S&P’s downgrading of Russia yesterday was the country’s first in a decade and reflects the likelihood of a further downgrade. The Bank of Moscow has asked Vneshekonombank for more than $1 billion in loans to help repay foreign debt, and says it will lay off 10% of its staff. Russia’s trade surplus grew to $182.8 billion in the first 10 months of the year, roughly a 50% increase on the same period last year. Russia has announced a ban on the import of Irish pork and pork products over fears of dioxin contamination. If the ban on the privatization of historic buildings is lifted next year, it could prevent some monuments from falling into ruin, but cause others to be misused. Magnitogorsk Iron & Steel Works has been unable to obtain the $100 million it deposited with KIT Finance. Ford Motors has suspended production at its Russian assembly line.
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2 Comments
According to CDS prices, Russia is currently the 5th likeliest country to default on it sovereign debt, right after Iceland!http://seekingalpha.com/article/109270-country-default-risk-rises-across-the-board?source=feedIt sounds a bit strange to me since officially, Russia’s sovereign debt is around $40 bln, much less than US debt. However, russian corporate debt (most of which belongs to state owned russian companies) is over $500 bln and is much more likely to be defaulted on.CDS is determined by the market and the high price may be the cause of speculation. However, it seems as if they are incorporating corporate debt of state owned companies into the model for pricing the cds. The question is why didn’t russia use sovereign debt to finance its state owned companies last two years, when Russia had a higher rating than a particular company and could have gotten better financing terms….?
bottom line is that this shows a complete lack of faith in the way Russia is addressing the crisis. Russia does not have a clear solution to addressing the crisis having spent nearly 25% of its reserves supporting the ruble in the last two months, having increased interest rates when that’s the last thing the russian economy needs. On top of that add its general unwillingness to lower taxes and fiscal spending on bull shit projects like nano technology. And consider the fact that there are no real industries outside of oil and gas in Russia today. People have no faith in Russia and they have some reasons to be right.