MOSCOW, October 17 (RIA Novosti)
Russia will have to respect independence of Abkhazia, S.Ossetia / Russia boosts stake in Caspian Pipeline Consortium / Russian banks attack the ruble / Russia beefing up military / Half of Russian investment bankers face unemployment / Russians spend savings on jewelry
Nezavisimaya Gazeta
Russia will have to respect independence of Abkhazia, S.Ossetia
Russia's recognition of Abkhazia and South Ossetia does not mean the two republics will blindly follow its orders. They will instead work for true independence, and Russia will have to respect their stance.
The latest evidence of this is the failure of the Geneva talks on the conflict and security in the South Caucasus, which the delegations of the two newly independent states left despite Russia's entreaties.
The talks were derailed by the Georgian delegation, which attempted to bring to the meeting Malkhaz Akishbayu and Dmitry Sanakoyev as legitimate representatives of Abkhazia and South Ossetia. The participation of the two men had not even been coordinated with Georgia's Western partners.
A diplomat said only Abkhazia and South Ossetia benefitted from the Geneva meeting, where they went "to gauge the possibility of their recognition" by other countries.
Abkhazian President Sergei Bagapsh told the popular daily Nezavisimaya Gazeta that they did everything right, and that Abkhazia and South Ossetia would attend any future consultations only as equal partners.
Alexei Malashenko, an analyst at the Carnegie Moscow Center, said: "In pledging to protect Abkhazia and South Ossetia, Moscow did not understand Abkhazian society, thinking that it is homogeneous. The Geneva talks showed that this is not the case."
"Some Abkhazians want their republic to become maximally integrated into Russia, but others, whose sentiments are expressed by Foreign Minister Sergei Shamba, want real independence," Malashenko said. "Shamba has allegedly said that Russia wants Abkhazia without Abkhazians. These fears are fuelled by Russian politicians and MPs who see Abkhazia as a choice morsel, which has infuriated Abkhazians."
According to Malashenko, the next conference on the Georgian crisis, scheduled for November 18, may be more successful. Europe may decide to invite all the parties concerned, and Russia, Abkhazia and South Ossetia want the same. But Georgia does not accept this format. However, "its Western patrons may not be pleased if Georgia continues to sabotage the talks," he said.
Konstantin Zatulin, head of the Institute of the CIS, said the importance of the Geneva talks should not be overestimated and warned against expecting practical results from them.
"Europe is trying to convince Russia to change its stance on Abkhazia and South Ossetia, which it cannot do," Zatulin said.
Gazeta.ru
Russia boosts stake in Caspian Pipeline Consortium
The Caspian Pipeline Consortium is disintegrating as shareholders hurry to offload loss-making assets. Russia plans to buy their stakes in order to gain a foothold in Central Asia, as much as to prevent the United States from doing so.
British oil major BP said it was near to completing talks to sell its stake in CPC, the 6.9% it holds through a joint venture with LUKoil and Kazakhstan Pipeline Ventures. Interestingly, this statement was not made by a BP spokesman, but by Andrew McGrahan, Chevron's vice president for managing CPC assets.
Natalia Milchakova, head of fundamental analysis at the Otkrytie financial corporation, said: "BP's decision to sell the shares was not unexpected, as the issue had been discussed for over two months. The consortium had made substantial losses, and shareholders are keen to get rid of the unprofitable assets."
She said BP's stake could cost $500-$700 million, and that the British company wanted to divest from the project because it was unsuccessfully struggling at several projects now. "With production falling for several years now, BP's only remaining profit-making enterprise is Russian joint venture TNK-BP." Rising project costs increase participants' losses, she said.
Preliminary estimates put the cost of the planned expansion of CPC's throughput capacity from 32 million to 67 million metric tons of oil by 2012 at around $3.5 billion. Member companies would have to invest their own money in the expansion while BP obviously does not want to invest more in the project.
Oman said it would probably want to sell its 7% stake, too. The asset can be split between Russia and Kazakhstan, who have already shown an interest in buying it.
If Russia buys out both Oman and BP's stakes, Russian companies will have a total of 37.9% in the consortium, which means Russia is gradually gaining influence in sovereign Kazakhstan as well as in CPC.
"It makes no economic sense to buy the stakes from Oman and BP," Milchakova said. Oil production in Kazakhstan has also stopped being one of LUKoil's priorities. Therefore, it can only be a political decision aimed at preventing the United States from taking the lead in Kazakhstan and the greater part of the pipeline is located in that country.
Milchakova also cited a report that Kazakhstan could decline Gazprom Neft's bid for 49% in MangistauMunaiGaz, a decision allegedly prompted by the United States. However, this information has not been confirmed, she admitted.
"I don't think any investor would want to buy BP's and Oman's stakes unless there is a political instruction from the top," she concluded.
Vremya Novostei
Russian banks attack the ruble
Russian banks have convinced the Finance Ministry and the Central Bank to inject billions of rubles into the banking sector, a prominent economist writes in the Vremya Novostei daily.
This has not stopped the market from falling, but is rapidly depleting Russia's foreign currency reserves.
Economist Sergei Aleksashenko, a former deputy chairman of the Russian Central Bank, said there was no catastrophic shortage of liquidity in the banking sector. Simply, the banks are acting by two time-tested principles, "liquidity above everything else," and "the dollar is good in any situation anywhere."
The banks are possibly using foreign currency injections to pay their clients' expenses or to invest in short-term assets abroad, or are placing them on deposits abroad.
Aleksashenko says this is a highly effective mechanism. Having bought foreign currency from the Central Bank, the banks tell the government or the Kremlin that the market is falling due to lack of liquidity. As a result, the Finance Ministry injects more funds into banks (the sum has reached 870 billion rubles, or $33 billion), or the Central Bank cuts the limit for deductions to the obligatory reserve fund (it has already cut it to 0.5%).
The fact is that the acquisition of foreign currency is moving slightly ahead of the growth of ruble liquidity, the economist says. From August 1 to October 10, Russian banks have paid for the Central Bank's foreign currency as much in rubles as they have received from the Finance Ministry and the Central Bank.
As of October 10, the Central Bank had lost nearly $45 billion, or 15% of its liquid foreign currency reserves (without the Finance Ministry funds). In addition, $4 billion has been allocated for saving KIT Finance, $2.5 billion for Sviaz-Bank, and $500 million for Sobinbank.
The Central Bank also intends to deposit $50 billion with Vnesheconombank (VEB) for the payment of foreign corporate debts.
Taken together, this means that the Central Bank has lost over $100 billion in the last two months, or one third of its foreign currency reserves, Aleksashenko writes.
Such situations are commonly described as "speculative attacks on fixed exchange rates," which means that banks and financial speculators increase their liabilities in the attacked currency whose exchange rate is controlled and kept within a specified corridor by their central bank, and buy a stronger foreign currency (mostly US dollars) on the domestic market, thereby encouraging the central bank to devalue the attacked currency.
A classical example is when George Soros shorted the British pound in September 1992. He is said to have made a billion dollars on that speculative attack.
But never before has a national government financed a speculative attack on its own currency. The Finance Ministry is placing funds with banks at 8% annual interest. If the Central Bank devalues the ruble by 5% (or 1.3 rubles at the current exchange rate) within six months, Russian banks may earn more than Soros did from this speculative attack, Aleksashenko concludes.
Gazeta.ru
Russia beefing up military
The Russian government's defense order, to be approved by the State Duma on Friday, has grown by 100 billion rubles ($3.8 billion) in the past month. Analysts say the increase was caused not only by the financial crisis, but also by the Georgian attack on South Ossetia and the Russian president's special attitude towards defense issues amid the current confrontation with the Western countries.
The government's defense order for 2009 will total 1.3 trillion rubles ($49.5 billion), as reported by Deputy Prime Minister Sergei Ivanov, meeting with Russian President Dmitry Medvedev on Thursday. "This is the aggregate amount of the government's defense order for 2009," Ivanov said without giving further details. The Military-Industrial Commission (MIC), which is responsible for approving the order, was unavailable for comment. Compared to the draft considered by the State Duma in the first reading on September 19, the current defense order has grown by 100 billion rubles ($3.8 billion).
Two days ago, the Russian president inspected the Northern Fleet and strategic missile units, where he vowed to fulfill state obligations to the military. Afterwards, Defense Minister Anatoly Serdyukov announced the plan to change the vertical chain of command of the Armed Forces.
As Ivanov had earlier said, after the war in South Ossetia, the defense order grew by around 344 billion rubles ($13 billion), including 20 billion rubles ($761 million) allocated to establish two military bases in South Ossetia and Abkhazia.
"Given NATO's Cold War rhetoric, Russia plainly has to beef up its military," Pavel Medvedev, Deputy Chairman of State Duma Committee for Credit Institutions and Financial Markets, said.
"During Vladimir Putin's presidency, defense expenditure was very limited, growing along with GDP and budget spending. Now, as Russia's economy is facing a possible recession, we could probably 'return to the 1980s' where petroleum revenues were dissipated and the military industrial establishment overblown," military analyst Alexander Golts said.
Anatoly Tsyganok, head of the Military Forecast Center, also doubts the effectiveness of the defense order's increase: "The 100 billion rubles ($3.8 billion) are very likely to be absorbed by business structures which currently control the depot maintenance shops of the military districts."
Kommersant
Half of Russian investment bankers face unemployment
Russia's largest investment group, Renaissance Group, which was partly taken over by Mikhail Prokhorov's Onexim Group at the peak of the crisis, is laying off nearly 7% of employees.
Renaissance is the first Russian brokerage to officially announce a layoff of part of its personnel. All large players on this market are likely to resort to similar measures in order to cut costs amid the financial crisis. Massive termination of employment in the investment banking sector will hit 50% of the sector's managers, according to employment agencies' estimates.
Layoffs in Renaissance Group will involve all departments, where junior and middle managers will be facing termination of employment. One of the former employees, now unemployed, said they all were paid layoff benefits equal to five months' wages.
Kommersant sources said the Uralsib group made a decision to cut its staff by 30%-40% this week. The bank confirmed this, but said it would only involve 20%.
Troika Dialog is resorting to similar cost-cutting measures. Bank VTB Capital, established last spring, said it was not firing employees but put a moratorium on hiring more personnel. As for its London subsidiary, VTB Europe, it has reduced staff by 60% since the beginning of the year, a bank source said.
U.S. Lehman Brothers' bankruptcy led to a dismissal of its entire Russian office, according to head-hunting agencies. Drezdner Kleinwort Russia has been "operating in a permanent state of emergency" ever since its head company was sold and its Russian office head quit. "Almost everyone fled," said a large investment bank member.
A source in one of the Russian head-hunting agencies said Credit Suisse Russia had begun layoffs in spring, and plans to fire 10% of its employees by the end of the year.
Maria Yankovskaya, senior adviser on banking practice at Ward Howell, said the labor market belonged to job applicants at the beginning of this year, meaning they were the ones who told the employer where they want to work and on what terms. By now, employers have taken control, and are now telling the applicants what they want them to do and for how much.
She added that even professionals whose jobs are not yet terminated are seeking other employment in a bid to hedge job-loss risks.
"This crisis will eventually increase labor productivity and effectiveness, just like bloodletting in a body," said Artur Shamilov, partner of TopContact Executive Search, also estimating that supply in the investment banking personnel market is likely to grow 50% this year.
RBC Daily
Russians spend savings on jewelry
Purchasing jewelry is considered by Russians to be among the most trustworthy ways of protecting their savings from the global financial crisis, along with having a Sberbank account or investing in real estate, a recent survey by Russia's polling agency VTsIOM revealed.
Since buying real estate for investment purposes is only viable in the premium segment, thus being affordable to few, most Russians choose to put cash into jewelry in an attempt to preserve their money.
"Sales in our chain of shops have increased by 37-70% in the past two months," Denis Adamsky, general director of the Moscow Jewelry Factory, said. The similar situation is being observed in the Tsentr Yuvelir shops chain, with sales up 43% from the same period of last year. "This fall, we expected the maximum growth of 15-20%," general director of Tsentr Yuvelir Oksana Fruntikova said.
According to Pavel Sidorenko, marketing director of the Adamas jewelry store chain, this October Adamas shops have seen sales rise of 12% compared to September, while normally, "it has always been the opposite, with October's sales being lower," he said.
The rising sales in Russia's jewelry shops this October have even surpassed those in March - a month when Russians traditionally buy the most jewelry - showing a 90% growth, according to the Moscow Jewelry Factory.
Sidorenko links the increased buying activity to fears caused by the global stock market crisis: "It is the psychological factor. Plus, gold is gold," he noted.
"Diamonds and precious metals are currently on highest demand in our shops, with increasing purchases worth up to $4,000 while normally purchases are worth $400 on average," Adamsky said. According to him, putting money into premium jewelry is seen by some as an investment tool. "There are customers who buy large non-mounted loose diamonds worth millions of rubles, seeing it as movable property," he said.
October has seen increased demand for 'investment' precious stones, such as large diamonds, sapphires and emeralds, Alexei Davydov, brand manager for Smolenskiye Brillianty Jewelry Group, said.
RIA Novosti is not responsible for the content of outside sources.
