Streetwise Professor

November 8, 2009

What Do Russia and Drunk Drivers Have in Common?

Filed under: Economics,Energy,Financial crisis,Politics,Russia — The Professor @ 7:28 pm

They’re both virtually uninsurable:*

Political risk insurance premiums have risen across emerging markets in the last year, fueled by rising resource nationalism and unrest linked to the financial crisis as well as a renewed concern over risk amongst investors.

Foreign direct investors use the political risk insurance market to buy protection against nationalization, expropriation, political violence or capital controls preventing convertibility of earnings. It generates some $1.5 billion in premiums each year.

. . . .


Madagascar, Ecuador, Kyrgystan and others have also seen examples of expropriation or effectively forced renegotiation that have worried insurers. However, in some other countries — such as Brazil or South Africa — a slight rise in leftist rhetoric has had less impact on premiums.

The industry is particularly concerned over risks in Russia, where extractive projects have become almost uninsurable.

BP (BP.L) faced a difficult battle for control of its local joint-venture TNK-BP last year, but problems have not been limited to the oil sector and Norwegian telecom Telenor faced a similar battle this year over its stake in mobile operator Vimpelcom.

“The main difficulties seem to be in any sector you can describe as strategic,” said Elizabeth Stephens, head of credit and political risk analysis at London insurance broker Jardine Lloyd Thompson.

No doubt the “We’re Not the Worst!” crowd that routinely pipes up in response to any criticism of Russia and Putin will seize on the fact that another ex-Soviet basket case is in the same, uhm, basket:

Buying coverage for investment in Ukraine has also become almost impossible, she said, as the country struggles with both financial and economic crisis. Ukraine’s state gas firm Naftogaz defaulted on a $500 million Eurobond last month before restructuring.

Take your solace where you can get it, I guess.

Looking at the roster of other virtually uninsurable countries–Bolivia, Venezuela,  Madagascar, Ecuador, Guinea, and Kyrgystan–should be a source of deep shame for proud Russians.  But we are routinely bombarded with harangues about the restoration of Russia’s power and its assuming its proper place in the world, all led by that stalwart avenger of Russia’s humiliation, Vladimir Putin.

But what has he really accomplished?  To turn Russia into an economic pariah (to all except the Germans in their current at-your-feet mode) condemned to economic purgatory for the foreseeable future.  The radioactivity of Russian political risk is a striking testament to the true wages of Putinism.

But in this era of hyperactive, grasping government, America should take heed Russia’s lesson:

The huge increase in Western government intervention in financial markets following the global crash had also prompted some firms to worry about the risk of expropriation in developed economies, Zurich’s Roorden said.

“We’ve had some enquiries about the United States, mainly concern over the risk of nationalization as governments take extraordinary measures due to the crisis,” he said.

We’re nowhere near Russia on this score yet, but the journey to hell begins with the first step.  The actions of the US government with respect to major banks, the automakers, and perhaps, health care insurers and providers, raise questions about the vulnerability of property rights in this country too.

* And I bet you were thinking, “Uhm, drunk drivers?”

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  1. Russia should be proud to be associated with heroic progressives such as Chavez, Correa and Morales, who are combating Western economic and cultural imperialism against all the odds.

    Comment by Sublime Oblivion — November 8, 2009 @ 9:53 pm

  2. Oh, brother…. Take a break already, SO!!!

    Comment by voroBey — November 9, 2009 @ 1:51 pm

  3. Absolutely love the title!

    Comment by Brian Habrouck — November 9, 2009 @ 4:04 pm

  4. “But what has he really accomplished? To turn Russia into an economic pariah (to all except the Germans in their current at-your-feet mode) condemned to economic purgatory for the foreseeable future.”

    It seems to have worked better for Russians than submission to the whims of the “international community”, in that they’ve had actual natural population increase this past August, the first month of such for over 15 years. The “international community”, of which the banksters are very much a part, care not how, or even whether, Russians live, only that the Russian government submit. And you read references to Anglo-American frustration that the global financial crisis wasn’t severe and prolonged enough to drain RF financial reserves and plunge the Russian people back into Yeltsin-era mass destitution, so that they would then force a regime-change. Popular misery is merely a means to an end for the “international community”, and whether the population concerned actually benefits is clearly a matter beneath consideration.

    Comment by rkka — November 9, 2009 @ 5:48 pm

  5. SO, your arguments are as material and strong as Russian democracy.

    Comment by Deith — November 10, 2009 @ 4:28 pm

  6. A country that is uninsurable is doomed. It’s the same as saying that a normal person can’t do business there. This is truly a new low for Putin’s Russia.

    Comment by La Russophobe — November 11, 2009 @ 7:35 am

  7. Oh, this article sounds so rediculous! This is obvious that the author didn’t read anything else but American “free and independent” mass media! 😉
    1) “Economic pariah”?
    Recently I read that Russia was becoming the biggest producer of cars in Europe: it makes Totyotas, Hondas, GMs, Fords, Daewoos, etc.
    Intel, Microsoft, IBM and other major IT giants invested billions in Russia and have large research facilities there.
    Enough examples of “Economic pariah”? 😉
    And another point: Russian disposable income 10 times higher than Indian’s and 4 time higher than Chinese’s. Only an idiot would ignore nation of 140 millions consumers eager to buy everything!
    2) Putin and his policy
    Hey, dude, I have news for you: Putin was RUSSIAN PRESIDENT! Not American one! Did you get the diference?
    Surprise, surprise: he has been acting according to RUSSIAN ineterests, not WESTERN interests! 🙂
    Yeltsyn was acting as biggest American friend, and what Russia got in exchange? ZERO!
    Putin was the first who called Bush in September 11 and offered any help, and he actually provided it! Russian support in Afganistan saved hundreds of lives of American soldiers and billions of dollars!
    What Putin received in exchange?
    Anti-Russian rethoric from Chaney, America dropped from space defence treaty, American support of Georgian psycho Saakashvili, etc.
    Balkan war, Kosovo independence, NATO expansion to the Russian borders, Georgian war, attempts to put rockets 100 miles from Russian border clearly showed Russians that even if they think of the West as a friend the West still treats Russia as an enemy.
    What would American President do if some other nation supported anti-American regimes on American border and bombed and shelled American citizens?
    3) The biggest problem for foreign investors in Russia is NOT Russian foreign policy that more predictable than American policy, actually or “political instability”!
    Putin is very popular in Russia, and he rules the country. Which “instability” are you talking about? Russia is more stable than Georgia or Ukraine, where rating of their Presidents is so low that Bush’s rating in 2008 would be their wet dream!
    Yet, according to mass media, situation in both Ukraine and Georgia is so rosy and nice in comparison to Russian’s.
    In fact, the biggest problem is RAMPANT RUSSIAN CORRUPTION.
    And you, if you pretend to be a ‘Russian expert”, must write of it first!
    I sugegst you to educate yourself a bit brfore posting something here instead of listening to sold out puppets from Fox News, CNN and other “independent” mass media!
    Sorry, dude, but your post is incompetent and plain silly!

    Comment by Boba Kastorsky — November 11, 2009 @ 1:35 pm

  8. BOBA:

    This article is about INSURANCE, you hopeless dimwit. You haven’t said a single word about it. Instead you try to change the subject like a raving psychopath.

    “Recently I read that Russia was becoming the biggest producer of cars in Europe.”

    Sure, Russia needs a lot of cars because it’s drunk drivers keep destroying so many of them! Nice.

    Comment by La Russophobe — November 11, 2009 @ 4:24 pm

  9. Ah, yes, another member of the “Not the Worst!” gang. Sheesh, y’all must have to hold your meetings in Moscow’s Olympic stadium or someplace just as capacious.

    The ProfessorComment by The Professor — November 11, 2009 @ 5:28 pm

  10. “Ah, yes, another member of the “Not the Worst!” gang.”

    He’s pointing out indications that the “Russia is an economic pariah” stuff is nonsense.

    You don’t wanna deal with that, do you.


    Comment by rkka — November 13, 2009 @ 6:59 am

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