Russia looking to capitalise on the crunch

by | Mar 18, 2009 | Economics and development, Europe and Central Asia

The Kremlin has been shaken by the credit crunch, which hit the Russian stock exchange worse than any other exchange in 2008, pushing it down around 65%. The fall in the oil price threatens to push the economy into recession this year, and Russian oligarchs have seen their fortunes halve.

However, the country is still in a relatively strong position compared to its neighbours, and there are signs it is looking to capitalise on this to expand its economic influence in the region.

For the last few weeks, the country’s largest bank, state-owned Sberbank, has been in talks to buy the troubled Bank Turam Alem in Kazakhstan, which had to be nationalised by the Kazakh government earlier this year. It’s the biggest bank in Kazakhstan, and would give the Russian state enormous economic leverage within the country, at a time when Kazakhstan is wondering whether to join the ruble or to set up a new central Asian regional currency.

In Kyrgyzstan, which has also been badly shaken by the economic crisis, Russia agreed a $2bn loan package and $150m ‘grant’ in February. A few weeks later, the government agreed to close down the US air base at Manas. 

In Belarus, talks with the IMF have stalled, while Aleksander Lukashenko is seeking a further $2.7bn loan from the Kremlin on his visit to Moscow this week, to prop up the central bank’s reserves. There are also talks to sell one of the country’s biggest banks, BPS Bank, to Sberbank.

In Ukraine, PM Yulia Timoshenko is trying to get a $5bn 15-year loan from the Kremlin to cover the country’s budget deficit, much to the ire of the country’s president, Viktor Yushchenko, who compared the potential deal to the Molotov-Ribbentrop pact.

This was after Timoshenko’s government failed to meet the IMF’s targets for government spending cuts in February, leading to the suspension of the second tranche of the IMF’s $16bn loan package to the country.

No doubt the Kremlin will be telling both Ukraine and Belarus that if they want the emergency cash, they need to give Gazprom more control over the pipelines that take the EU’s gas through these countries.

In Hungary this month, where the economy is also in dissarry and the government desperately needs cash, Gazprom signed two important deals with MOL, whereby the Hungarian government agreed to finance the South Stream pipeline from Russia (which will be a competitor to the EU-approved Nabucco pipeline). Details of the deal are shady, but it may have been that the government got some short-term loan in return for supporting the project.

Spinning Lukashenko

by | Mar 17, 2008 | Europe and Central Asia

Lord Bell, PR guru and Tory peer, has plied his dark arts for some fairly controversial characters in the past – Augusto Pinochet, Boris Berezovsky, Michael Chernoi, even Margaret Thatcher – but even he might have his hands full with his latest project: spinning Aleksander Lukashenko, the iron man of Belarus and the ‘last dictator of Europe’.

Last week, Bell met with Lukashenko in Minsk, where the moustachioed strong-man asked Lord Bell how he could improve his image in the West.

Bell told the Moscow Times:

He would like his country to be better understood, and his successes to be better grasped. He has raised pensions and wages and would understandably like to shift the focus to these areas. Lukashenko doesn’t see why Belarus can’t be a friend to the West and a friend to Russia at the same time.

The fact is, Lukashenko is increasingly neither a friend of Russia’s, nor the West. Western countries dislike him for his iron rule of the country, his use of the KGB to crush the opposition and free press, and his provocative and belligerent treatment of Western diplomats in the past.

Russia, meanwhile, dislikes him for his obstreperousness towards the Kremlin (yes, he’s no more gracious with Russia), his embarrassing outbursts on the international stage, and above all his unwillingness to give them control of the transit pipelines through which Gazprom exports around 20% of its EU deliveries.

Russia is fed up with subsidizing Belarus’ state-owned economy with cheap gas. They started putting up the gas price in 2006, and now it looks like Lukashenko is feeling the heat.

Don’t write him off just yet, however. He’s still pretty popular with Belarus’ elderly population and farm-workers in State-owned communes, who for the last decade have staved off the harsh reality of a post-Soviet world by drowning themselves in cheap gas and state-produced vodka.