Monday, September 29, 2008

MOSCOW | While the war over Georgia and disputed enclaves has accelerated a decline in Russian financial markets, average Russians tend to blame the U.S. economic meltdown more than their own government’s foreign policy, and few seem to think their own well-being is at stake.

“I am sure some of the problems stemmed from the war in the Caucasus, but isn’t the real source of the problem the U.S. and their mortgages?” said Mikhail, a manager for a cell-phone provider who asked that only his first name be used. “Anyway, I don’t really think this affects me at all.”

Chastened by a major financial crisis in 1998 in which a ruble devaluation wiped out savings and the government defaulted on foreign-debt payments, many Russians avoid investing in the stock market.

Unlike Americans, half of whom own stocks, only 5 percent to 6 percent of the Russian population invests their disposable income in the financial markets, said Ruslan Grinberg, director of the Moscow-based Institute of Economics at the Russian Academy of Sciences.

Many also avoid depositing their money in banks, investing instead in durable goods such as cars or real estate.

“I just don’t trust the banking system since ‘98,” said a man in his mid-40s who would not disclose his name or profession.

Since the beginning of the crisis, the Kremlin has been working hard to stabilize the markets through confidence-building measures and a vigorous public relations campaign aimed at projecting a sense of stability and control.

Last week, Prime Minister Vladimir Putin announced the postponement for three months of quarterly sales-tax payments. The government has also cut banks’ reserve requirements by about $12 billion, increased the government guarantee on bank deposits to $28,000 per individual and is actively considering a $5.5 billion tax cut for oil companies.

An official public relations campaign seeks to convince Russians that everything is normal.

Earlier this month, the newspaper Kommersant reported that Mr. Putin, speaking at an economic forum in the Black Sea resort of Sochi, declared that government stabilization measures had ended the financial crisis and ensured the soundness of the Russian economy.

Still, the Kremlin was forced to shut down Russia’s stock markets earlier this month for two days to stem a panic that led indexes to lose half their value since May. When markets opened again, the RTS index rose 22.4 percent; a second index, known as the MICEX, rocketed up by 28.7 percent.

The events leading to the decline in the Russian markets showed that the country is not a safe haven from global woes.

While the Kremlin’s measures may have had a marginally positive effect on the psychology of some investors, the markets here, as in much of the rest of the world, are waiting for a resolution to the financial crisis in the United States to revive global liquidity and allow drifting commodity prices, on which the Russian economy relies, to find a balance.

“The most pressing concerns going forward,” said Mr. Grinberg, “are the unavoidable increase in interest rates and rising inflation as high as 15 percent, in part as a result of the stimulus measures employed by the government. These factors will be felt by the Russian people more directly than a fall in the stock markets.”

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