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.

Central Europe versus Russia

by | Jan 28, 2009 | Europe and Central Asia

Last week, I saw the leader of the Hungarian opposition, Viktor Orban, call for a new central European security alliance against Russia.

Orban warned that the EU needed to take a tougher line with Russia. He said: “Russia has made two requirements that are not acceptable for European civilisation. Firstly, it has said it has legitimate security interests outside of Russia, so it can decide, for example, whether other countries can join NATO or not. That’s dangerous.”

He went on: “Secondly, Russia wants to buy out alternative sources of energy around the region, and to monopolise gas deliveries to the whole region, which is totally against our values.”

Orban said that the Russo-Georgian war of August 2008 testified to “the weakness of common EU security policy”, and added: “We in central Europe have a different approach to emerging Russian power, and it’s obvious that sooner or later, central Europe will emerge as an independent player in security.”

He also warned that Germany was playing a “dangerous game” with Russia, by not checking its expansionism more aggressively.

There’s some domestic politics going on here. Orban’s ouster in Hungary, Ferenc Gyurscany, has taken a much more conciliatory stance towards Russia and Gazprom, including supporting Gazprom’s Blue Stream pipeline over the EU-backed Nabucco pipeline. Gyurscany said he wanted Hungary to become an “energy hub” in Europe. You can practically smell the vodka  on his breath.

Still, now Hungary’s economy is deep in recession,  Gyurscany may be on the way out, and Orban sounds like he is likely to introduce a much tougher eastern foreign policy.