Summer ends — financial problems remain
August, 2011
Silent harbors in case of default
U.S. House of Representatives voted in early August in favor of a bill to raise the national debt limit. It is known than among the Republicans who own the majority in the House of Representatives 174 people voted "for" while "against" — 66. The votes of the Democrats were divided in half — 95 to 95. The U.S. Senate approved a bill on Tuesday, August 2. Republicans and Democrats could not agree on raising the limit of public debt over the past few months. During the negotiations this issue was linked to the question of reducing of the U.S. budget deficit. Republicans proposed to reduce costs, in particular, by reducing payments for social programs. The Democrats, in turn, insisted on the abolition of several tax breaks for the wealth people and a number of another measures. The official information on how to shrink the budget deficit appeared at the White House Web site.
In particular, the parties agreed to reduce the cost of a trillion dollars over the next 10 years by reducing payments for a number of programs. In addition, Democrats and Republicans agreed that there will be a special commission, which to decide has until the end of 2011 how to save even half a trillion dollars.
If an agreement on increasing national debt limit has not been approved, the United States from the 2 August fell into technical default, because the country would be unable to service its debt.
The U.S. also will cut the military budget to $ 350 billion over 10 years. During the course of a two-stage plan, public spending would be cut by 2.5 trillion dollars. U.S. debt limit, as it became known in early August, will be increased by at least 2.4 trillion dollars. The ceiling debt to GDP ratio is set by Congress and the ceiling was up to the beginning of August $ 14.294 trillion. The U.S. debt reached this mark in mid-May. When Barack Obama Congress approved the raising of the limit three times — in February and December 2009 and in February 2010. Congress did not resist, as funds were needed to combat the economic crisis.
But now the U.S. economy recovers, and lawmakers believe that they should cut spending instead of increasing the national debt and budget deficit. U.S. and global investors are looking for defensive assets. First of all, they are the gold and the Swiss franc. Currency of countries of watchmakers and bankers was bought, when occurred the collapse of the mortgage market, and when America scares the world with the forthcoming problems, in the vocabulary of investors and policymakers appeared the word "default" and "apocalypse", and gold hit the historical record: its price has topped at $ 1600 for oz. The Swiss franc is moving along with the gold.
This is an historical explanation: investors reportedly believe that the currency of Switzerland is 40% backed by gold (although a law was repealed in 2000). In fact, everybody realize that the franc is no longer pegged to gold, but know that in Switzerland, kept a large proportion of global assets and a budget of Switzerland-one of the safest in the world. But there is another safe country... the more that gold, after the last difficult financial decisions of U.S. authorities , fell sharply in August to $ 1300. But as analysts say this is hardly a long time.
Is unevitable the devaluation of 2012 in Russia?
As financial experts believe very soon the Bank of Russia will inevitably face the alternative — to reduce its reserves or to devalue the ruble. In their view, the Russian president and his team in 2012, immediately after the inauguration will have to solve a key question — how to teach people the inevitable devaluation of the ruble caused by the fall in the current account balance.
The main negative trend that could affect the stability of Russia’s balance of payments in the short term, is the rapid growth of imports. In the second quarter of 2011, import value exceeded the pre-crisis level and amounted to $ 83 billion, which points to the fact that over the same period last year, imports rose by 43% (previous quarter, an increase of 41%) —as experts emphasize such situation Russia still have not seen.
"We believe that the value of imports in the coming months will continue to grow rapidly. According to our estimates, this year, imports may reach $ 345-350billion (growth by 39-41%), which again makes us wonder about the balance of payment" — note the financial experts.
At the same time, during a weak global demand and low inflation, exports of goods are unlikely will exceed the average annual growth rate, which accounted for 5% of the pre-crisis period of 2005-2007. Provided that the price of a barrel of oil on the world market until the end of the year will remain at the level of the second quarter (about $ 110 on average per year) and will drop to $ 105 on average in2012, the annual value of exports in 2011-2012 will reach about $ 530 billion.
Now let’s suppose that the value of imports from next year grow at 30% year on year, which corresponds to the period 2005-2008. In this case, the current account surplus in the second quarter of 2012 will decrease to less than 1% of GDP, after which the Bank of Russia (as the practice shows) can go to planned /controlled / limited devaluation of the ruble. It turns out that the new / ex president and his team will immediately have after the inauguration to solve a key question — how to explain people the inevitable devaluation of the ruble.
The situation is compounded, as experts say, by another negative trend in the balance- steady outflow of capital from the country for four consecutive quarters. In the second quarter of 2011, net outflows was of $ 10 billion, although a year ago in this same period, the private sector was a net importer of capital.
The main channel of capital flight is the real sector ($ 9 billion in the second quarter). Companies are increasing mainly direct and portfolio investment in foreign assets, and not only at the expense of export earnings, but also due to the indirect foreign lending by Russian banks, experts suggest. In their view, the net outflow of capital could rise to $ 50 billion against $ 34 billion in 2010. Perhaps in the future, the outflow is slightly reduced, but the question — to reduce reserves or devalue the ruble — will inevitably arise very soon the Bank of Russia ", -summarized the financial experts. In general, many economists believe that Russia is moving toward a crisis. The experts involved in the development of strategy of development of Russia until 2020, argue that the economy is waiting for one of two scenarios: either it will slowly fade, or will arise and then bursting "bubbles".
USA accused swiss bankers in assistance to tax deviators
The U.S. authorities have presented the accusations TO three bankers from Switzerland, that they helped U.S. citizens to evade taxes by hiding money in secret accounts. Among bankers indicted were the former head of the North American unit Credit Suisse Marcus Walder, and a former top manager of Credit Suisse, Andreas Bachmann.. According to the Reuters, two other defendants were a former manager of Credit Suisse Suzanne Meyer and the founder of an unnamed Swiss trust company, collaborated with the Bank, Josef Dorigo.
In February of this year the U.S. government presented similar charges to the four former and current employees of Credit Suisse. Investigation concerning the bank, that is the second largest in Switzerland, was opened in mid-July. Credit Suisse will be the second largest bank in Switzerland, leading the proceedings with U.S. authorities. Since 2008, the U.S. was investigating the activities of the bank UBS, suspecting that the organization helps clients in the U.S. to evade taxes using offshore accounts. As a result, UBS had to be transferred to the United States data on more than four thousand of its U.S. customers and pay a multimillion-dollar fine.
15 years millionaire from Russia conqured forbes
Forbes magazine published its annual rating of 200 richest people in Russia.The number of billionaires for the year increased from 62 to 101. In the first list was a 15-year-old businessman.
Like last year, the rating topped the owner of the Novolipetsk Metallurgical Combine, Vladimir Lisin. His fortune grew from $ 15.8 billion to $ 24.8 billion. The director of the "Severstal" Alexey Mordashov with the doubled revenue takes the second line ($ 18.5 billion). Closes the three group president "ONEXIM" Mikhail Prokhorov, whose fortune Forbes estimated at $ 18 billion. In fourth place with $ 17.8 billion was the owner of "Interrossa" Vladimir Potanin. In the top-10 hit the general director "Gazprominvestholding" Alisher Usmanov ($ 17.7 billion), which took the fifth place, and settled for sixth place holder of "Basic Element" Oleg Deripaska ($ 16.8 billion). They are followed by the Presidents’ Alfa-Group "Mikhail Fridman and" LUKOIL " Vagit Alikperov, as well as the owner of" Chelsea "Roman Abramovich (the state reached a $ 13.4 billion). Closes the top 10 head of "Renova" Viktor Vekselberg. Among the richest Russians still only one woman — the wife of ex-Mayor of Moscow Yuri Luzhkov, the owner of "Inteko" Elena Baturina. However, her status for the year decreased by $ 1.7 billion — up $ 1.2 billion.
Who is the poorest?
By Forbes, in the rating of countries with the worst economies by Forbes magazine there was a real revolution: in 2011 in the list of 10 countries entered for the first time just three representatives of the CIS. People of Armenia, Ukraine and Kyrgyzstan, for sure, very surprised to learn that their economies can not stand comparison with Swaziland and Nicaragua. What does the Forbes consider as "bad" economy? A combination of several factors: high inflation, lower GDP growth, the smallest GDP per capita and a negative balance of trade (imports exceed exports much).
In the magazine are considered indicators based on data from the International Monetary Fund, and not for one year, but three, including forecasts for 2012.Because of this, the world picture may be distorted: the IMF’s assessment of developments in individual economies, given in March 2011 and since then much has changed in the world — to take at least a devaluation in Belarus, which led to a jump in inflation and the impoverishment of the population. In addition, in Forbes all indicators are not reduced to a common denominator — in any case, there are not any traces of this work in the ranking. Because this is not quite clear why the seats were distributed anyway. For example, Armenia ranked second place in the"antirating" with an index close to 3,000 dollars per capita GDP and inflation to seven percent.
Guinea was by the same reason on the third place, although GDP per capita in this country is nearly seven times smaller, and inflation — by 10 percentage points higher. And yet, despite all its shortcomings, Forbes rating is a tool to analyze the situation in the global economy. In addition, the new issue of rating allows more time to talk about post-crisis situation in the former Soviet republics.
Forbes columnists wrote that they analyzed the situation in 177 countries around the world, but the rating contained only the 10 most "worst" economies. First place in"antirating" won Madagascar, with its high inflation, low GDP per capita, political instability and low level of investment from abroad. In second place was Armenia, the third — the already mentioned Guinea. Fifth place — the Ukraine and Jamaica. After Jamaica, is Venezuela, and the Kyrgyz Republic,Swaziland, Nicaragua and Iran.
Zimbabwe — the leader of last year’s "antirating" wasn’t in the list and it’s another surprise: one of the poorest countries in Africa, only just starting to recover from the effects of hyperinflation, could hardly have improved so dramatically their positions. The country moved from a fall in GDP to rise, and forecasts for the economy, Zimbabwe now seem moderately optimistic.
The rating didn’t contain another traditional "losers." For example, in Burundi’s GDP per capita is about $ 300 in Liberia — about 500, and in Eritrea to poverty is added more and inflation, which by the end of 2010 amounted to more than 20 percent. However, if Forbes has listed all these countries, the ranking would have remained only Africa, but Latin America. The fact that in these regions, many people live below the poverty line — is not new, so no one would learn a rating.
But the appearance in it of the former Soviet republics — attracts the attention of researchers. The appearance of Armenia in the ranking of the worst economies in the world may seem surprising. Indeed, Armenia, international financial institutions, recently boasted in the ranking of economic freedom in the country in 2010 won the honor for a 38th place (the third result in the former Soviet Union, after Lithuania and Estonia), the ranking of corruption was better than Russia and Belarus. Country are thought to undertake democratic reforms, it has successfully moved from a planned to market economies and only actively growing. Nevertheless, the crisis has exposed massive problems in the economy of Armenia. The main issue among them —it is an incredible dependence on Russia. It is complicating the situation in Armenia and tense relations with other neighbors — especially with Azerbaijan. The country has not enough resources to secure a comfortable future.
In Ukraine everything it is a bit complicated. Country suffered from the financial crisis, when metal prices have plummeted. Ukraine depends on supplies of raw materials from Russia. The economy of the state has some objective difficulties, from corruption and poor judicial system to the permanent political crisis. However, despite this, Ukraine is situated between Russia and Europe, makes a transit, and it is a major market for European goods, tourist center of the CIS, Ukraine is a large number of industrial enterprises, especially steel mills. Finally, the richest people of Ukraine in terms of welfare are superior to the Europeans, and if someone had told them that they live in a country similar to Nicaragua or Guinea, they would be greatly surprised.
In Kyrgyzstan, in contrary to Ukraine, the situation is more or less clear. According to the IMF, inflation in the country will be in 2011 more than 18 percent, and GDP growth will be at 5 percent level. GDP per capita is less than $ 1,000, but political instability makes investment in the country by foreigners less and less attractive. However, these investments are necessary: without them, Kyrgyzstan will not be able to develop their fields, which may contain gold and uranium. To all this should be added that Kyrgyzstan is one of the last places in the ranking of most corrupt countries.
Gas price for Ukraine will grow
Gazprom still will not change the formula for gas for Ukraine and attach it to other types of energy. This was announced in summer in Sochi, by the chairman of the company "Gazprom" Alexey Miller. "It (the current price formula) is absolutely a market approach, and we will not invent something for someone else, some other formulas that are linked to other energy sources" — said Alexey Miller.
He also reminded about the current trends in the gas market. According to him, since the beginning of the year to date versus the same period in 2010 the export of gas to the Ukrainian direction increased by 22%. "This is the most direct impact on revenues of Ukraine" — said Alexey Miller. According to him, "there is a valid contract, there is a price formula, which is absolutely market." Miller also assured that the work of Gazprom and its Ukrainian counterparts will be built in future on this formula and the current market contract. Speaking about European gas prices, the head of the concern said that the cost of Russian gas to Europe will rise in the IV quarter to $ 500 for 1 thousand cubic meters. "If you put in the formula value of petroleum product prices, particularly on forward transactions, it is possible with a high degree of certainty to say that the price of gas may reach $ 500 per 1 thousand cubic meters on long-term contracts at the end of the year" — said Miller.
In I quarter Ukraine bought Russian gas at a price of 263 dollars for 1 thousand cubic feet (with discount $ 100). In turn, Ukrainian officials have repeatedly said that the fair price for gas for the country is about $ 200. Gazprom also said that the cost of gas for Kiev is economically feasible in accordance with the "gas contracts." In addition, the Russian concern said that Ukraine could save $ 8 billion, if entered into the Customs Union of Russia, Belarus and Kazakhstan. Ten-year contracts to supply Russian gas to Ukraine and its transit through the territory of this country have been signed by Gazprom and NAK "Neftegaz Ukraine" in January 2009. Gas supply contract provides for the quarterly change in the formula price, which is calculated according to generally accepted European formula. In April of last year, Gazprom and "Neftegaz Ukraine" have agreed on a discount on gas for Ukraine, according to which a reduction of 30% of the price of gas, but not more than $ 100 for 1 thousand cubic meters. This discount was given in exchange for Ukraine to prolong the stay in its territory the Black Sea Fleet. Discounts apply to shipments of 30 billion cubic meters. in 2010 and 40 billion cubic meters — in the coming years. By results of the year Ukraine will buy from Russia about 40 billion cubic meters of gas, compared with 36.5 billion last year. In 2010 Kiev transferred to Moscow the amount for gas around $ 13 billion.
Will the Cyprus begin the gas field development?
Gas production in the exclusive economic zone of Cyprus could lead to an environmental catastrophe, warns World Wildlife Fund (WWF) and the Organization for the Protection of the oceans Oceana. On the other hand, the transfer of electricity in Cyprus from oil to gas would help to significantly reduce CO2 emissions, as gas is "cleaner" oil. An American company Noble Energy plans to begin work on the extraction of gas on the continental shelf of Cyprus in September this year. In this drilling will be done on site, which is under the protection of the Department of Mediterranean fisheries and aquaculture UN (GFCM). In addition to the existing total ban on the demersal fishing, Amnesty International calls to protect the area from "the consequences of any other activity that threatens the safety of this specific habitat."
According to European Commissioner for the Environment CharalambosTeopemptu, the Government of Cyprus has fulfilled all requirements, including those initiated to study the potential impact of gas production on the ecological condition of the area. The European Commission has repeatedly drawn attention to the fact that Cyprus has not adopted three directives on the protection of the environment, two of which provide protection against marine pollution, and threatened to take action. We also recall that in August of last year, Italy and Greece tried to ban the development of fuel deposits in the Mediterranean Sea, fearing a repetition of the situation in the Gulf of Mexico.
In 2013, the EU introduced a new revised system of fines for exceeding emission standards in an atmosphere of carbon dioxide. To date, Cyprus has paid fines amounting to 22 million euros. At this time, growth in electricity prices will be from 4.5% to 9%.
Switching to gas will make Cyprus a cheaper and more "clean" electricity. So, ideally, the government should make every effort to ensure safety in mining. Otherwise, the unique ecosystem of the region may occur irreversible changes, and rare species of plants and animals would be endangered , not to mention the damage to cause any accident Tourism in the Eastern Mediterranean and Cyprus in particular. All this, according to Minister of Trade, Industry and Tourism Antonis Pashalidisa will be taken into account and the security environment will be a priority of an agreement with American company Noble Energy.
Russian companies will sell abroad 100% of shares
The Federal Financial Markets Service (FFMS) has prepared a bill that would remove all restrictions on the placement of securities of Russian companies abroad. As it was mentioned in the newspaper "Kommersant".
In the draft order of FFMS it is said that now Russian issuers will be able to post overseas 100 percent of the total shares. Russian companies are now allowed to place abroad in the form of depositary receipts with a maximum 25 per cent of the share capital. The project of a new order provides for the continuation of such restrictions only for strategic enterprises. However, these shares may be increased by the decision of the government commission.
Moreover, the Federal Financial Markets Service has decided to remove the requirement of mandatory offer of shares in the domestic market. According to today’s standards, the number of securities purchased abroad may not exceed 50 percent of the amount of securities offered in Russia.
Restrictions on placements in foreign stock markets didn’t contributed to increasing demand for shares in Russian companies, but provoked the flight of issuers in the offshore jurisdiction. From the beginning, so did 9 out of 13 companies claiming to be offering.
Five reasons of capital flight from Russia
Capital and investments continue to flow out from Russia, despite high oil prices and the apparent attractiveness of the Russian market. Capital flight from the country — it is a sign of distrust in the Russian legal system, said former Finance Minister Mikhail Zadornov. But experts have called other reasons: it’s frustrating the current government, political uncertainty, growing corruption and the risks of loss of business, as well as extremely high rates.
"The outflow of capital at current oil prices means that businesses do not fully trust the Russian judicial system, and the owners of Russian assets need state protection of private property rights" — said Zadornov. According to him, the influence of pre-election situation in the outflow of capital — it isn’t not new, for example, the 2000th and 2003rd were not the best years for the Russian stock market. However, with today’s oil prices — to $ 115-120 per barrel of mark Brent — capital outflow continues, suggests that "the business did not fully trust the legal and judicial system." "The basic things than need your business are the private property rights, the protection of these rights by the state — from a 15 hectare plot, apartment, from small businesses to large companies owned" — stated the head of VTB 24 Mikhail Zadornov. It does not matter whether it is owned by foreigners or Russian owners, he said. Earlier, the Central Bank first deputy chairman Alexei Ulyukayev said that capital outflows on the basis of 2011 will remain at $ 35 billion.
Experts’ opinions were divided on the issue. Some people believe that corruption in the country is progressing. "Was created an administrative superstructure that it difficult to feed each year — he said. — At the same time corruption remains —only entrance to the right place went up about ten fold. Besides, there is a purely financial reason — in the West exist more favorable work environment to have the opportunity to get business. For example, in Germany you can get credit for the development of a 4% per annum in the U.S. — 5.6%, Japan — 6.2%, while in Russia — by 15% and higher. Corporations are withdrawing funds abroad,taking them for loans and build their business there". And besides the outflow figures, which are called officials, may be considered too conservative, because in reality out of the country is taken, "many times more." The main reason for this — after all it is corruption and bureaucracy.
However, experts point to the other — equally important — reason flight of capital from the country: frustration and undue expectations.
Prior to the crisis in 2008, entrepreneurs were optimistic about opportunities for their businesses and for the country as a whole. Today the situation has changed dramatically: is wide spreading pessimism among businessmen and negative outlook.
The world’s largest banks spent Kadaffi’s money
This summer there was a very interesting news, that shed light on the activities of investment banks on Wall Street — the news of the fate of foreign exchange reserves of Libya, cast in the management of Goldman Sachs before the Investbank liquidity crisis of 2008. According to internal documents of the bank during the period from January to June 2008, Goldman Sachs has received from the Libyan sovereign fund $ 1.3 billion, which by February of 2009 turned into $ 25million, that is, the loss amounted to 98%. U.S. Goldman Sachs and HSBC jointly held the British assets of Libya’s state investment fund Libyan Investment Authority (LIA) for $ 335 million.
While the French bank Societe Generale had about $ 1 billion in structured products LIA. Libyan money were also accounted through HSBC Holdings, Carlyle Group, Morgan Chase & Co, Och-Ziff Capital Management Group and Lehman Brothers Holdings. In general, the parts of a sovereign fund controlled institutions, almost all well known to us from the crisis of 2008. Looking at the swim today in the light of the results of their control, instinctively raise two questions: first, whether there are in fact the $ 37 billion foreign exchange reserves of Libya, who supposedly frozen over "human rights violations" by the Americans and their allies? Or are they the same fate as those of Libyan $ 1.3 billion, and from them were just bogus account statements, and the money has long disappeared into the depths of the crisis? And more ideas for thought: — whether to start another "small victorious war" to conceal the withdrawal of $ 37 billion gold reserves? But in the future will be given more credits for rehabilitation of Libya’s destruction of the billion in mortgage oil supplies! And the second question: in what the sovereign fund Libyan Investment Authority is different from no less a sovereign Russian "National Welfare Fund of the Russian Federation" (about 2.7 trillion. Rubles)? Or from the Reserve Fund, which the Finance Ministry website said that "your account balance 11,076,524 377.83." Can we be sure that those dollars are real? And if not Goldman Sachs manages two funds? And anyway, do not freeze all the assets if one of Russia abroad to half a trillion dollars? And perhaps they will take and plugged the holes in the balance sheets of investment banks during the next turn of the crisis. Of course, all this is only fear. But the alarming fact that the Russian government made an offer to large investment companies to participate in the creation of a joint investment fund worth $ 10 billion again in this list are the same familiar names of Goldman Sachs, Apollo Management, Blackstone, Carlyle... They say that learning need for others’ mistakes. True, sometimes from their own mistakes, not all make the right conclusions...
Midland Consult
