Friday, September 12, 2008

Political consensus is often wrong

The experts, i.e. the media and political analysts as well as self-appointed know-alls (don't snigger at the back) have maintained the following: Russia is untouchable in her growing economic and political strength; the Russian government is motivated by national interests (this is said sorrowfully by proponents of the new political geometry and gleefully by advocates of national interest); and the United States is the most hated country in the world.

Recent news about Russia's economic situation disproves all of those. As a result of recent economic shenanigans, such as the BP-TNK dispute, now temporarily and unsatisfactorily settled, public attacks on a major steelmaker and, above all, the invasion of Georgia, economic indicators in Russia have been plunging.

Yesterday's Wall Street Journal Europe published an article [subscription only, unfortunately], entitled "Investors punish Russia".
Over the past few weeks, Russian share prices have fallen more than 40% from their May highs, battered by fears about Kremlin pressure on comapnies as well as the surge in tensions between Moscow and the West after the war in Georgia.

Russian officials initially brushed off the declines as transitory, driven mainly by weak global markets. But as stock prices and the ruble's exchange rate against the dollar have continued to slide, official concern appears to be growing.
President Medvedev has wavered between blaming the United States because of their mortgage crisis (connection unexplained) and proclaiming the end of the problems and the inevitable climb back by the Russian stock market.

Various analysts remain unconvinced, despite the hasty settlement of the BP-TNK issue, influenced clearly by the economic woes that are hitting Russia.
Many investors and analysts share Mr Medvedev's view that Russian shares are cheap, but they are more cautious about a rebound. "It's probably true, but it might not be until 2011," said Ron Smith, strategist at Alfa Bank in Moscow.

Russia's dollar-denominated RTS index fell 4.4% Wednesday [September 10] to 1334.33 as foreign funds continued to unload Russian shares in what Mr Smith described as "capitulation on the country". [I wonder whether Mr Smith thinks capitulation to the country would be better.]

Mr Medvedev blamed Russia's troubles on the U.S. "Let Americans solve the problems with their mortgage system," he said. "To put it simply, they let almost everyone else down."

But investors and analysts say that while the Russian market's swoon is partly due to the global credit crunch and weak foreign markets, Moscow's behaviour has been a big contributor.
On top of which the inevitable fall in the price of oil, metals and other commodities has shown up Russia's reliance on those exports and the short-sightedness of the leadership that has spent the last few years imposing state control on the companies and using its power as energy supplier to interfere in other countries' affairs instead of diversifying the economy through encouragement of investment.

Associated Press agrees that Russian markets and banks are under pressure. Other news stories say the same.

This posting is not a gloat about Russia doing badly economically though a smug "told you so" is allowed, I believe. As it happens, I do not believe that an economically weak and politically contentious Russia is of any help to her people or the rest of the world. But it should have been clear that former President, now Prime Minister Putin's policies would not strengthen Russia any more than stomping around in the school yard strengthens a bully's personality.

What of those three consensus points? Well, the first one is obvious. It is simply not true that the West can do nothing about Russia outside military intervention, which is clearly a nonsensical idea. A commodity exporter needs its market more than a more diversified economy does. Russia is desperately worried that the West, particularly European countries and even more particularly Germany might start diversifying its energy sources. After all, it cannot drink the gas and oil or eat the coal.

Western investment is equally desperately needed and, unfortunately, being nice to the Kremlin does not help matters, as BP has found. On the other hand, the sight of those investments disappearing has concentrated the collective mind somewhat even if President Medvedev continues to play the strong guy.

Secondly, the notion that the Kremlin and, specifically Prime Minister Putin and his teddy bear, President Medvedev have the country's national interest at heart is nonsense. However popular the Georgian invasion may have been (and it is hard to tell as Russian attention tends to be on other matters in August) the sole winner is the Kremlin and its siloviki who see the benefits for their own power in whipping up fears about non-existent foreign threats.

Thirdly, there is the question of everybody hating the United States and, therefore, vaguely supporting Russia as one who stands up to Uncle Sam. In the first place, public outcry against the invasion of Georgia was louder than the had Russians expected even if some official response was muted. In the second place, nobody hates America enough to stop doing business there, invest there or try to go and work there. We and the Russians can see now what happens when a country really falls out of international favour even if only temporarily.

1 comment:

James Harvard said...

A prescient posting! As reported by that bastion of the political consensus, the BBC, the Russian stock market has been suspended over the last few days to stop it going into complete meltdown.