World financial meltdown
Russia: economic crisis looms
THE COLLAPSE of US banks is grabbing the headlines worldwide. But the consequences of the current crisis are also starting to hit the so-called BRIC countries - Brazil, Russia, India and China - the new 'miracle economies' that were touted by pro-capitalist commentators as a potential new motor for driving the world's economy forward.
Rob Jones, Moscow, (CWI, CIS)
Yet in each of the four countries, the effects of the crisis are beginning to bite. While New York and London stock markets have been racked by 'volatility', losing over a sixth of their value since May, the falls in the BRIC countries have been phenomenal. The MSCI BRIC index has fallen by 37% since January, the Brazilian Bovespa by 15% since January, and 38% from its high in May, India's Bombay exchange has fallen by over 32% since January.
The Shanghai stock exchange is in freefall. Since its high point, in October 2007, it has fallen an incredible drop of over 60%. Already in China, 67,000 companies have gone bankrupt, adding an extra two million to the list of unemployed.
Apart from the general credit crunch, these countries have suffered from the falls in world commodity prices. So volatile has been the Russian stock exchange, the authorities shut it down on three different occasions, in early September. But it has proved impossible to stem the general trend. The Russian stock exchange has plummeted, from its high, in May, of 2,500 to 1,340 today - a drop of 45%, in just four months.
The Chinese and Russian stock markets were two of the world's best performing in 2007, but in 2008 they are the worst.
Although the Chinese and Indian governments say that Foreign Direct Investment (FDI) is still flowing into their countries, in Russia it was drying up even before the war in Georgia.
In the past three months, emerging-market funds have seen an outflow of $26 billion, compared with an inflow of $100 billion in the previous five years. In other words, more has flown out of the emerging markets in the past three months than came in during an average year!
The clearest signs of a pending crisis are to be seen in Russia. The government has done everything possible to try to calm the situation. Yet "small temporary difficulties" are proving to be quite big.
After the collapse of Freddie Mac and Fanny Mae in the US, it turned out that the Russian state-owned Sberbank, Russia's largest bank, had been helping the US to solve its debt problem by investing over $100 billion into the two American institutions.
By August, this figure had dropped to $30 billion, partly as a result of Sberbank selling the shares, partly as a result of the general drop in value of the US companies.
After the collapse of Lehman Brothers in the US, the real problems started. On the first day of the crisis, the Russian government pumped $20 billion into the Russian finance market. At the time of writing, it has now allocated $127 billion, which includes $20 billion to support two of the biggest banks and the Rosneft Oil Company.
Considering that the GDP of the US is almost ten times the size of the Russian economy, this sum would be equivalent to the US government handing out $1.27 trillion.
The crash of the rouble, in 1998, in conjunction with the South East Asian economic crisis, rocked the world's economies. Paradoxically, the resulting 30% devaluation of the rouble, which took place practically overnight, helped prepare a decade of economic growth.
But the other factor behind recent years of growth was, of course, the price of oil and gas. From about 2000, coinciding with Putin's election as president, oil prices started to rocket. This gave a huge cash injection into the Russian economy.
But even before the credit and banking crisis in the US broke, signs of developing problems were appearing in the Russian economy. Notwithstanding the huge amount of oil cash flooding the economy, investment was very uneven. As a result of the oil and gas prices windfall, the rouble has been very strong. This has meant that it was very expensive to finance investment in non oil and gas sectors.
Over the past ten years, Russia has not succeeded in significantly expanding its oil production potential. Now the oil bosses say they have no money for investment. Industrial growth is slowing down.
Growth rates are still relatively high in the BRIC countries, but it is clear that the storm clouds are gathering. This will have big consequences for millions of Russian workers and the rural poor.
The phenomenon of wage arrears has appeared again. In August, wage arrears grew by 14%; although the absolute level of arrears is considerably lower than during the nightmare years of the 1990s.
Prime minister Putin and president Medvedev will find their limited social base of support seriously eroded and will no longer be able to point to economic boom as the necessary 'trade-off' for their authoritarian rule.
In this situation, a clear class alternative can gain a wide echo from workers and youth. Genuine independent unions are needed to defend workers' jobs and conditions and to fight for a living wage.
A new mass workers' party is essential to articulate the real interests of workers and youth; opposing the pro-market and reactionary chauvinistic Putin parties, and offering an alternative of genuine workers' international solidarity and opposition to capitalism.