Russia » Economics
Author`s name Dmitry Sudakov

Russia saves the world again

Leaders of the countries of the former Soviet Union seem to be motivated by their “infantile resentments” when criticizing Russia these days. Compared to the conditions of today’s “windward sailing,” those countries felt much more secure under the auspices of the Soviet Union. Criticisms coming from the West are mostly based on the longstanding tradition of confrontation coupled with the fears of “competition,” which was put in motion by the West itself.

However, the common sense prevails in the end. Sensible actors in both the neighboring countries and overseas tend to see Russia as a reliable partner worth doing business with.

Russia is well-known for its vast natural resources. However, Russia does not resort to robbery in broad daylight nor it is inclined to pinch pennies. Last year’s pricing disputes over gas supplies caused quite a commotion in the relations between Russia and Ukraine, and Russia and Belarus. A more peaceful approach is used nowadays when it comes to resolving energy rows.

According to Alexander Surikov, a Russian ambassador to Belarus, a final price of Russian gas supplies to Belarus will be set as early as this December. Russia will be charging Belarus about $125 per one thousand cubic meters of natural gas. Russia is currently charging the EU countries $236 per one thousand cubic meters of natural gas. Gas prices for Ukraine, which has recently decided to repay its $2 billion debt for Russian gas supplies, are likely to be in the neighborhood of $150.

In 2007, both Ukraine and Belarus received natural gas from Russia at even more reduced prices i.e. $130 and $100 per one thousand cubic meters. However, Russia has to raise the price of its gas exports following an increase in price of Turkmen gas supplies for Russia. Other trends of the world market contributed to the situation. On the other hand, Russia does not aim to put too much strain on its customers by hiking the price. The price is being increased at a very slow pace. Russia has always shown respect for other countries of the former Soviet Union. No doubt about it, Russia will treat its neighbors in a similar fashion following the rise of global wheat prices. The world market trend has apparently affected Belarus too. Several days ago the Belarusian Ministry of Trade suggested that the government cut the export of butter and cheese following disruptions in the supply of dairy products to the domestic market.

Despite the fact that Belarusian cheese and butter imports account for 13-15 percent of all cheese and butter imported by Russia, experts say the measures will have a limited effect on the Russian domestic market since Belarus is not the sole exporter of dairy products to Russia. Besides, the importance of Belarusian supplies decreased following lower import duties imposed by the Russian government on foreign dairy products.

It is quite obvious that rising global wheat prices have had an impact on Belarus. Belarusian President Alexander Lukashenko requested Russia for $1.5 billion in stabilization loan once again. President Lukashenko attempted to secure a loan in May without paying back a $456 million debt for Russian gas supplies. Subsequently, Belarus repaid its debt to Russia, which refused to loan money anyway. Now the situation is slightly different. According to Alexander Surikov, a Russian ambassador to Belarus, the country is now entitled to receive a $1.5 billion stabilization loan from Russia because “Belarus has a budget deficit” now that its budget has been recently reviewed.

Moscow has repeatedly offered Minsk to take a stabilization loan to the amount of $1.5-2 billion on a 5-year redemption schedule at 8.5 percent interest.

Russian Minister of Economic Development and Trade German Gref confirmed February that Russia could consider the issue of a stabilization loan for Belarus.

Now the outcome largely depends on Lukashenko’s attitude toward Russia, which could lend money provided that a borrower is Russia’s friend. Although Russia can feel the pressure of the global wheat prices, the overall status of the Russian economy has not deteriorated in terms of the world economy. Although the price of dairy products rose in the Russian Federation, the world oil prices continued to rise too, reaching a new all-time high last week. U.S. light sweet crude rose 2.9 percent to $86 per barrel at NYMEX on Tuesday as traders awaited a military operation to be launched by the Turks against the Kurds in Iraq, the world’s No 3 in terms of proven oil reserves.

The world oil prices are on the rice – a trend that helps the Russian economy grow at a higher rate. Earlier this month Russian Finance Minister Alexei Kudrin predicted the country’s annual GDP growth at 7.3 percent plus a 20 percent increase in investments. “The economy’s dynamics exceed the most daring plans,” Kudrin said. However, the forecast was updated last Tuesday. According to the IMF report “The Global Economic Review,” the GDP rate in Russia should reach 7.8 percent in 2008.

Even the United States, which is traditionally considered “Russia’s worst friend”, has decided to “step up a dialogue with the Russian Federation on the key energy issues” within the framework of the G8 agreements. Director of Russian Affairs of U.S. Department of State Mary Warlick sounded quite enthusiastic while speaking about the Russian economy on Wednesday last week. “Russia’s trillion-dollar economy is now the world’s ninth largest economy in terms of value, and inward investment in the Russian economy has exceeded $67 billion over the first half of 2007 – it’s a lot more than the total amount of foreign capital inflow in the first ten years following the collapse of the Soviet Union,” said Mary Warlick. “Russia has more than $400 billion in foreign reserves, that’s the world’s third richest country in terms of foreign reserves,” added Mary Warlick.

“Who could foresee this kind of development mere five or six years ago?” said the director of Russian affairs. Warlick also said that “our economic relations are quickly turning into a street with real two-way traffic.” There is logic in the statement since “such U.S. leading companies as Boeing, Conoco-Philips, Exxon Mobil, International Paper, Alcoa, Ford, General Motors” and others “are quickly extending their presence on the Russian market.” Warlick also mentioned “good progress” made in the talks on Russia’s ascension to the WTO.

By and large, our nearby and faraway partners are hopeful about doing business with Russia as the complex crisis of the world economic system unfurls. At times a monkey wrench is thrown in the works (Lukashenko recently imposed restrictions on the export of foreign-made cars, and U.S. Congress resumed looking into some issues related to the Yukos case, for reasons unknown).

It appears that Russia has managed to gather enough evidence to prove its competence as a significant economic power. The efforts of Russia’s current leadership should not be underestimated. Quoting Mary Warlick from Washington would be just to the point: “Who could foresee such a development mere five or six years ago?”

Alexander Radugin
Pravda.ru BigNess

Translated by Guerman Grachev
Pravda.ru

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