Summers makes some excellent points but will the lenders listen to him? The
oligarchs are all in with the new government and are being used to "promote
stability" in the east. Western sanctions will hurt the Ukraine as well as
Russia. Some of the .loans will go to pay Russia for the Ukraine's overdue gas
bill. Here is my take on the sanctions.
Many commentators point out that economic sanctions on Russia will hurt
the Russian economy and if Russia responds by moves such as cutting off
gas to Europe this too will hurt the Russians.
All this may be true, but equally the moves will
hurt western investors. Both sides lose but the situation is
complicated. Russia is thethird largest recipient of foreign investment
capital, after the U.S. and then China. In spite of
all the right-wing criticism of Obama and his policies the U.S is the
number one favored investment location for foreign investors when most
developed nations are having trouble attracting investment. While analysts
complain about Russia being a type of mob-run state
with its oligarchs and a former KGB agent as president, investment
capital flows to where it thinks it can make money without respect to
whether good or bad guys are in power in the opinion of western pundits. The
exact figures can be found in thisUNCTAD report.
In 2013 foreign direct investment in Russia(FDI) reached a record of
$94 billion a rise of 83% from the year before. Russia jumped from 9th
spot in 2012 to 3rd spot last year. The British petroleum giant BP took in an
18.5% stake in Rosneft. Rosneft itself took over TNK-BP for $57
billion in the process becoming the largest oil company on the globe. The
European Union, particularly the UK have much more to lose than
the US if Russia takes retaliatory actions against sanctions. The EU
will take action only reluctantly and with some countries opposed. As is often
the case , there is conflict between the interest of capitals in different
regions with capital centered in the US less hurt by Russian counter moves than
Europe:European hesitancy reflected the reality that targeting influential
Russian businessmen or major Russian companies would also harm Europe's
economic interests. U.S. trade with Russia is less than one-tenth of
Europe's. In Britain in particular Russian business people have
large investments in the financial sector while Germany and the
Netherlands are large exporters to Russia: Russian investors hold
assets worth billions in European banks, particularly in Britain which
is highly protective of its financial sector, and major exporters such
as Germany and the Netherlands have far more at stake than the United
States in Russia's consumer economy.
An even worse impact will be on the Ukrainian people.
The Ukrainian people face a desolate economic future in the short
term as Russia will cut off its subsidy of natural gas imported into the
country and the IMF and other lenders will demand subsidies be cut,
along with government spending, reducing services and whatever social
safety net exists now.The flow of exports and imports between Russia and
the Ukraine could fall drastically disrupting the economy at least in
the short run. The U,S. taxpayer has already contributed a billion
dollars to this bailout to ensure that the Ukraine remains in the
western orbit.
The oligarchs have jumped ship. An article in the
Telegraph describes in detail the sudden shift including that of Rinat
Akhmetov the richest person in the Ukraine and staunch supporter of
Yanukovych until now: Rinat Akhmetov, the country’s richest tycoon
and owner of Shakhtar Donetsk, a renowned local football team, has
shifted his support from backing the ousted president, Viktor
Yanukovych, to rebuilding the government of Ukraine. In a statement last week,
Mr Akhmetov pledged to use his influence with his 300,000 strong
workforce to fend off Russian pressure. “The use of force and lawless
actions from outside are unacceptable,” he said.
An article in Al Jazeera sees the situation in the light of a
globalized economy. Economic factors rather than military actions are
determinant.
"Although Russia can send troops to the Ukraineit has already lost because the
Ukrainian oligarchs are part of the global economy and are turning to western
capital and the EU: When the Kremlin is still trying to foment defection among
Ukrainian armed
forces in Crimea, the European Union had already secured more coveted
assets in a 21st century conflict. The $20 bn conglomerate System
Capital Management, owned by Akhmetov, is much more exposed to the
European markets than to the East and its investments opportunities are
much greater in England, France and Germany than in a centralised and
corrupted Russia.
Ariel Cohen who specializes on Russian affairs at the Heritage Foundation in
Washington a right wing think tank also suggests that Russia will be the one
that
is hurt by the Crimean move:
"..as a result of its move into Ukraine, Cohen said Russia already has lost
billions in its stock market drop
and devaluation of the Russian ruble. It also stands to lose from a
decline in tourism and future energy sales if European nations decide
it's time to reduce their dependence on Russian gas and buy it from
North Africa, Qatar, Nigeria and the U.S. For the U.S., the worst that
can happen is that Russia will partially seize assets of companies like
Coca-Cola, Boeing or Pepsi, he said. But that also would make Russia's
investment climate more difficult than it already is because of
arbitrary rules, corruption and hard to understand taxation. "
I am not sure that Coca-Cola, Boeing, or Pepsi would be so blase
about having their Russian assets seized and losing Russian markets as
Cohen describes the situation. When there is a drop in the Russian stock
markets it is no doubt because many western investors are bailing out
but there is always someone buying those stocks who see it as a chance
to buy valuable assets at bargain basement prices for example Russian
and Ukrainian oligarchs. It may also be those same Russian or Ukrainian
oligarchs covering short positions and making a mint because they saw
what was coming. Political disputes come and go but the globalizing of
the capitalist economy along with the oligarchs are here to stay in
spite of temporary setbacks. For most the present turbulence may be a
lose lose situation but for the oligarchs it may be a winning game.
On Friday, March 14, 2014 7:27:10 PM, Shane Mage <[email protected]> wrote:
On Mar 14, 2014, at 7:01 PM, Tom Walker wrote:
Carrol wrote: It's like debating whether the Athenians used the right
>policies in their reactions to Alexander's Macedonia.
But it wasn't "Alexander's Macedonia." It was Philip's Macedonia. Once
Macedonia became Alexander's Athens didn't matter anymore.
Shane Mage
"Thunderbolt steers all things." Herakleitos of Ephesos, fr. 64
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