears that this capital is vulnerable in the event of a pronounced escalation of tensions (or conflict) between the West and Russia.
So we are observing a process of the reversal of Russia’s integration into the world financial system. A sort of push me-pull you process. Money is being pulled out of Russia, and Russia is taking actions that will push foreign investors out of big Russian companies.
These processes will get even worse if the Ukraine situation deteriorates. Or if there is a Latvia/Lithuania/Estonia/Finland/Poland situation.
And a worsening geopolitical situation is likely. Putin reminds me of a great white shark. If he doesn’t keep moving, he will die. Crimea boosted him, but that effect will dissipate. He’ll need another boost, and that will almost certainly not come from some domestic achievement, particularly an economic one. So another foreign confrontation seems necessary for the shark to survive.
And so much for the notion that financial ties will soften and westernize Russia. Putin will sacrifice these ties to his civilizational mission, domestic political considerations and the the corruption imperative.
Actually, I have the tense wrong there. He is sacrificing them. He has been sacrificing them.
The great white will keep swimming, and the capital will keep flying.
I have had some correspondence with a Russian friend of mine, and it is pretty clear that the Russians are busy pumping out the propaganda to offset any concerns. This time the old idea that Russia will start selling its oil in another currency than USD is going to destroy the US economy. We heard this bullshit about Saddam Hussein, Gaddaffi, and every other despot who has had a run-in with the US, but this time it’s not being wheeled out as a post-hoc reason for an invasion but by Russians to convince their countrymen that they have the US by the balls. Apparently, Russia will open up a commodity exchange in St. Petersburg and sell its minerals, gas, and oil to Turkey, China, and India in some other currency (roubles? groats? Rolex watches?). Which is great, but:
1) The volume we are talking about is insignificant relative to the global volume of dollars traded each day. Even total global oil production is much smaller than the value of dollars being exchanged, and therefore it is the dollar which affects the relative value of oil, not the other way around.
2) I wonder what the Chinese, etc. think about this? Now they need to factor in exchange rate fluctuations as well as revisit existing agreements which I am fairly certain will stipulate dollars as the applicable currency.
3) Why only now? If this was possible, Putin would have done it years ago.
It’s bollocks of course, the usual shite peddled by people who have grand desires but don’t understand economics. You’ll not be surprised that this is apparently a brainchild of Igor Sechin, although I suspect he is utterly unaware of it. Still, it serves the purpose of convincing the Russians that all is well and they have global economic power. At least those who are not busy getting their money out of the place, anyway.
Comment by Tim Newman — April 10, 2014 @ 12:27 am
“This time the old idea that Russia will start selling its oil in another currency than USD is going to destroy the US economy.”
Tim, I don’t think they are that delusional. The Kremlin has probably realized how much leverage the US has over companies transacting in US dollars.
Comment by Alex K. — April 10, 2014 @ 3:18 am
Hmmm…I didn’t realize Great Whites were carrion eaters feasting on rotting dead flesh.
Comment by pahoben — April 10, 2014 @ 3:36 am
>> It’s bollocks of course, the usual shite peddled by people who have grand desires but don’t understand economics.
Don’t you worry, “The ultimate goal of the government’s PR campaign is to turn Moscow into a global financial center.” Published time: August 31, 2010 23:26 . Got somehow forgotten it seems, what with all the other grand achievements of late.
Comment by Ivan — April 10, 2014 @ 3:53 am
ahhh, but there is a backup plan – the Rasha will buy oil from Iran
only in Pulter’s bizarro logic world does that make sense
http://news.yahoo.com/russia-oil-talks-pose-hurdle-iran-nuke-pact-060836484.html
The Russian business daily Kommersant has reported Russia plans to buy 500,000 barrels of Iranian oil a day, shattering an export limit defined by an interim nuclear agreement world powers and Iran reached last year. The oil-for-goods exchange is still far from finalized, the newspaper said, but its potential challenges Western efforts to secure a comprehensive agreement.
Comment by elmer — April 10, 2014 @ 8:41 am
Ironically the Duma is considering a law creating a special tax on real estate in Russia, for those Russians who have dual citizenship. This of course discourages such people from investing in/owning property in Russia.
Comment by AP — April 10, 2014 @ 8:53 am
They are actually moving backwards.Moscow’s ranking as as a financial center slipped to 73d (out of 83) in 2014. St. Petersburg is 78th. Moscow falls between those two renowned financial centers, Helsinki and Glasgow.
So, it looks like Putin’s idea for Ukraine is to keep it under Russian political control (without actually annexing) while having the West to pay for it.
Interesting.
Comment by LL — April 10, 2014 @ 11:18 am
@LL-I think Putin is into real options. Pursuing a multi-faceted approach (sowing chaos via 5th columns, financial and economic pressure, option to invade) and he will respond to the opportunities that those various measures create.
I see Russia is threatening to cut of Ukraine’s gas supplies, again. I’m wondering if Ukraine would have the balls to cut of the water and power to Crimea, or whether that would invite a full-blown invasion by Russia?
Comment by Tim Newman — April 11, 2014 @ 4:35 am
To disinvite a full-blown or any invasion of Russia, NATO (or the US) should have some troops placed at FOB somewhere at eastern Ukraine. A brigade-strength, no more.
Not much for real defence (in case of a full-blown invasion, a single brigade does not stand much chance), but as a head-cooling measure. Getting into a combat with NATO troops sets an entirely different game.
Comment by LL — April 11, 2014 @ 4:43 am
There is no need to cut off water to Crimea. The Russians will turn it into a desert on their own, and then hand it over to Ukraine, just like they did last time LOL
Comment by Ivan — April 11, 2014 @ 5:48 am
I see Russia is threatening to cut of Ukraine’s gas supplies, again. I’m wondering if Ukraine would have the balls to cut of the water and power to Crimea, or whether that would invite a full-blown invasion by Russia?
No Ukrainian has ever refused money.
Comment by So? — April 11, 2014 @ 6:05 am
The most vulnerable Crimeans are already discovering what Russia is like:
<>
http://www.rferl.org/content/annexation-bad-news-for-crimeas-rehab-patients/25328258.html
Nothing says “Russia” like senseless murder.
Comment by Ivan — April 11, 2014 @ 7:44 am
More reports from crimea:
http://euromaidanpr.com/2014/04/10/crimean-tatar-boy-beaten-for-using-native-language/
http://euromaidanpr.com/2014/04/09/crimean-resident-the-truth-about-crimea/
http://euromaidanpr.com/2014/04/10/headmaster-of-the-ukrainian-gymnasium-in-simferopol-has-resigned-under-pressure-from-self-defense-and-city-council-officials/
Comment by Gordon — April 11, 2014 @ 11:02 am