Russia Attempts to Rescue Its Economy - Gainesville Coins News
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Russia Attempts to Rescue Its Economy

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Russia Attempts to Rescue Its Economy

When it seemed that things simply couldn't get any worse in Russia--after crippling economic sanctions by Western powers, a protracted conflict in eastern Ukraine, a near-collapse of the ruble, and crashing crude oil prices--the country now faces the potential for a banking crisis.

Russia-economy-fallingAfter Russian citizens took to retail outlets in force in order to exchange their devaluing rubles for tangible assets such as cars, furniture, and the like, concerns began to grow that there could be an old-fashioned run on the banks if the ruble were to devalue any further. Following a number of intervening actions by the Russian Central Bank, including raising the key interest rate from 10.5% to 17%, the Federal Assembly quickly pushed through legislation to essentially bail-out its failing banks (Bloomberg). This coincides with informal urging by Russian authorities for several state-run export ventures to reduce their foreign exchange holdings in order to bolster the ruble.

The new law gives the Deposit Insurance Agency permission to buy stakes in fledgling banking institutions in order to keep the system afloat. Presently, only the National Bank Trust, the country's 15th-largest bank, has been approved for recapitalization, which is estimated to

A burning ruble
A burning ruble

require about 30 billion rubles (or $550 million). This comes just days after legislation passed authorizing an additional $1 trillion in funds for the DIA and a 100% increase of insured deposits. While the Russian establishment has finally been able to stall the ruble's interminable slide, the currency is still down over 40% on the year.

In essence, Russia has put a few stop-gaps in place that will allow it to bail-out its financial institutions during the tough period of contraction that lies ahead. Standard & Poors has announced it will reevaluate the credit health of Russia's sovereign debt, a signal that it may be downgraded to junk bond status. A Bloomberg survey showed that 19 out of 20 economists expect the Russian economy to enter a recession within the next 12 months.

Perhaps the one abstaining expert didn't fully understand the survey question. As they say: In Russia, economy collapses YOU.

 

by Everett Millman

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