Austin wrote: kvs wrote: Austin wrote:The Chinese market are open why cant Russian companies borrow from Chinese Market which is 3rd largest one ?
Also does Russian Government has option to borrow $100-200 billion from Chinese Government in return say Oil Trade at subsidised rates ?
Why do you think this is such a crisis for Russia? The current GDP drop has almost nothing to do with access to
credit markets.
i understand that , The access to credit from China I am suggesting is for development.
Going into Austerity Mode will not help in improving economic situation quickly , They lack funding now for development , so they can get that from China , not that its a crisis situation but to stimulate the economy
They don't particularly lack funding, as evident by the massive reserve/welfare/forex funds they have. What they lack is any willingness from the CBR to lend more money to the banks for the development and the ministry of Finance seems to be more happy to use the reserve fund to pay off overruns in the budget rather than real investments. I have already explained to you that they wont go with the method of borrowing hundreds of billions or even tens of billions because their number one concern is debt. They want to rid themselves of all debt. It is silly that they ended up purchasing billions in US TBills but they wont buy Russian.... If they tried to get a massive loan from China, guarantee you the CBR and ministry of finance would intervene and try to prevent it from happening. Instead, they are trying to open Russia's private markets to China in order to obtain loans (they seem to have already gotten some through companies like Gazprom. But only few banks are interested in working with them due to many Chinese banks also work with US and Europe too. So they dont want to be sanctioned.
So in reality, Russia has no choice but to go Austerity method and do the slow and somewhat painful path on rebuilding itself. To me, I think the CBR should simply do 1 QE and lend to the banks in the nation so that they can reduce interest rates, and provide far more loans. Only issue is that would increase public debt significantly (theoretically) and could be a problem when trying to pay it off in the future. They previously relied upon (more than India and about as much as China) foreign direct investments. Now that has changed and they need to be more like India or other countries where they relied upon themselves for investments.
Economy isn't a science. It is a scheme of things. And in today's world, none of it really makes sense and a lot of it is BS. Technically speaking, US Dollar should be worth as much as a Zimbabwean dollar. Same goes for Euro. Why? Cause they have done Quantitative easing multiple times in 1 year (4+) and it is pretty much has gone to the point that it is simply printing money to survive. But their currency is still traded, and people still buy it, and what not. Russia on the other hand is trying to play an honest game in a dishonest world against dishonest countries. China lies significantly about its economy, its development, its investments and its stocks. But seems to work quite well for them. US government buys tons of bonds and stocks from Japan and Vise Versa in order to help keep themselves afloat. Russia? They go into Austerity and try to do it honestly. Many European countries try to do the same while the bigger EU countries like UK for example, is like US and lies about its economy. How will Russia win in this? It wont. At least not in the pretext you think it will were it will be $10T dollar GDP or something. Instead, it will win in the sense that it will be a far more secured economy (so long as they keep up with current plans) and they prevent outside capital from being a burden on them like it has in the past. In this case, they will be secured from foreign capitals market fluctuations and untouched in massive depressions like Iran was untouched in 2008 market crashes. This doesn't mean Russia should just stop trading with other countries, but it means that Russia will have to separate the banks from the IMF and foreign entities. It will have to be an economy that is more self reliant than not so that if trade stops, they can still produce the goods needed, and they will need to bunker down and invest properly without going into massive debt or any debt at all. This method will take years if not decades to show major results, but it is the only method Russia has at the moment. Unless China and India do massive investments in Russia (which is indeed happening and I praise them for it) in the form of manufacturing end products using Russian resources, and meant for export, not just domestic consumer demand (which is in reality what is happening. Hyundai as an example is pumping up production of vehicles manufactured in Russia for the middle eastern market as an example).
Oh, and what will also make them strong is less reliance on exports and more on domestic consumer demand, which is pretty much what already is the case (the only problem is, a huge portion of the budget is reliant upon export). Exports will simply help bring in more money for budget and more for domestic investments.
That also said, the reserve funds and what not will have to be replenished by trade surplus and what not. Since Russia still exports way more than imports, they have a trade balance in the positive. In the billions. Recently Canada was being praised under King Harper (dbag) that we have a surplus in the hundreds of millions. Still a lot less than Russia's trade surplus and you don't hear a peep of appraisal over it.
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