I’ve got your point. But this can’t help that I don’t trust international institutions. They are not fair and benefit only few countries. What about US veto in the IMF? Veto right for selected countries in the UN security council? Anyway, I don’t think that we should discuss it further. This is endless topic.

I agree with you on the risks and returns. I don’t agree on the political risks. They are largely unchanged in Russia. It’s the economy risks, which scare the investors away.

As for Brazil, I don’t know. I know nothing about Brazil. I just assume that the fall in prices on their exports was less dramatic then ours.

Petr

“G8 is crap.”

Well this then is where we don’t agree, and not simply over whether it was a good idea to go roaring thru the rocky tunnel. I value our institutions, even if our leaders to get things right sometimes and wrong the next. Probably a significant part of the Russian leadership would agree with you, and that is why they are in the mess they are now in.

“They won’t return until the easy money are back.”

I don’t agree that investors only look for easy money either. In fact there is no easy money. There is only more or less risk. The more risk you take the more money you can make, but once the risk gets too high then maybe it is intelligent to decide to pack your bags and leave. Or at least I would. The job of politicians is to try and stop the level of risk rising, not to “up the anti”.

I was most struck by seeing the Steven Soderberg film Ché, and by how when he went to the United Nations he said “we don’t need your investors, we can do it alone”. This is a very bold, and cosnistent stance, but I’m not sure where it leads.

The strange thing is how many people I know these days in places India or Brazil who would certainly have thought like Guevara did back in the 1960s, but who now are busy running investment funds, simply because they think that is the best way to attack poverty in their countries. Times have changed, but I think a lot of people in places like Russia and Ukraine haven’t wised up to this.

“Today’s world lives by the jungle law.”

I think I’m still a bit more idealistic than this, although incidentally I don’t disagree with you at all about the ill advisability of taking out unhedged forex loans. In fact there were plenty of people warning on this, the IMF, the credit ratings agencies, and independent analysts like me. The problem was the ordinary people simply didn’t want to listen. They thought they knew better. Probably becuase they thought that they could make some easy money, or at least avoid paying the real going rate of interest that went with the risk attached to buying the houses they bought. Phah! Making money is always hard, and one day people, hopefully, may wise up to that. The fact is that the easier you make it the quicker you lose it, as we are seeing now. Didn’t people buy into Madoff because that was what he promised, easy money?

Who do you blame for the mess in Spain, the banks who were lending the money, or the people who were borrowing it?

Basically, if what you say is right, why is Brazil not melting down like Russia is?

See my comments inline.

“And in a globalised world where you are dependent on external funding for forex loans to companies and households you just can’t aford to go it alone in this way.”

I think that dependency on external funding for forex loans is the problem in itself. In my opinion it is one of the biggest problems we face today. Iceland didn’t have a war in August. I don’t see how it helped. Same for Latvia, Ukraine etc.

“This kind of unilateralism fuelled fears (at just the wrong moment) that the Russian leadership would not be able to adequately work with other G8 leaders to build a common front against the current crisis”

G8 is crap. Today’s world lives by the jungle law. “loss of confidence” was not possible because there were no confidence. Investors and banks were happy in invest in Russia when they were able to make easy money and pulled out the very minute they realized that the growth has stopped. They won’t return until the easy money are back.

Petr

and just briefly:

“But in such a meltdown in commodities (which are the main exports), it’s obvious that the result would be exactly the same. No matter what Russia did in August.”

Look, I’ve taken a lot of stick from virtually everyone on my Russian blog for my view on this, since most people do not accept the connection I am trying to make. Nut my feeling is that the big problem – or one of them, since there are several (economic ones I mean) – is not the commodities meltdown, this was always anticipated and the Weath Fund was there to deal with that.

The big problem is the scale of the credit crunch, which is being provoked by the fact that investors lost confidence, and started pulling their money out, and if you look at the timing of when this really started in earnest it was after the first week in August – I’ve been tracking it – and this loss of confidence was finally provoked (there had been other issues about economic management earlier) not by the entry into Georgia per se, but by the unilateral decision to recognise the two separatist provinces. This kind of unilateralism fuelled fears (at just the wrong moment) that the Russian leadership would not be able to adequately work with other G8 leaders to build a common front against the current crisis, and this I think is what has happened. Russian has been going it alone, as we are seeing again in the gas crisis. And in a globalised world where you are dependent on external funding for forex loans to companies and households you just can’t aford to go it alone in this way. That is my view, and not some kind of cold war “warriorism”.

Thank you for response. It’s great that you write about Russia! Your articles are both clever and easy to read. Not to mention the excellent sense of humor!
I’m just confused when in the middle of a serious analysis you make references to the “August invasion of Georgia”, which mystically led to the capital outflow. I do understand when Condoleeza Rice does such a statement — it’s her job to lie in front of cameras. But in such a meltdown in commodities (which are the main exports), it’s obvious that the result would be exactly the same. No matter what Russia did in August.

Petr

Good point Andy, what happened to the Pajamas?

I’ve pretty much adopted the same philosophy as you when it comes to the contest – with about 2% of the vote in my category, I’ve decided that I might as well embrace the olympic ethos of “it’s the taking part that counts”..

By the way – what happened to the Satin Pajamas?

“If not a bit biased view on Russia, it would be my favorite”

I guess, if I am not mistaken that this is a reference to me. I am sorry if I create the impression that I am biased. I certainly try not to be. I am a technician and not a political commentator.

I am seriously worried about Russia’s economic future in both the short and long term. In the short term because of the economic and financial meltdown we are seeing before our eyes – it isn’t just manufacturing that is contracting rapidly, yesterday’s services reading was almost as bad – and in the longer term because of excessive energy dependence and structural demographic problems. I try to analyse all this in some detail on my Russia blog.

I live in Spain, a country which I personally love, but that doesn’t stop me reaching the conclusion that Spain is currently among the countries which is worst affected by the global credit crunch.

I write about countries whose which I care about, and whose economies interest me. I wouldn’t draw the conclusion that I have a “down” on anyone. Of course, that doesn’t stop you disagreeing with my analysis or my conclusions. We are all free to form our own opinions I think.

Greetings from Moscow,
Petr