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Russia’s Bail-out a Success, For Now

From the Financial Times:

As trading resumed after a two-day closure to halt panic selling, the rouble-denominated MICEX Index surged 28.7 per cent and the dollar-denominated RTS 22.4 per cent, its biggest one-day rise, after the government pledge to boost liquidity by more than $100bn (€70bn, £55bn). Alexei Kudrin, Russia’s finance minister, defended the support plan for the stock market as preventing the crash spreading to the rest of the economy. The market fall “created problems on the balances of enterprises, in collateral, loans and led to margin calls. It could have grown into a very big system of non-payments,” he said. (…)

Sergei Markov, a political scientist and member of parliament, said Mr Kudrin had been under fire in the past and survived because of his close relationship with Mr Putin. But this time “Kudrin is in real political trouble.” Mr Kudrin, a fiscal hawk, won a postponement until 2009 for a decision on VAT cuts that were being pushed by a pro-growth camp. But he appeared to be fighting a battle over greater tax cuts for the oil industry with Arkady Dvorkovich, the Kremlin’s top economic adviser, announcing further cuts for the sector to be implemented in 2010.Standard and Poor’s said it was revising Russia’s outlook to stable from positive in spite of the apparent initial success of the government support package.“The outlook revision is based on growing uncertainty regarding Russia’s economic policy response as the liquidity crisis in its financial markets has deepened,” it said. Bankers warned that volatility could still lie ahead as the global credit crisis was yet to unwind, while the systemic risks in Russia’s financial markets that helped drive markets down this week to wipe nearly $800bn off stocks since May still remained.