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    Russian Economy General News: #3

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    Asf
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    Re: Russian Economy General News: #3

    Post  Asf on Tue Oct 14, 2014 8:46 am

    I would only believe if they do something concrete

    What should they do?

    Austin
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    Re: Russian Economy General News: #3

    Post  Austin on Tue Oct 14, 2014 8:52 am

    Asf wrote:
    I would only believe if they do something concrete

    What should they do?

    Reduce Budget Revenue from Minerals/Oil etc YOY.

    Do structural reforms in their economy

    http://www.cnbc.com/id/102052304#.


    Siluanov said: "There is no need to re-invent the wheel, other countries have tried spending and loose monetary policy and it only offered short term respite.




    "We need structural reforms, those who have implemented structural reforms have been the winners."

    GarryB
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    Re: Russian Economy General News: #3

    Post  GarryB on Tue Oct 14, 2014 10:05 am

    If you have something that sells well on the international market you would be a fool to stop selling just because you don't have an endless supply.

    There is a saying... make hay while the sun shines...

    When bad things happen then you might need to change, but until then make what you can when you can.


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    sepheronx
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    Re: Russian Economy General News: #3

    Post  sepheronx on Tue Oct 14, 2014 1:18 pm

    Austin wrote:
    sepheronx wrote:If Russia comes out with a GDP growth (even if very small like 0.1%) I am going to laugh.

    That said, the article isn't bad, title is just outright stupid.  All this will do is force Russia to change economic policies and look at other methods to the economy rather than just oil and gas.  They may look more at their own population to prop themselves up by offering cheaper gas on domestic market.  What is funny, the doom and gloom seems to be always pointed at Russia.  But even with Sanctions up the ying yang, Iran survived.  They have their issues, but a lot of it is due to poor management and lack of freedom in economy.  Outside of that, they are still producing.

    The question is, how will this effect countries like US and Canada?  Canada's main export is pretty much oil and gas, besides US made automobiles.  US Fracking will be in trouble and Saudi Arabia relies on oil and gas sales, especially in keeping their people together.

    Russia on the other hand, has their industrial strength to fall back on.  Maybe not the biggest money maker, but at least they do produce cars, tools, heavy industrial equipment, agriculture etc etc etc.  They will just have to find a market for it and I guess they knew something like this would eventually end up happening, since they are looking towards latin america, Africa and Caucuses to sell their products to.

    As for having to use reserve funds, they can effectively use their foreign reserve as well, which still stands at over $450B even though CB used a lot of it in order to pay off debt.


    You know I have heard the bolded part before from Russian Government in the many years I have been following them.

    When Oil Prices Fall they say we need to get from Oil Dependencies blah blah blah ........When Oil Prices Rise its all gone and forgotten.

    The more they change the more things remain the same Mad

    I would only believe if they do something concrete else its all BS Talk for Talk Stuff

    I too have been following it and I have seen changes. Tooling industry, automotive, construction, agriculture, etc.  Better to spend excess money while they had it. But the thing is, they have the industries already making end goods. If you dont believe me, you should should check out the thread that I have noy updated in quite some time and sdelanounas.  These industries are not pushing hard for foreign sales of their products but that may change.

    Reason why you say you have not saw any changes is because you refuse to acknowledge the changes that were made.

    Back in soviet era, Canada was a major exporter of agriculture and construction equipment to USSR. Now they are major producers of said tech today and we barely export any of that equipment to them anymore (if at all). This is just one example.

    Structual reforms only work if there are any reforms to be made or there is something less vague. Saying structual reforms is same this as "developing industry" and "diversify industry", all vague terms. Problem is, Russia manufactures goods from basic household to heavy industrial equipment. But you dont see many of these products outside the country. Why? Lack of prospect for exports. They already have a diversified economy. Just it doesnt make them the money oil and gas did.

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    Re: Russian Economy General News: #3

    Post  Viktor on Tue Oct 14, 2014 5:35 pm

    Nice thumbsup

    Russia to build data centers for China, investment will be about $ 5 billion

    magnumcromagnon
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    Re: Russian Economy General News: #3

    Post  magnumcromagnon on Tue Oct 14, 2014 6:13 pm

    Defying the dollar Russia & China agree currency swap worth over $20bn



    The central banks of China and Russia have signed a 3-year ruble-yuan currency swap deal up to $25 billion, in order to boost trade using national currencies and lessen dependence on the dollar and euro.

    On Monday, China’s Central Bank announced the 150 billion yuan (815 billion ruble) currency swap between the Russian ruble and Chinese yuan. In terms of the Chinese currency that is $24.5 billion, and in Russian rubles, $20.1 billion.

    "We need to expand the practice of using national currencies in trade. Currently they only account for 7 percent of turnover,” Prime Minister Dmitry Medvedev said at the 18th annual Russian-Chinese Commission, also attended by Chinese Premier Li Keqiang.

    The deal is valid for 3 years, and can be extended if both Russia and China agree. The draft currency swap was settled in August, but details on the size of the deal were sketchy.

    Using more local currencies will speed up trade between the two countries who are aiming to reach $100 billion by 2015. Trade between Russia and China is already nearly $90 billion and is scheduled to hit $200 billion in the next six years.

    Cooperation between Russian and Chinese banks is also on the rise, and China’s Import Export Bank, which is 100% state owned, has pledged to help Russian banks now cut off from Western capital markets, due to the latest round of sanctions.

    The Export-Import Bank (Exim) has agreed to establish a credit line equivalent to $2 billion for Russian state bank VTB, and has also signed agreements with VEB (Vnesheconombank), and the Russian Agricultural Bank.

    The credit lines can be used to finance imports from China, from agriculture to high tech equipment.

    Medvedev and Li signed over 40 other agreements at the meeting, including outlining plans to add another pipeline from Russia to China. Li is in Moscow for a three-day visit.

    Defying the dollar Russia & China agree currency swap worth over $20bn

    magnumcromagnon
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    Re: Russian Economy General News: #3

    Post  magnumcromagnon on Tue Oct 14, 2014 6:31 pm

    Rosteh signed an agreement with the China Aerospace Corporation
    The document is aimed at the development of joint ventures and developments in the field of electronics



    Rosteh, China Corporation Aerospace Science and Technology (CASC) signed a strategic cooperation agreement to promote trade, investment and cooperation in the field of high technologies.


    The parties will be engaged in joint development and production of electronic components, will cooperate in the field of information technology, communications systems and automation, new materials.

    The agreement was signed by CEO Rosteha Chemezov and Chairman of the Board of Directors of CASC Lei Fanpey. The signing ceremony took place during a meeting of heads of governments of Russia and China - Dmitry Medvedev and Li Keqiang.

    The agreement allows you to start the preparation and implementation of joint projects in Russia, China and third countries. Rosteha cooperation with CASC will focus on the civilian side.

    "Joining forces, competences, scientific potential and production potential of the Russian and Chinese companies provides quality advantages that allow you to implement a successful global joint projects, - said director general Rosteha Chemezov . - Production of competitive high-tech products with Chinese partners will allow enterprises to increase Rosteha its share of the world market, where they are already present, and come out on the other. Agreement with CASC opens new areas of economic cooperation and allows it in new forms. "

    Among the possible areas of cooperation - joint development and production of electronic components, information technology, communications and automation (with "Roselektronika" and the Russian Corporation of communication - RTEC), new materials (with the participation of the holding company "PT Himkompozit" ).

    "Rosteh has long established itself as a reliable partner of Chinese companies - emphasizes chairman Lei Fanpey CASC. - We are interested in developing cooperation with the Russian corporation in a number of areas. This is beneficial to both parties, since the competence and technology of Russian and Chinese companies can profitably complement each other. The potential for cooperation between Russia and China in the field of industry is huge, this potential can give an additional impetus to a number of areas, including the production of modern electronics . "

    CASC Corporation specializes in designing and manufacturing different kinds of spacecraft, launch vehicles (including manned), strategic and tactical missiles of various types of ground-based equipment monitoring and control, and telecommunications equipment for military and civil purposes. In addition, the Corporation is authorized state authority on international space cooperation. The Corporation is also the largest shareholder on behalf of the state in the capital of China's telecommunications sector leader - Corporation ZTE (or " Chung Hsing " ).

    Specialized foreign trade company CASC serves Chinese Industrial Corporation "Great Wall» (China Great Wall Industry Corporation (CGWIC)), which is the only specialized organization for the provision of services and supply of commercial launches of satellites in orbit, as well as relevant technical services.

    Rosteh signed an agreement with the China Aerospace Corporation


    Austin
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    Re: Russian Economy General News: #3

    Post  Austin on Tue Oct 14, 2014 7:22 pm

    Ulyukayev: from international rating agencies there is no reason to lower the sovereign rating of the Russian Federation


    http://itar-tass.com/ekonomika/1507338




    MOSCOW, October 14. / TASS /. Economic Development Minister Alexei Ulyukayev believes that the international rating agencies, there is no reason to lower the sovereign rating of Russia, though "talk and rumors" about this walk.


    "Now really have expectations, there is talk, there are rumors that the possible actions of international rating agencies to lower the sovereign rating of the Russian Federation", - said the minister told reporters.


    Gref said in the case of such acts they would "indicate either incompetence or an engagement." The Minister added that there are no objective reasons for the downgrade is not.


    "What is rating the rating agencies? Rating long-term solvency, credit worthiness. This, simply put, is the belief that we will be able to repay our foreign debt," - said Ulyukayev, adding that today's foreign debt amounts to less than 3% GDP, and the entire national debt - 11% of GDP. "That is, if you want such a debt can be repaid in one year," - said the Minister. According to him, the risks of non-repayment of debt are not available. "From whatever side you look, macroeconomic and financial structure is very stable and the risk that this meager foreign debt somehow miraculously not be extinguished, no," - said the head of the Ministry of Economic Development.


    Ulyukayev also expressed the opinion that in the case of reducing Russia's sovereign rating will create a tense situation with the debt of the corporate sector. "In normal cases, it is primarily reflected in the cost of sovereign debt, borrowing. But this is not the case, because there is practically no foreign debt. But the problem is that almost automatic in these cases vary corporate ratings. They are more or some extent tied to the sovereign "- continued the Minister. 


    At the same time, at a mass revision of corporate ratings, according to the head of the Ministry of Economic, worsen conditions of refinancing companies will also be difficult to access to the global capital markets, and in some cases will work covenants that are built into the agreement on borrowing.

    sepheronx
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    Re: Russian Economy General News: #3

    Post  sepheronx on Tue Oct 14, 2014 7:52 pm

    As stocks have dripped in Canada (crashing by 10%), brent crashed to $81. Guess the test begins now! They say that Fracking in US is unatainable (well unprofitable) at anything less than $85. So I suppose we are into a possible world shock.

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    Re: Russian Economy General News: #3

    Post  kvs on Wed Oct 15, 2014 1:11 am

    sepheronx wrote:
    I too have been following it and I have seen changes. Tooling industry, automotive, construction, agriculture, etc.  Better to spend excess money while they had it. But the thing is, they have the industries already making end goods. If you dont believe me, you should should check out the thread that I have noy updated in quite some time and sdelanounas.  These industries are not pushing hard for foreign sales of their products but that may change.

    Reason why you say you have not saw any changes is because you refuse to acknowledge the changes that were made.

    Back in soviet era, Canada was a major exporter of agriculture and construction equipment to USSR. Now they are major producers of said tech today and we barely export any of that equipment to them anymore (if at all). This is just one example.

    Structual reforms only work if there are any reforms to be made or there is something less vague. Saying structual reforms is same this as "developing industry" and "diversify industry", all vague terms. Problem is, Russia manufactures goods from basic household to heavy industrial equipment. But you dont see many of these products outside the country. Why? Lack of prospect for exports. They already have a diversified economy. Just it doesnt make them the money oil and gas did.

    People should stop parroting the drivel that Russia needs to stop selling oil and gas and "diversify" its economy. This is
    a trope created by western media propaganda. There is something called comparative advantage and it is a recognized
    aspect of trade from the beginning of the study of economics. Russia has a huge comparative advantage in oil and gas
    and exports them to maximize its export revenue. Forgoing this money for the sake propaganda straw man "purity"
    is just insane. The west will never ban Russian oil and gas exports and the current price drop is obviously a
    transient. Yet we have articles already spewing about how Russia's "oil dependent future" is doomed. What drivel.

    Russia is actually a very diversified economy. Compare it to Canada and Australia, two 1st world resource exporters.
    I don't hear anyone trying to stop Canada from exporting oil and timber. Or Australia from exporting coal and Uranium.
    The problem in Russia is the legacy of communism and the transition to a gangster economy during the 1990s. Ukraine
    never got out of that hole and is now basically a failed state. Russia managed to get out of the hole but that cultural
    damage is long-lasting. It is hard for small businesses to form and thrive in Russia. Small business is a major employer
    in Canada. All the talk about structural reform makes it sound like the problems facing Russia can somehow be removed
    with some laissez-faire neo-liberal monetarist voodoo economics. The clowns who spout this propaganda also systematically
    ignore real reforms over the last 15 years.

    http://online.wsj.com/articles/SB1027626299707451040

    http://rbth.com/business/2013/10/24/russia_will_not_abandon_market_reforms_31127.html

    http://russiaprofile.org/business/a1272390310.html

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    Re: Russian Economy General News: #3

    Post  kvs on Wed Oct 15, 2014 2:24 am

    http://www.bne.eu/content/story/fears-russian-credit-crunch-greatly-exaggerated-say-analysts

    On paper, Russian companies have huge foreign debts, and no way of refinancing them because sanctions effectively close Western capital markets to Russian borrowers. But with much of Russian corporate foreign debt in fact hidden equity investments from offshore zones, the figures seem much worse than they are.

    International headlines are predicting a looming liquidity meltdown in Russia. Russian companies must pay down $134bn in external debt through the end of 2015, with a major spike of $32bn coming up in December 2014 alone, according to Russia’s central bank.

    But an accounting trick widely used in Russia may be misleading pundits on corporate liquidity in Russia, say experts: for many larger Russian firms, foreign debt is nothing other than equity injections from shareholders incorporated in offshore zones such as Cyprus or the British Virgin Islands, with interest paid on the debt a tax-minimising strategy to take profits.

    Real foreign debt may be almost half of the figure on paper. “The figure [$166 billion foreign corporate debt through 2015] is quite overestimated as it includes inter-company transactions. I think the realistic estimate amounts to not less than $90bn, which are to be raised from domestic sources," Russia's economy minister Aleksei Ulyukaev said in a boisterous speech to the Duma on October 8.

    According to Russia's central bank, of $220bn in foreign loans taken out by Russian companies in Russia in 2013, close to half were raised in offshore jurisdictions, such as Cyprus, Ireland, Luxembourg and the British Virgin Islands, rather than from international banking centres. Counting through all the eurobonds, syndicated loans and bilateral loan agreements, gives a figure of $70bn-90bn in debt to be paid down through 2015, similar to the figure quoted by Ulyukaev, say experts.

    ...

    Moreover, much of Russian companies' genuine foreign debt - some analysts says around half - can be attributed to Russia's state-owned energy giants Rosneft and Gazprom. Rosneft alone owes around $32bn to be paid by the end of 2014, debts incurred to pay for the acquisition of oil company TNK-BP in March 2013. But both Rosneft and Gazprom are receiving huge advance payments from China for contracted oil and gas supplies.

    Russia's GDP growth over the last 15 years has been real and not driven by borrowing like in most of the OECD.
    Russia's total debt load (not just state debt) is amongst the smallest the in the world and all attempts to try to
    fluff it up to be some epic problem are pathetic propaganda.

    Talking about borrowing, why is borrowing from abroad not a negative in GDP accounting? In the current definition
    of the GDP it is treated as a capital inflow and thus a positive. This is clearly nonsense since it needs to be repaid
    and with non-negligible interest.

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    Re: Russian Economy General News: #3

    Post  Hannibal Barca on Wed Oct 15, 2014 8:10 am

    2 years ago nobody here had an idea about economy. Now most posts are very educated so you see the progress is very real.

    sepheronx
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    Re: Russian Economy General News: #3

    Post  sepheronx on Wed Oct 15, 2014 1:12 pm

    Hannibal Barca wrote:2 years ago nobody here had an idea about economy. Now most posts are very educated so you see the progress is very real.

    I would say the compliment goes to you, KVS, ZG and the sites sdelanounas.ru and marchmontnews. If it wasnt for those, I would be believing whatever the former economic minister would be saying. Even though he was let go for a reason.

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    Re: Russian Economy General News: #3

    Post  Austin on Wed Oct 15, 2014 1:24 pm

    It appears for every $1 drop in Oil Prices Russian budget losses $2 Billion , The inverse is also true then

    http://rt.com/business/196092-oil-glut-5-year-low/


    For every dollar oil prices fall, the Russian budget loses an equivalent of $2 billion, Maksim Oreshkin, the head of the
    Russian Finance Ministry's strategic planning department, told Bloomberg.


    Russian budget base Oil price is $96 for Ural , If Ural reaches says $80 and stays there ( it as nearly $83 now for ural ) then Russian budget would need $32 billion from Reserve fund ( Reserve Fund is today at $90 Billion )

    I suspect beyond the Saudi-Kuwait rivalary as we are told in media there is some secret understand by US-Saudi to reduce Oil Price to hurt Russian Economy

    One bad things about falling Oil Price beyond budget is Rouble keeps falling which means CB has to step in to sell $$$ to support falling Rouble.

    Hopefully end of this year or beginning of next Ural reaches $100

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    Re: Russian Economy General News: #3

    Post  sepheronx on Wed Oct 15, 2014 1:48 pm

    CB has stopped putting money into Ruble. Now its free floating (well, almost). They recently dumpped a lot but it proved pointless. Lower Ruble really doesnt do much unless you can think of a reason. Cause if they are mostly selling oil and gas as you say Austin, then technically, it adjusts the price of the goods and they are going to get the same amount in the end anyway. Fall in Ruble has allowed various companies to profit greatly.

    http://m.rbth.com/business/2014/10/08/russia_comes_to_terms_with_sanctions_40451.html

    I wouldnt put too much faith into RT and its articles but if true, then good. But according to this:

    http://en.itar-tass.com/economy/754499

    Then it doesnt seem so bad.

    But lets put something into perspective - falling oil prices means that in order to gain same amount of $$$, then Russia needs to export more. Contracts already signed means that even though it is for lets say over $270B like Rosneft contract with China, it means that they have to export more. So the calculation for what they claim is being lost is money not generated in the first place, or also known as calculated loss. A potential loss. This is the reason why Russia is pushing these contracts as it guarentees them a base amount even if they have to increase supply.

    If they account these prices before sale as their loss/gain in finances, then they are doing it wrong.

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    Re: Russian Economy General News: #3

    Post  sepheronx on Wed Oct 15, 2014 1:57 pm

    But here is something not making front headline news:
    http://www.zerohedge.com/news/2014-10-15/us-european-stocks-collapse-oil-tests-80-handle-10y-hits-215

    And

    http://www.zerohedge.com/news/2014-10-14/if-oil-plunge-continues-now-may-be-time-panic-us-shale-companies

    Hence why I dont think it is some deviant plan by US and Saudi. Saudi is far more reliant on oil than Russia and some major economies like US will face a massive problem as Shale requires around $85 to break even. That isnt even profit.

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    Re: Russian Economy General News: #3

    Post  Asf on Wed Oct 15, 2014 2:01 pm

    Russian budget base Oil price is $96 for Ural , If Ural reaches says $80 and stays there ( it as nearly $83 now for ural ) then Russian budget would need $32 billion from Reserve fund

    USA's shale gas/oil companies are loosing money too


    CB has to step in to sell $$$

    Which isn't good for USA either

    Actually, I think oil price drops because of world economy problems. Which means everybody will suffer, not only Russia. This isn't a new USA-Saudi conspiracy.


    Fall in Ruble has allowed various companies to profit greatly.

    All non-oil/gas export companies. Actually, oil price drop is profitable for russian citizens too (for some limit of course) as fuel prices drops, making goods (and russian-made one at the first place) cost less.


     in order to gain same amount of $$$, then Russia needs to export more

    I doubt Russia really need more $$$ as dollar is just an exchange agent. Actually, it's not an oil price go down, it's 'price of dollar' go up. It's kinda like that - world's economy go down => less money on fuel for everything, less money on oil market speculations => more money on dollar market speculations

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    Re: Russian Economy General News: #3

    Post  sepheronx on Wed Oct 15, 2014 2:27 pm

    Depends on what industry. Oil is major use in creation of composite materials and energy products like compact generators, or electronics industry.

    Since Russia is a massive producer of composite material, this could mean a massive drop in costs in creating composite materials and plastics for every day use and thus, reducing cost of the final goods and theoretically increasing sales.

    As well, Russia is forever pushing into the semiconductor field either through its own or foreign companies. In this case, oil prices being low will mean lower costs on semiconductors from Russia.

    If Russia really wanted, they could start subsidizing the oil industry and any company that uses heavy oil for production, in order to increase production and profit for these companies. Maybe even subsidize gas prices to increase the amount of drivers and fuel consumption.

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    Re: Russian Economy General News: #3

    Post  sepheronx on Wed Oct 15, 2014 2:40 pm

    https://uk.finance.yahoo.com/news/italy-lifts-recession-thanks-hookers-125450203.html

    See, maybe Russia should take the economics from the UK and Italian handbook and do the same. Then the world will praise how economically diverse Russia is.

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    Re: Russian Economy General News: #3

    Post  Hannibal Barca on Wed Oct 15, 2014 2:46 pm

    This is desperation. When you see something like this you know the end is near. They will not fοοl anybody.

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    Re: Russian Economy General News: #3

    Post  Austin on Thu Oct 16, 2014 1:02 pm

    State Duma deputy called record military spending in 2015 budget

    Читайте далее: http://www.vedomosti.ru/politics/news/34801791/deputat-gosdumy-nazval-rekordnymi-voennye-rashody-byudzheta


    The draft budget in 2015 on national defense planned record expenses in the amount of $ 3 trillion 286.8 billion rubles. On this "Interfax-AVN," said the chairman of the Duma Committee on Defense, Admiral Vladimir Komoyedov . He noted that defense expenditure is equivalent to 4.2% of GDP, expenditures for 2015 exceeded that of 2014 to 812.16 billion rubles. In 2016, defense spending is planned for 3 trillion 113.24 billion rubles. (3.7% of GDP), in 2017 - 237 820 000 000 3 trillion rubles. (3.6% of GDP). "This is significantly higher parameters of 2014, when the share of GDP was 3.4%, in 2013 - 3.2% and in 2012 - 3.0%", - said the admiral.


    According Komoyedov, the bulk of the Ministry of Defence spending will go on the key activities of the army and navy, including the further re-new models of weapons, military and special equipment, social protection of servicemen and other tasks.

    "However, the costs of operation of the armed forces in the open planned in 2015 in the amount of 806.86 billion rubles only., A decrease of 60.5 billion rubles. Than in 2014   (867.37 billion rubles.), 2015 and 2016. - In the amount of 843.7 billion, respectively, and 770.2 billion rubles. "- He added. For the payment of money allowances to servicemen in the budget laid programming 440,100,000,000 rubles. in 2015, 483.6 billion rubles. - In 2016, 435.2 billion rubles. - 2017


    Profile Committee at the conclusion of the draft budget recommended to consider a number of problematic issues, including the allocation of budgetary resources to the rear costs, particularly for clothing for servicemen.


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    Re: Russian Economy General News: #3

    Post  Austin on Thu Oct 16, 2014 1:16 pm

    via STRATFOR

    [url=https://www.addtoany.com/share_save#url=http%3A%2F%2Fwww.stratfor.com%2Fgeopolitical-diary%2Foil-prices-continue-define-geopolitics&title=Oil Prices Continue to Define][/url]
    Oil Prices Continue to Define Geopolitics

    http://www.stratfor.com/geopolitical-diary/oil-prices-continue-define-geopolitics

    Editor's Note: Oil prices dropped steeply Oct. 14, with crude oil futures falling 4.6 percent to $81.84 per barrel -- the biggest decrease in more than two years. Brent crude dropped by more than $4 a barrel at one stage in the day, dipping below $85 for the first time since 2010. While these are relatively substantial drops, they are just one part of a continuing trend Stratfor has been tracking over the past few months. Factors behind the slump include weak demand, a surfeit of supply and the fact that many large Middle Eastern producers are reluctant to reduce their output.
    In light of today's developments, we are republishing the following diary from Oct. 2, which details the reasons behind the falling prices and how the drops could affect oil-dependent countries around the world.


    The global oil benchmark, Brent crude, fell Thursday to about $92 per barrel before rebounding to finish the day at around $94 per barrel, the lowest price since mid-2012. The latest sell-off follows one of the sharpest declines in a quarter in recent years, in which the price of oil slid about 16 percent. It may be premature to forecast sustained international oil prices lower than $90 per barrel, but if the price of oil remains close to where it is now, many oil exporting countries will feel the pain after basing their budgets on previous price expectations.

    Simply put, the oil market has gotten overstocked. After spending much of the year producing only around 200,000 barrels per day, Libya has seen its production jump up by about 700,000 bpd since mid-June. The United States has continued its relentless expansion of oil production, with the latest Energy Information Agency figures estimating that U.S. production has increased by about 300,000 bpd since the beginning of August, and Iraq has experienced similar gains. Russia, Angola and Nigeria have also seen marked boosts in production. While most of the recent production increases are one-offs, North America could add another 1 million to 1.5 million barrels of production by the end of next year.

    Despite these noteworthy hikes in oil production, sluggish demand by European and Asian (particularly Chinese) consumers has proved just as important to oil prices. While China's demand will continue to grow, demand in developed countries will remain flat, as it has for a while. These factors only add to the concern that if left unchecked, oil prices per barrel in the $90-$100 range may persist for the foreseeable future.

    Lower global oil prices will create challenges for several OPEC producers and others, particularly Russia. While some have suggested that OPEC will lower its production targets, it may not have the ability or the unity to coordinate a large enough drop in production to counter trends elsewhere and bring prices to a level more desirable to it (above $100 per barrel). If oil prices do return to this level in the near future, it likely will have little to do with OPEC's actions.

    The Standoff Between Russia and the West


    The first and most import consequence of lower oil prices is the effect it will have on the ongoing struggle between Russia and the West. Energy commodities dominate the Russian economy, particularly its exports. Any sustained drop in oil prices would directly impact the country's export revenues, and Russia's GDP would take a significant hit. The Kremlin's 2014 budget was based on oil prices averaging $117 per barrel for most of the year, with the exception of prices of $90 per barrel for the fourth quarter. For 2015, however, the budget has been pegged at $100 per barrel after much debate within the Russian leadership. While Moscow has significant financial reserves and can run a budget deficit if need be, Finance Ministry officials have estimated that lower oil prices could shave off 2 percent of Russia's GDP.
    Although Russia has been able to weather the effects of U.S. and EU sanctions thus far for its action in Ukraine, the restrictions have already led some firms, such as Rosneft, to ask for financial assistance from the country's National Wealth Fund. A reduction in oil prices, and in turn lower revenues for Russia's budget, will constrain the Kremlin's ability to support Russian businesses hurt by sanctions the longer they are in place. With less of a financial cushion to soften to consequences of sanctions in the longer term, the Kremlin will have to moderate its position in the ongoing negotiations over the future of Ukraine to meet the demands of Western partners and achieve a reduction in sanctions.

    Competition in the Middle East


    As the West looks to gain from low oil prices in its struggle with Russia, it is also looking for an opportunity to negotiate with a beleaguered Tehran to come to some sort of a resolution on the Iranian nuclear program. For Europe, Iran and its large natural gas reserves represent one of the most promising long-term sustainable alternatives to Russian natural gas. Tehran is facing sanctioned export volumes, lower profit margins and ongoing expenses because of proxy conflicts in Syria and Iraq, and it can ill afford a sustained downturn in global oil prices. Progress on coming to an agreement with the West may be slow, which will only place more pressure on Tehran to negotiate.

    Saudi Arabia is also set on maintaining its global market share and has an opportunity in the short term to rely on its considerable foreign exchange reserves and low production costs to wait out other global producers. Riyadh's oil output is its most strategic resource, and one that the government is quick to use to its advantage. With summer temperatures beginning to cool and regional consumption starting to taper off, Riyadh can free up larger volumes to export, even at lower prices. The Saudis are also looking to leverage their short-term economic stability over rivals such as Russia, especially as they square off with Iran over the future of the Syrian government.

    Saudi Arabia also has the ability to take a considerable number of barrels of oil offline if it wants to. Recently, however, it has offered discounts on its crude oil to secure market share for November, perhaps signaling to other OPEC members that while Riyadh may be willing to take its supply offline, others will have to do the same. But there is no incentive for other countries to reduce their output, since most Gulf producers will still manage to make a profit in the $90-$100 per barrel range; lowering production levels, therefore, would only reduce revenues.

    The Americas and Beyond


    Outside the Middle East, a decline in oil prices will also affect Venezuela. Officially, Caracas sets its budget at the low target of $60 per barrel of oil, a precedent begun by former President Hugo Chavez. Excess revenue could then be funneled elsewhere to off-budget expenditures to satisfy political patrons. Venezuela is in a dire financial position, needing oil prices perhaps as high as $110 to meet expenditures both on and off the book. Sustained low oil prices would severely hamper Caracas' ability to finance its imports, perhaps forcing government officials to get serious on selling foreign assets, such as Citgo, and gold from its central bank reserves, or offering even more attractive terms on loans for oil deals with the Chinese, though Beijing has recently balked at this. If oil prices stay low for an extended period, Caracas could also be forced to reconsider its deals with Cuba or programs like Petrocaribe.
    Meanwhile, for developed massive oil importers -- Japan, China, India and the European Union -- low oil prices will give some respite to significant import bills. On the other hand, prices could also increase short-term strain in Europe, where energy has been the main factor pushing monthly inflation lower. While lower energy costs are good for Europe in the long run, they also raise the threat of deflation and inflame tension between the European Central Bank and Germany.

    Even though prices have likely bottomed out, the recent plunge in the price of oil serves as a reminder of how geopolitically significant energy prices can be. Energy supplies form the backbone of modern industrial economies, and energy resources are critical export commodities for those who possess a lot of them. As long as fossil fuels remain the dominant source of energy -- something that is likely to last at least another few decades -- oil supply and oil prices will remain critical.


    Read more: Oil Prices Continue to Define Geopolitics | Stratfor
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    sepheronx
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    Re: Russian Economy General News: #3

    Post  sepheronx on Thu Oct 16, 2014 2:08 pm

    I got a question for all you people: have you seen a drop yet in prices at the pump? It was $1.20/L here but now $1.16/L. Barely a drop compared to oil itself.

    I have a feeling they are mitigating the issue of lower oil costs at the pump.
    I also heard a rumor that Saudi Arabia oil companies have huge stakes in various gas pumps around the world and that prices stay up because of them. I was hoping prices would drop.

    Austin
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    Re: Russian Economy General News: #3

    Post  Austin on Thu Oct 16, 2014 2:13 pm

    For countries that import Oil no drop in Oil Price would mean Government would save budget money allocated to oil so there could be Budget Surplus or lower Budget Deficit than projected like in case of India.

    We had projected Budget Deficit of 4.1 % of GDP , If Oil price stay low till March 2015 then we can expect a lower budget deficit thanks to low oil price.

    sepheronx
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    Re: Russian Economy General News: #3

    Post  sepheronx on Thu Oct 16, 2014 2:38 pm

    Austin wrote:For countries that import Oil no drop in Oil Price would mean Government would save budget money allocated to oil so there could be Budget Surplus or lower Budget Deficit than projected like in case of India.

    We had projected Budget Deficit of 4.1 % of GDP , If Oil price stay low till March 2015 then we can expect a lower budget deficit thanks to low oil price.
    If not lower it, at least they can import more for the same price.

    But have you seen a change at the pumps in India?

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