Friday, October 3, 2014

"Putin Makes Compelling Case at Investment Conference"

Be very, very leery about any Invest-in-Rus pitch.
And salivate over the valuations.
From Russia Insider:
Jon Hellevig is a Finnish legal and business expert with long experience in Russia. He writes frequently on Russian politics and economics. Link to bio.

Speaking yesterday at Russia's largest investment conference, Russian president Putin made a compelling case that Russia's economy has not only not been seriously affected by sanctions, but that in fact, it stands to benefit from them.

He dismissed the recent fall in the value of the ruble, stating, as he has several times over the past few days, that Russia would absolutely not institute capital controls, and he argued that the cheaper ruble is in many ways a plus for Russia.

In response to the doomsayers, Putin pointed out that the Russian federal budget showed a net surplus of over 900 billion rubles (about 25 billion USD) for the first eight months of the year. This surplus amounts to 2% of the GDP, which is in stark contrast to the deficits run by all major Western countries.

This flies in the face of the assorted domestic liberal analysts and their Western peers who have been telling us for the last few years that Russia needs an oil price of close to $120 to balance the budget. It was no use trying to point out to them the logical conclusion, which entails from the facts that the Russian budget is denominated in rubles and that the Russian currency is the ruble, which would devaluate in pace with the decrease of the oil price, thus bringing the budget to a new level of equilibrium with a lower oil price. Events have now proved me right on this.

Correspondingly, the devalued ruble rate will increase profits in all other export sectors and thus replenish the tax coffers. Less competition from Western imports will also cushion the domestic sector industries. The battered Eurozone countries can only envy Russia for having its proper currency to enable such adaptation.

Putin stressed that even under these extraordinary conditions Russia will not need to increase the tax burden on businesses. Neither does Russia experience any EU-style cuts in welfare and retirement benefits; on the contrary Russia will continue investing in the social sphere.

There would be a big problem with the ruble depreciation were it to fuel inflation, but so far there are few signs of this. Putin pointed out that as of today the inflation expectations by the end of the year range from 7.5- 8 percent. This is of course high in comparison with what is usual for the Western countries but it is in fact only slightly higher than last year’s 6.5 percent....MORE
HT: Mike Norman Economics