A Russian Economic Boom.Thanks to high oil prices in the past several months, Russia's economy is booming. For this country, every dollar/b in the oil price is equal to just over $1 bn in federal revenue. As long as the price of oil is at least $19/b, the government's budget will not need adjusting and large oil companies will continue investment programmes that have been central to the current economic expansion. Even so, however, Russia would feel the pinch if oil prices fall in 2003. A prolonged period of low prices would slow economic growth.
Two years ago, just about everyone from electric-company bosses to President Putin was predicting catastrophe for 2003. The year was to be Russia's own Y2K See Y2K problem and Y2K compliant.
Y2K - Year 2000 . A mass of foreign debt would push the country back into bankruptcy. Its infrastructure - the vast electricity grid, telephone networks, oil and gas pipelines and roads - would have aged to a critical point, creating a drag on Verb 1. drag on - last unnecessarily long
last, endure - persist for a specified period of time; "The bad weather lasted for three days"
2. the economy and even emergency breakdowns. And a shrinking population would reach the point where pensioners outnumbered the young. In short, Russia had three short years to repair, rebuild, repay and reproduce. Putin addressed his cabinet on the matter shortly after two seemingly preventable accidents: a fire in Moscow's main TV tower and the sinking of the Kursk nuclear submarine. He set up a "2003 problem" commission of members of Parliament.
With 2003 starting up, the danger seems to have faded. The economy was growing well in 2002. Central Bank reserves Bank reserves are banks' holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the later case called federal funds), plus currency that is physically held in bank vaults (vault cash). are at their highest level since the 1991 collapse of the Soviet Union and more than quadruple the level of 1998. The 2002 budget was in surplus for the third straight year. Companies were investing, and worker productivity in 2002 was up 7%. Says Peter Boone, head of research at Brunswick UBS UBS Union Bank of Switzerland
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UBS Ulaanbaatar Broadcasting System Warburg, an investment bank in Moscow: "There is real restructuring of companies, and this is continuing to drive Russia. Reserves are so large they are dripping out of the Central Bank". What went right?
Russia, politically and economically dysfunctional as little as four years ago, is evolving towards being a respected member of the world community. Financial self-sufficiency has eliminated the danger of a government debt crisis. Helped by the high price of crude oil, a big export, the government has set aside extra cash to help it make debt payments in 2002 and 2003. It has also bought back about a quarter of the foreign debt it owes in 2003. As a result, Russia will be paying $15.5 bn in foreign debt in 2003, down from more than $20 bn. For a third straight year, the Russian government is set to meet all its debt payments without real risk of default or help from foreign lenders. "All indications are that there is a lot of money coming into Russia", says Roland Nash, head of research at Renaissance Capital Renaissance Capital is a major investment bank concentrating on Russia and the Commonwealth of Independent States (CIS). Renaissance Capital is wholly owned by management and employees. Major lines of business are: sales and trading, investment banking and asset management. , an investment bank in Moscow. "The increase in Central Bank reserves this year (2002) is huge".
Concern about the 2003 problem did serve to propel a central economic reform: the reorganisation of Russia's vast electricity industry. While predictions of the industry's collapse were overstated o·ver·state
tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states
To state in exaggerated terms. See Synonyms at exaggerate.
o , international financial institutions such as the EBRD EBRD
See: European Bank for Reconstruction and Development have said Russian electricity needs investment to modernise. But such changes have been slow to move through parliament, bogged down in arguments over how the plan to split apart the world's largest electricity grid will be carried out.
Demographic worries have been eased by a recent census. A preliminary count showed that Russia's population shrank by 2 million over the last decade, even as Russians returned from republics of the former Soviet Union. But the decline, which brought Russia's population to 145m, was less than originally feared. Also, a recent report of an upturn in the birthrate birth·rate or birth rate
The ratio of total live births to total population in a specified community or area over a specified period of time, often expressed as the number of live births per 1,000 of the population per year. gave cause for optimism. Economist say that as Russia emerges from a decade-long economic slump, the birthrate may continue to recover and the death rate to decline.
A danger is in the fluctuation of the price of oil, the lifeblood life·blood
1. Blood regarded as essential for life.
2. An indispensable or vital part: Capable workers are the lifeblood of the business. of Russia's budget, which receives a third of its revenue from oil and gas. Although the Russian economy is more diversified than that of Saudi Arabia Saudi Arabia (sä`dē ərā`bēə, sou`–, sô–), officially Kingdom of Saudi Arabia, kingdom (2005 est. pop. , it is still prone to boom-and-bust swings as the price of crude oil rises and falls Rise and Fall redirects here. For the Belgian hardcore band, click here.
Rises and falls is a category of the ballroom dance technique that refers to rises and falls of the body of a dancer achieved through actions of knees and feet (ankles). .
Yet few expect a debt crisis - from companies or government - as both have maintained low levels of borrowing since the damaging default in the summer of 1998. In a move welcomed by economists because it would give Russia's federal budget a much-needed injection of cash, Moscow announced in November that it would once again try to sell a 5.9% stake in LUKoil, the country's largest oil company. Four months earlier the government called off the sale, deeming the prices offered to be too low, but the company's shares have since climbed significantly. The Federal Property Fund, the trustee for the state's industrial shareholdings, said the sale in 2003 would reduce the state's stake in LUKoil to 7.6%. The shares are intended to be offered in the form of American Depositary Receipts American Depositary Receipt (ADR)
Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. (ADRs) but will be sold on the London Stock Exchange London Stock Exchange
London marketplace for securities. It was formed in 1773 by a group of stockbrokers who had been doing business informally in local coffeehouses. .
On the other hand, many economists in Russia argue that a low oil price would be good for the economy because it would force the country to develop other leading industries. A more diverse economy would be stronger and less dependent on the fickle fick·le
Characterized by erratic changeableness or instability, especially with regard to affections or attachments; capricious.
[Middle English fikel, from Old English ficol, oil market. "In Russia, our natural resources are our blessing and our tragedy", Grigori Yavlinsky, leader of the liberal Yabloko political party, said at an energy conference this autumn. "They help us to develop, but they keep us from developing".