- - Thursday, February 4, 2016

Like a college student trying to pay the rent, Russia is lining up a fire sale of state-owned assets to plug holes in its federal budget. This week, Kremlin spokesman Dmitry Peskov said the list of companies to be sold was not yet finalized but possibly could include the crown jewels Aeroflot and Rosneft. The sale would most likely take place in the second half of the year.

Russia has slashed social spending, including pensions, health care and education in the face of severe economic stress brought on by Western sanctions and the collapse of crude oil prices on world markets. The BBC reports the potential sell-off is expected to raise in the region of $6.5 billion (500 billion-800 billion rubles or 4.5 billion pounds). Foreigners would not be barred from participating in the privatization assured the Kremlin.

Brenda Kelly, market head analyst at London Capital group, said she thought there would be little take up from these privatizations: “It all looks a bit desperate and high risk.”

Most likely, Moscow is looking at all options to replace income lost by a crude oil price decline of 70 percent from the recent highs. We have written about Russian efforts to talk up the price of crude by saying they would be willing to meet with OPEC to discuss production cuts and the ratcheting up of tensions in the Middle East where 40 percent of the world’s oil still originates. An expanded conflict in the Syrian theater would be one option for Moscow to push prices to higher levels due to market uncertainty in the face of military conflict.

Again from the BBC, Natalia V. Akindinova, director at Centre of Development Institute of Higher School of Economics in Moscow, said: “This is not a very good time [for privatization] from the point of view of government revenue, because all prices are at the minimum levels. There are certain risks that this will be privatization among one’s own people again”.

Russia has a sordid history with privatizations. The current oligarchic system was formed after the Soviet Union’s assets were sold in a fire sale in the early 1990s, creating vast inequality in wealth. Ordinary Russians have little faith that this round of sell offs will work out any better for the long-term financial health of the country.

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