Can rating agencies ruin Russian economy? – English pravda.ru

English: Cathedral of Christ the Saviour over ...

English: Cathedral of Christ the Saviour over Moscow River. Moscow (Russia). Français : La Cathédrale du Christ-Sauveur de Moscou, en Russie. Polski: Cerkiew Chrystusa Zbawiciela nad rzeką Moskwą. Moskwa (Rosja). (Photo credit: Wikipedia)

Pravda newspaper front page (around 1950s). Th...

Pravda newspaper front page (around 1950s). The head article title says: From the Soviet Leadership (Photo credit: Wikipedia)

A cartoon from Ukrayinska Pravda

A cartoon from Ukrayinska Pravda (Photo credit: Wikipedia)

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via Can rating agencies ruin Russian economy? – English pravda.ru.

Russian Economic Development Minister Alexei Ulyukayev is trying to re-assure the Russian people who are looking at a hard as well as cold winter. For those without any training in economics, the argument seems plausible. Certainly, the levels of debt cited for Russia is low compared in Western countries who are in financial difficulties with debt up to the eyeballs.

The reality is that a significant number of major Russian businesses have foreign currency loans that are repayable in the short-term. Meanwhile, the Ruble has suffered devaluation from fears about sanctions. Russia has enormous natural resources for which the West is desperate but politics is impacting trade. Future development requires leading technology from the West and this is restricted because of sanctions.

I think that it is true that the man or woman on Russia’s streets will not directly see any affect from a Western rating agency downgrade. However, the Ruble will continue to depreciate and Russia’s businesses will struggle to secure foreign funding, technology, and scarce resources. Sanctions will mean less and less choice in Russia’s shops, with increasing prices.

In the end, I suspect that the Russian Government will continue to press their political interests. Rating agencies will be ignored and the Russian people will face increased hardship but this is not new.

Thoughts?

2 responses

  1. Dr Alf is correct. The Russian people will be made to bear the brunt of any credit rating agency downgrade, just as people in the UK were when we lost our AAA credit rating courtesy of Moody’s and then the others.

    Clearly, the credit rating agencies can damage the Russian economy but this is limited by the fact that the world is now so interconnected that trouble in one place can and does create a knock on effect, as is happening with the Eurozone, which is still failing to deal with its problems.

    Russia can make Germany and Italy suffer if it is pressed too hard and can stir up trouble in the Middle East, on which the West would have to spend money on.

    In the end, it is not possible to simply isolate one country of that size and power and make it pay for its actions, without any consequences for ourselves in the West.

    Life is now a series of messy and sometimes unedifying fudges, not something clear cut where we can deliver a solution wearing spotless “white gloves” aloof and untouched from the consequences of our decisions.

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