ORBITAL SCIENCES Inks Billion Dollar Deal with [near-bankrupt] Russia!

Radio Free Europe
Radio Liberty

U.S. Company Signs $1 Billion Deal For Russian
Rocket Engines
January 17, 2015
http://www.rferl.org/content/russia-.../26799094.html

................


Is Orbital Sciences desperate, or irresponsible?

Before making a major investment with a large
corporation, it'd be wise to check the financial
health of that company to see if it has any
impending or catastrophic situations in it's
near future.


The American Interest

"According to the United Credit Bureau, Russian banks
approved only 5 percent of loan applications in the
third quarter of 2014. How can any bank dare to lend
to anybody in the current fluctuating situation, and
why would anybody want to invest?"
(full story at bottom)



Here is the 'chart' so to speak of the current
Russian economy. The technical term for this
chart pattern is a 'Dead-Cat Bounce', which is
a chart pattern indicating an impending default
or bankruptcy is in progress.

rub-usd Chart
http://www.xe.com/currencycharts/?fr...to=USD&view=1Y

Dead Cat Bounce (for beginners) HINT to: Orbital Sciences
http://www.investopedia.com/video/play/dead-cat-bounce/

Anyone that signs a long term contract within a
nation showing the above performance is clearly
exposing themselves to enormous risks.

And as for Energia, all of it's shares are held
by insiders and the following link is just about
as much detailed knowledge of their finances
one can expect to find. Almost no transparency

S.P. KOROLEV ROCKET AND SPACE CORPORATION «ENERGIA»
http://www.energia.ru/en/news/news-2015/news_01-14.html


Putin cut off Most of the EU from natural gas just
the other day, so much for Russian contracts.


Europe plunged into energy crisis as Russia
cuts off gas supply via Ukraine
Jan 18,2015
http://www.dailymail.co.uk/news/arti...y-Ukraine.html

In addition, the sanctions prevent Russian corporations
from refinancing their debt. So if the sanctions stay
another year, it's widely expected that Russian banks
and other major corporations will begin defaulting
one after the other.

And that's just the economic side of the risks.

Putin just this week escalated the war in Ukraine
with a new rebel offensive, so the sanctions
are likely to remain for some time.

Ukraine Conflict Map Live Update
http://liveuamap.com/?ll=48.18269193...0625003&zoom=8

And his involvement in the shoot-down of Malaysia Air
Flight 17 last June is likely to land Putin a criminal
indictment from the Hague in a year or two.

It's almost unbelievable a major US corporation, which
the United States will depend upon to supply the
Space Station, is taking such huge risks.


Jonathan


Below is a detailed analysis of the current Russian economy.


The American Interest

WINTER IS COMING
Russia’s Output Will Slump Sharply in 2015
ANDERS Ã…SLUND
Jan 15,2015
Sanctions, falling oil prices, and poor structural economic policy point
to a bad year.

Russia’s GDP is likely to plunge in 2015. Indeed, it would be prudent to
expect a slump on the order of 10 percent. In many ways, Russia’s
financial situation is eerily similar to the fall of 2008, when
then-Prime Minister Vladimir Putin called his country a safe haven in
the global financial crisis. In 2009, Russia’s GDP dropped by 7.8 percent.

In other ways, the situation seems even worse.

Macroeconomic forecasting is inadequate when major changes are under way
in a country, because it is marginal and linear by nature. It is at a
loss to predict the future when multiple dramatic changes of a
qualitative and non-linear nature are at play; nor is it able to model
the interaction between several interwoven shocks.

In late 2014, the Russian economy entered a serious financial crisis. In
order to understand its likely economic consequences, we are better off
looking at various scenarios, comparing what happened in analogous
situations in other countries, while at the same time stressing Russia’s
differences from those countries. The three key factors having an effect
on Russia’s economy are the financial sanctions regime imposed on it by
the United States and the EU, the effect of falling global oil prices,
and poor structural economic policy.

On July 16, the United States imposed “sectoral� sanctions on Russia,
including financial sanctions against major state banks. On July 31, the
European Union followed suit. Initially, sanctions advocates worried
that they would not be tough enough. By November, it became evident that
they were stricter than anybody had presumed. The Dodd-Frank Act and
similar EU regulations have reinforced the powers of U.S. and EU
financial regulators, compelling international banks to exercise extreme
caution. The banks’ internal due diligence departments are far more
strict than the actual law, and they prevented loans to Russian
companies from going through even when the transactions were formally
legal, because they feared that the rules might suddenly change. Even
Chinese state banks are now reluctant to lend to Russia. As a
consequence, Russia has become exposed to a liquidity freeze.

A liquidity freeze or “sudden stop� of international financing is a
frightful condition. It hit much of the world after the Lehman Brothers
bankruptcy on September 15, 2008. The smaller and the more financially
exposed an economy was, the greater the damage. Three of the worst-hit
economies were the Baltic countries—Estonia, Latvia and Lithuania—which
faced GDP slumps of 14-18 percent in 2009. Interestingly, these three
countries had state finances that were as stellar as Russia’s, with more
or less balanced state budgets and minimal public debt, before the
crash, but it did not save them. Thus these Russian virtues are
beneficial, but are no guarantee of financial stability. The key
commonality of these four countries is that they all lacked access to
international finance. For the Baltic countries, the liquidity freeze
lasted only three quarters. It is likely to last much longer for Russia.

The Kremlin contends that Russia can withstand the financial sanctions
regime due to its vast international reserves, amounting to $510 billion
on January 1, 2014. This is a big positive factor, but it is hardly
sufficient. Last year alone, Russia lost about $130 billion of its
reserves, leaving it with $380 billion at the end of the year.
Interestingly, the Russian authorities have delayed publication of the
final number. Russia’s move to freely float its exchange rate late last
year has reduced Russia’s losses of reserves, but its starting point in
2014 was lower than in 2008, when its reserves had peaked at $600 billion.

In fact, only $175 billion of these reserves are liquid and held by the
Central Bank of Russia (CBR); two sovereign wealth funds, currently with
holdings of $169 billion, are jealously held by the Ministry of Finance,
and $45 billion of the CBR reserves consists of gold. Considering that
Russia has a total foreign debt of about $600 billion, with an annual
foreign debt service of $100 billion, and currently has no access to
refinancing, Russia’s external financial situation is precarious, to say
the least. Capital flight, bank runs, and currency runs are likely to
aggravate it further. And as long as the Kremlin does not withdraw its
troops and armaments from eastern Ukraine, there is no reason to
anticipate that the West will ease its financial sanctions against Russia.

In the second half of 2014, the ruble-dollar exchange rate plummeted
from 34 rubles on June 30 to 66 rubles per dollar on January 14. By and
large, the exchange rate has fallen with the oil price. Commodity prices
as well as credit expansion move in long cycles. The world has just gone
through one of the greatest commodity, credit, and growth booms of all
time, from 2000-2013. Last time we saw a major oil boom was 1973–80. It
was followed by two decades of low oil prices.

This oil boom has lasted for even longer, which means that more
investment has been made in supply as well as in energy saving.
Overwhelmingly, these investments are long term and irreversible. You do
not knock out the second window pane in a double-glazed window because
energy has become cheaper. Nor do you reinstall obsolete blast furnaces
in steelworks. As long as current costs are lower than the going price,
oil producers will increase rather than reduce output as prices fall to
stay in the black. A reasonable assumption today is that the oil price
will stay low for a decade or so. It is reasonable to assume an average
oil price of $50 per barrel in 2015, half of the price in 2014, and a
commensurate ruble exchange rate of around 65 rubles per dollar.

AslundChartThe low oil price and ruble exchange rate will have a radical
impact on the Russian economy. In 2013, Russia’s GDP at current exchange
rates was $2.1 trillion, according to the IMF. Anticipating that the
dollar exchange rate will be halved, the Russian economy stagnated last
year and inflation peaked at 11.4 percent. Russian GDP at current
exchange rates is $1.25 trillion or about 1.5 percent of global GDP,
slightly less than that of Spain or South Korea. In one year, this
depreciation of the ruble has reduced Russia from the eighth-biggest
economy in the world to the fourteenth at current exchange rates, being
also overtaken by Italy, India, Canada, and Australia.

Since oil and gas account for two-thirds of Russia’s exports, and the
oil price is likely to be half in 2015 of what it was in 2014, Russia’s
merchandise exports are likely to fall by one-third from around $508
billion in 2014 to $339 billion in 2015. If merchandise imports would
fall by an equal amount, they would dwindle from a forecast $310 billion
in 2014 to $141 billion in 2015. That would mean that imports would
correspond to only 13 percent of GDP, which is rather little by
international comparison. On their own, the higher import costs would
only raise domestic prices by 13 percent.

These changes would be devastating for Russia. Presumably, net exports
would be approximately the same, neither adding nor deducting from GDP.
As Putin has pointed out, if the ruble exchange rate falls with the oil
price, the impact on the state budget revenues, half of which are
financed with oil taxes, would be neutral. The problem lies on the
import side.

The prices of current imports are set to double with the big
depreciation. For imports of manufactures, this is likely to mean a
shift from high-quality goods from Europe to goods of lower quality and
lower prices from China, India, and Indonesia. For basic foods, however,
world market prices rule, and their prices are likely to rise
proportionately to depreciation. Shortages and an inflation of 70
percent were recorded for buckwheat, an important Russian staple, in
2014. The strains on regular people’s standard of living will be
considerable.

Also the state budget will suffer seriously from the rising import
costs. Russia imports most pharmaceuticals from the West. The Ministry
of Finance has called for initial overall cuts of expenditures by 10
percent. That is a lot, but it might not suffice to make ends meet; even
so the Ministry of Finance has been forced to reduce its cuts. On
December 1, Putin suddenly and to widespread surprise abandoned the
long-planned South Stream gas pipeline from Russia to the Balkans
through the Black Sea. He will need to call more large projects into
question. But since his loyal cronies sit behind many such projects, he
will need to balance economic expedience with political concerns.

The higher import costs will cut both consumption and investment, and
thus output. Inflation is rising fast and, as noted earlier, has already
reached 11.4 percent at the end of 2014. The CBR is perceived as
hawkish, having hiked its policy rate repeatedly, as high as 17 percent
in December. Meanwhile, bank interest rates have skyrocketed to 20-25
percent, which will further dampen investment and consumption.

Optimists claim that the doom-saying around depreciation has been
overdone, and that Russia will benefit from import substitution as it
did in 1999. Unfortunately for Russia, that is unlikely. In 1999, the
Russian economy contained significant slack. Today, the labor market is
tight, with the lowest unemployment since the end of communism at only 5
percent, but with high and rising inflation present. Russia’s economy is
in fact overheating without any of the attendant signs of growth.

The reason for this is Putin’s overall poor structural policy, which
favors state companies run by insiders that now account for half the
economy. This is blocking the creative destruction that was thriving in
1999. In the wake of the financial crisis of 2008, the Kremlin simply
pumped up the old state and oligarchic corporations, laying the ground
for the stagnation which Russia is now struggling with. Some import
substitution is inevitable, but the costs of bankruptcies in sectors
suffering from the depreciation, such as the travel industry and retail
trade, may be larger. The net devaluation gains are overall likely to be
minimal.

Before the crisis, Russia’s banks were considered well capitalized, but
now they are being exposed to tremendous stresses. The collapse of the
32nd-biggest Trust Bank at Christmas time was presumably only the
beginning of a larger trend, and it cost the government $2.4 billion in
recapitalization. The government has also already recapitalized the
state banks VTB and Gazprombank. With the big state banks widely
considered to be key elements of Putin’s kleptocratic apparatus,
rescuing them all may put big holes in Russia’s public finances. BNP
Paribas assesses that Russian banks are likely to need $45 billion in
recapitalization in 2015.

The CBR has recorded that the share of non-performing loans rose from
5.8 percent in January to 8.1 percent in December.

An even bigger hole is the big state corporations, in particular Gazprom
and Rosneft. Gazprom’s production fell substantially—by 9.2 percent—in
2014 because of its outrageous treatment of its customers. Russia’s oil
production grew marginally by 0.7 percent for the year, but mainly due
to Bashneft, whose production rose by 10.7 percent while the rest
stagnated. Because of its success, Bashneft was summarily renationalized
and is expected to be folded into Rosneft so that it can keep up its
production. What private businessman would dare to invest in oil after
the seemingly unjustified arrest of former Bashneft owner Vladimir
Yevtushenkov?

Rosneft is repeatedly refinancing its short-term debt of $40 billion
after its purchase of the best-performing oil company in the world,
privately-owned TNK-BP, whose production started contracting after
Rosneft chased away its outstanding managers and replaced them with its
own amateurs. In early December, Rosneft’s issue of $12 billion of ruble
bonds unleashed the collapse of the ruble. These two companies stand out
as the major sources of destabilization of the Russian economy.

In December, the Russian economy was rocked by extraordinary
uncertainty. A major source was the government, which has stopped
coordinating its policymaking among its branches, with the CBR, the
Ministry of Finance and the big state corporations each acting on their
own. They all take orders from Putin, but they do not coordinate their
policies. One consequence has been that the ruble exchange rate has
swung back and forth, often as much as 5 percent a day, because one
state authority or the other intervened too much or too little, while
the CBR has lost its dominant role in currency intervention. The
instability became so severe that many foreign companies closed their
shops temporarily because they did not know how to price their goods.
This continued uncertainty and instability must hurt investment severely.

President Putin even refuses to utter the word “crisis.� This is no way
to run an economy, and it could end very badly. Because of lack of
financing, investment is likely to fall by 25–30 percent. With an
investment ratio of 20 percent of GDP, that reduces GDP by 5–6 percent.

Public and private consumption or the standard of living is likely to
fall sharply, but it is difficult to predict by how much. In November,
annualized real incomes fell suddenly by 4.7 percent and that was only
the beginning. Particularly badly hit were workers in health care, with
wage drops of 9 percent, and in education, with 14 percent. Six percent
appears a minimum, that is, a decline of GDP of 4.8 percent because of
declining consumption. As before, I presume that net exports will be
unchanged.

That would mean a fall in GDP of about 10 percent. Admittedly, these are
only informed guesses, but in the face of a radical change sensible
guesses help us to land in the right ballpark, unlike conventional
forecasts. Indeed, consumption may fall more.


http://www.the-american-interest.com...arply-in-2015/




s

On Saturday, January 17, 2015 at 9:12:58 PM UTC-5, jonathan wrote:
Radio Free Europe
Radio Liberty

U.S. Company Signs $1 Billion Deal For Russian
Rocket Engines
January 17, 2015
http://www.rferl.org/content/russia-.../26799094.html

...............


Is Orbital Sciences desperate, or irresponsible?

Before making a major investment with a large
corporation, it'd be wise to check the financial
health of that company to see if it has any
impending or catastrophic situations in it's
near future.


The American Interest

"According to the United Credit Bureau, Russian banks
approved only 5 percent of loan applications in the
third quarter of 2014. How can any bank dare to lend
to anybody in the current fluctuating situation, and
why would anybody want to invest?"
(full story at bottom)



Here is the 'chart' so to speak of the current
Russian economy. The technical term for this
chart pattern is a 'Dead-Cat Bounce', which is
a chart pattern indicating an impending default
or bankruptcy is in progress.

rub-usd Chart
http://www.xe.com/currencycharts/?fr...to=USD&view=1Y

Dead Cat Bounce (for beginners) HINT to: Orbital Sciences
http://www.investopedia.com/video/play/dead-cat-bounce/

Anyone that signs a long term contract within a
nation showing the above performance is clearly
exposing themselves to enormous risks.

And as for Energia, all of it's shares are held
by insiders and the following link is just about
as much detailed knowledge of their finances
one can expect to find. Almost no transparency

S.P. KOROLEV ROCKET AND SPACE CORPORATION ENERGIA
http://www.energia.ru/en/news/news-2015/news_01-14.html


Putin cut off Most of the EU from natural gas just
the other day, so much for Russian contracts.


Europe plunged into energy crisis as Russia
cuts off gas supply via Ukraine
Jan 18,2015
http://www.dailymail.co.uk/news/arti...y-Ukraine.html

In addition, the sanctions prevent Russian corporations
from refinancing their debt. So if the sanctions stay
another year, it's widely expected that Russian banks
and other major corporations will begin defaulting
one after the other.

And that's just the economic side of the risks.

Putin just this week escalated the war in Ukraine
with a new rebel offensive, so the sanctions
are likely to remain for some time.

Ukraine Conflict Map Live Update
http://liveuamap.com/?ll=48.18269193...0625003&zoom=8

And his involvement in the shoot-down of Malaysia Air
Flight 17 last June is likely to land Putin a criminal
indictment from the Hague in a year or two.

It's almost unbelievable a major US corporation, which
the United States will depend upon to supply the
Space Station, is taking such huge risks.


Jonathan


Below is a detailed analysis of the current Russian economy.


The American Interest

WINTER IS COMING
Russia's Output Will Slump Sharply in 2015
ANDERS ÅSLUND
Jan 15,2015
Sanctions, falling oil prices, and poor structural economic policy point
to a bad year.

Russia's GDP is likely to plunge in 2015. Indeed, it would be prudent to
expect a slump on the order of 10 percent. In many ways, Russia's
financial situation is eerily similar to the fall of 2008, when
then-Prime Minister Vladimir Putin called his country a safe haven in
the global financial crisis. In 2009, Russia's GDP dropped by 7.8 percent..

In other ways, the situation seems even worse.

Macroeconomic forecasting is inadequate when major changes are under way
in a country, because it is marginal and linear by nature. It is at a
loss to predict the future when multiple dramatic changes of a
qualitative and non-linear nature are at play; nor is it able to model
the interaction between several interwoven shocks.

In late 2014, the Russian economy entered a serious financial crisis. In
order to understand its likely economic consequences, we are better off
looking at various scenarios, comparing what happened in analogous
situations in other countries, while at the same time stressing Russia's
differences from those countries. The three key factors having an effect
on Russia's economy are the financial sanctions regime imposed on it by
the United States and the EU, the effect of falling global oil prices,
and poor structural economic policy.

On July 16, the United States imposed "sectoral" sanctions on Russia,
including financial sanctions against major state banks. On July 31, the
European Union followed suit. Initially, sanctions advocates worried
that they would not be tough enough. By November, it became evident that
they were stricter than anybody had presumed. The Dodd-Frank Act and
similar EU regulations have reinforced the powers of U.S. and EU
financial regulators, compelling international banks to exercise extreme
caution. The banks' internal due diligence departments are far more
strict than the actual law, and they prevented loans to Russian
companies from going through even when the transactions were formally
legal, because they feared that the rules might suddenly change. Even
Chinese state banks are now reluctant to lend to Russia. As a
consequence, Russia has become exposed to a liquidity freeze.

A liquidity freeze or "sudden stop" of international financing is a
frightful condition. It hit much of the world after the Lehman Brothers
bankruptcy on September 15, 2008. The smaller and the more financially
exposed an economy was, the greater the damage. Three of the worst-hit
economies were the Baltic countries--Estonia, Latvia and Lithuania--which
faced GDP slumps of 14-18 percent in 2009. Interestingly, these three
countries had state finances that were as stellar as Russia's, with more
or less balanced state budgets and minimal public debt, before the
crash, but it did not save them. Thus these Russian virtues are
beneficial, but are no guarantee of financial stability. The key
commonality of these four countries is that they all lacked access to
international finance. For the Baltic countries, the liquidity freeze
lasted only three quarters. It is likely to last much longer for Russia.

The Kremlin contends that Russia can withstand the financial sanctions
regime due to its vast international reserves, amounting to $510 billion
on January 1, 2014. This is a big positive factor, but it is hardly
sufficient. Last year alone, Russia lost about $130 billion of its
reserves, leaving it with $380 billion at the end of the year.
Interestingly, the Russian authorities have delayed publication of the
final number. Russia's move to freely float its exchange rate late last
year has reduced Russia's losses of reserves, but its starting point in
2014 was lower than in 2008, when its reserves had peaked at $600 billion..

In fact, only $175 billion of these reserves are liquid and held by the
Central Bank of Russia (CBR); two sovereign wealth funds, currently with
holdings of $169 billion, are jealously held by the Ministry of Finance,
and $45 billion of the CBR reserves consists of gold. Considering that
Russia has a total foreign debt of about $600 billion, with an annual
foreign debt service of $100 billion, and currently has no access to
refinancing, Russia's external financial situation is precarious, to say
the least. Capital flight, bank runs, and currency runs are likely to
aggravate it further. And as long as the Kremlin does not withdraw its
troops and armaments from eastern Ukraine, there is no reason to
anticipate that the West will ease its financial sanctions against Russia..

In the second half of 2014, the ruble-dollar exchange rate plummeted
from 34 rubles on June 30 to 66 rubles per dollar on January 14. By and
large, the exchange rate has fallen with the oil price. Commodity prices
as well as credit expansion move in long cycles. The world has just gone
through one of the greatest commodity, credit, and growth booms of all
time, from 2000-2013. Last time we saw a major oil boom was 1973-80. It
was followed by two decades of low oil prices.

This oil boom has lasted for even longer, which means that more
investment has been made in supply as well as in energy saving.
Overwhelmingly, these investments are long term and irreversible. You do
not knock out the second window pane in a double-glazed window because
energy has become cheaper. Nor do you reinstall obsolete blast furnaces
in steelworks. As long as current costs are lower than the going price,
oil producers will increase rather than reduce output as prices fall to
stay in the black. A reasonable assumption today is that the oil price
will stay low for a decade or so. It is reasonable to assume an average
oil price of $50 per barrel in 2015, half of the price in 2014, and a
commensurate ruble exchange rate of around 65 rubles per dollar.

AslundChartThe low oil price and ruble exchange rate will have a radical
impact on the Russian economy. In 2013, Russia's GDP at current exchange
rates was $2.1 trillion, according to the IMF. Anticipating that the
dollar exchange rate will be halved, the Russian economy stagnated last
year and inflation peaked at 11.4 percent. Russian GDP at current
exchange rates is $1.25 trillion or about 1.5 percent of global GDP,
slightly less than that of Spain or South Korea. In one year, this
depreciation of the ruble has reduced Russia from the eighth-biggest
economy in the world to the fourteenth at current exchange rates, being
also overtaken by Italy, India, Canada, and Australia.

Since oil and gas account for two-thirds of Russia's exports, and the
oil price is likely to be half in 2015 of what it was in 2014, Russia's
merchandise exports are likely to fall by one-third from around $508
billion in 2014 to $339 billion in 2015. If merchandise imports would
fall by an equal amount, they would dwindle from a forecast $310 billion
in 2014 to $141 billion in 2015. That would mean that imports would
correspond to only 13 percent of GDP, which is rather little by
international comparison. On their own, the higher import costs would
only raise domestic prices by 13 percent.

These changes would be devastating for Russia. Presumably, net exports
would be approximately the same, neither adding nor deducting from GDP.
As Putin has pointed out, if the ruble exchange rate falls with the oil
price, the impact on the state budget revenues, half of which are
financed with oil taxes, would be neutral. The problem lies on the
import side.

The prices of current imports are set to double with the big
depreciation. For imports of manufactures, this is likely to mean a
shift from high-quality goods from Europe to goods of lower quality and
lower prices from China, India, and Indonesia. For basic foods, however,
world market prices rule, and their prices are likely to rise
proportionately to depreciation. Shortages and an inflation of 70
percent were recorded for buckwheat, an important Russian staple, in
2014. The strains on regular people's standard of living will be
considerable.

Also the state budget will suffer seriously from the rising import
costs. Russia imports most pharmaceuticals from the West. The Ministry
of Finance has called for initial overall cuts of expenditures by 10
percent. That is a lot, but it might not suffice to make ends meet; even
so the Ministry of Finance has been forced to reduce its cuts. On
December 1, Putin suddenly and to widespread surprise abandoned the
long-planned South Stream gas pipeline from Russia to the Balkans
through the Black Sea. He will need to call more large projects into
question. But since his loyal cronies sit behind many such projects, he
will need to balance economic expedience with political concerns.

The higher import costs will cut both consumption and investment, and
thus output. Inflation is rising fast and, as noted earlier, has already
reached 11.4 percent at the end of 2014. The CBR is perceived as
hawkish, having hiked its policy rate repeatedly, as high as 17 percent
in December. Meanwhile, bank interest rates have skyrocketed to 20-25
percent, which will further dampen investment and consumption.

Optimists claim that the doom-saying around depreciation has been
overdone, and that Russia will benefit from import substitution as it
did in 1999. Unfortunately for Russia, that is unlikely. In 1999, the
Russian economy contained significant slack. Today, the labor market is
tight, with the lowest unemployment since the end of communism at only 5
percent, but with high and rising inflation present. Russia's economy is
in fact overheating without any of the attendant signs of growth.

The reason for this is Putin's overall poor structural policy, which
favors state companies run by insiders that now account for half the
economy. This is blocking the creative destruction that was thriving in
1999. In the wake of the financial crisis of 2008, the Kremlin simply
pumped up the old state and oligarchic corporations, laying the ground
for the stagnation which Russia is now struggling with. Some import
substitution is inevitable, but the costs of bankruptcies in sectors
suffering from the depreciation, such as the travel industry and retail
trade, may be larger. The net devaluation gains are overall likely to be
minimal.

Before the crisis, Russia's banks were considered well capitalized, but
now they are being exposed to tremendous stresses. The collapse of the
32nd-biggest Trust Bank at Christmas time was presumably only the
beginning of a larger trend, and it cost the government $2.4 billion in
recapitalization. The government has also already recapitalized the
state banks VTB and Gazprombank. With the big state banks widely
considered to be key elements of Putin's kleptocratic apparatus,
rescuing them all may put big holes in Russia's public finances. BNP
Paribas assesses that Russian banks are likely to need $45 billion in
recapitalization in 2015.

The CBR has recorded that the share of non-performing loans rose from
5.8 percent in January to 8.1 percent in December.

An even bigger hole is the big state corporations, in particular Gazprom
and Rosneft. Gazprom's production fell substantially--by 9.2 percent--in
2014 because of its outrageous treatment of its customers. Russia's oil
production grew marginally by 0.7 percent for the year, but mainly due
to Bashneft, whose production rose by 10.7 percent while the rest
stagnated. Because of its success, Bashneft was summarily renationalized
and is expected to be folded into Rosneft so that it can keep up its
production. What private businessman would dare to invest in oil after
the seemingly unjustified arrest of former Bashneft owner Vladimir
Yevtushenkov?

Rosneft is repeatedly refinancing its short-term debt of $40 billion
after its purchase of the best-performing oil company in the world,
privately-owned TNK-BP, whose production started contracting after
Rosneft chased away its outstanding managers and replaced them with its
own amateurs. In early December, Rosneft's issue of $12 billion of ruble
bonds unleashed the collapse of the ruble. These two companies stand out
as the major sources of destabilization of the Russian economy.

In December, the Russian economy was rocked by extraordinary
uncertainty. A major source was the government, which has stopped
coordinating its policymaking among its branches, with the CBR, the
Ministry of Finance and the big state corporations each acting on their
own. They all take orders from Putin, but they do not coordinate their
policies. One consequence has been that the ruble exchange rate has
swung back and forth, often as much as 5 percent a day, because one
state authority or the other intervened too much or too little, while
the CBR has lost its dominant role in currency intervention. The
instability became so severe that many foreign companies closed their
shops temporarily because they did not know how to price their goods.
This continued uncertainty and instability must hurt investment severely.

President Putin even refuses to utter the word "crisis." This is no way
to run an economy, and it could end very badly. Because of lack of
financing, investment is likely to fall by 25-30 percent. With an
investment ratio of 20 percent of GDP, that reduces GDP by 5-6 percent.

Public and private consumption or the standard of living is likely to
fall sharply, but it is difficult to predict by how much. In November,
annualized real incomes fell suddenly by 4.7 percent and that was only
the beginning. Particularly badly hit were workers in health care, with
wage drops of 9 percent, and in education, with 14 percent. Six percent
appears a minimum, that is, a decline of GDP of 4.8 percent because of
declining consumption. As before, I presume that net exports will be
unchanged.

That would mean a fall in GDP of about 10 percent. Admittedly, these are
only informed guesses, but in the face of a radical change sensible
guesses help us to land in the right ballpark, unlike conventional
forecasts. Indeed, consumption may fall more.


http://www.the-american-interest.com...arply-in-2015/




s

ALL aggresor nations need a long term mandated punishment!

No new business with any putin / russia related comany for a minimum term of 10 years

we as a world cant affor another hitler, so ts best to swat them like a fly at the beginning