Russia entering ‘full-fledged economic crisis’, says ex-minister Kudrin

Thursday, 25 December 2014 00:00 -     - {{hitsCtrl.values.hits}}

MOSCOW (Reuters): Russia’s government has pushed the country into an economic crisis by not tackling its financial problems fast enough, former Finance Minister Alexei Kudrin said on Monday, warning the full effects would be felt next year. Kudrin – a darling of investors who is credited with building Russia’s $ 170 billion worth of sovereign wealth funds -- added that sanctions over Ukraine, not falling oil prices, were primarily behind the collapse of the rouble and warned that Russia risked seeing its debt downgraded to junk status in 2015. “Today, I can say that we have entered or are entering a real, full-fledged economic crisis. Next year we will feel it clearly,” the former minister told a news conference. “The government has not been quick enough to address the situation ... I am yet to hear ... it’s clear assessment of the current situation.” Kudrin, one of few to criticize President Vladimir Putin, quit in 2011 in protest at proposals to increase defence spending. He has since criticized Putin’s response to Western sanctions imposed following Russia’s annexation of Ukraine’s Crimea region and its subsequent support for loyalist fighters. But the two men are still believed to be close. Russia has been hit by what Economy Minister Alexei Ulyukayev called a “perfect storm” of plummeting oil prices, sanctions and a flight of investors’ capital, made worse by a lack of structural reforms that means the economy is overwhelmingly dependent on oil revenues. Government officials have tried to minimize the impact of sanctions on the country and its rouble currency -- which plunged last week despite a hike in interest rates to 17%. Putin has claimed “external factors” like oil were the key culprit behind the country’s “tough times”. But on Monday Russia announced plans to impose a heavy tax on grain exports since rouble volatility and high global prices have caused exports to spike. Russian news agencies reported Prime Minister Dmitry Medvedev told a meeting with officials that the country needed to hang on to its stocks. And though the country’s top oil firm Rosneft said it had made a $ 7 billion debt repayment from its own cash reserves, easing some investors’ worries. Russia’s central bank said it would have to bail out mid-sized Trust Bank with 30 billion rubles ($ 544.54 million) to stop it going bankrupt. Kudrin said falling crude prices only partly accounted for the plunge in the rouble - which has fallen particularly steeply since autumn as concerns increased that the sanctions would prevent Russian companies from meeting debt obligations because they cannot access Western capital. Kudrin forecast a series of defaults among medium and large enterprises, -- though banks were more likely to be supported by the state -- which is likely to result in rating agencies downgrading Russia’s debt to “junk” status. Most agencies have put Russia this year one notch above junk status. “Russia will get a downgrade,” Kudrin said. “It will enter the ‘junk’ territory.” Kudrin said he believed that between 25% and 35% of the decline in the rouble - down some 45% against the dollar so far this year <RUBUTSTN=MCX> - could be attributed to sanctions. The rest, he said, was down to a stronger dollar and investors’ mistrust of Russian authorities and their actions. The rouble ticked up slightly against the dollar on Monday and the RTS <.IRTS> index of dollar-denominated shares rose more than 4% as Brent crude prices <LCOc1> rose 2% to above $ 62 per barrel. While the currency may stabilize in the first quarter of next year, its decline will likely help to push inflation to a rate of 12-15% in 2015, Kudrin said. The central bank envisages next year’s inflation at around 8%. And even if the price of oil rose to $ 80 per barrel, gross domestic product was still likely to fall by more than 2% in 2015, Kudrin said. At $ 60 per barrel GDP would decline by 4% or more, he added, echoing the central bank’s latest assessment, published last week.  

 Ukrainian Parliament  angers Moscow by scrapping 'non-aligned' status

  Reuters: The Ukrainian Parliament on Tuesday renounced Ukraine’s “non-aligned” status with the aim of eventually joining NATO, angering Moscow which views the Western alliance’s eastward expansion as a threat to its own security Kiev first announced its intention of seeking the protection of NATO membership in August following what it deemed the open participation of Russia’s military in a separatist war in Ukraine’s eastern provinces. Russian Foreign Minister Sergei Lavrov called Ukraine’s renunciation of its neutral military and political status a “counterproductive” step that would only boost tensions around the crisis in the east. “It will only escalate the confrontation and creates the illusion that it is possible to resolve Ukraine’s deep internal crisis by passing such laws,” TASS news agency quoted him as saying. Addressing deputies in Kiev before the vote, Ukrainian Foreign Minister Pavlo Klimkin said the move underscored the country’s determination to pivot towards Europe and the West. “This will lead to integration in the European and the Euro-Atlantic space,” he said. The amendment passed easily, receiving 303 votes, 77 more than the minimum required to pass into law. Any accession to the Western military alliance is likely to take years, but a NATO spokesman in Brussels said: “Our door is open and Ukraine will become a member of NATO if it so requests and fulfils the standards and adheres to the necessary principles.” Ties between Moscow and Kiev are at an all-time low since Russia’s annexation of the Crimean peninsula from Ukraine in March and the subsequent outbreak of the pro-Russian rebellion in the east. The pro-Western authorities in Kiev accuse Russia of orchestrating and arming the uprising after the overthrow of a Ukrainian president sympathetic to Moscow. The Kremlin denies that it is behind the revolt.