The feared new international economic crisis stemming from the European states’ debt burden will have much less impact on Russia than before, analysts said on Thursday.
Before the 2009 financial turmoil, Russian banks and companies borrowed lavishly in foreign currencies while the ruble was strengthening on the back of rising prices for oil, the country’s key export. But the crisis, triggered by the demise of U.S. giant Lehman Brothers, deprived the market of confidence and Russian banks of liquidity. They also found themselves facing foreign debt repayments in conditions of a weakening local currency.
In 2011, international scares persist – Standard Poor’s cut the U.S. rating from its top level of AAA, something which no one could ever think of before, the States are running huge deficits and recalcitrant Republicans resist rescue measures put forward by the administration.
And there is also the risk of serious further troubles in the eurozone with a looming default of Greece and more voices suggesting either a full breakdown of the union or pushing weaklings out of it.
“The most likely scenario shows that some countries will fail to stick to the Maastricht treaty terms and leave the eurozone,” said Troika Dialog analyst Alexander Ovchinnikov, referring to a document which sets out limits for inflation, budget deficit, state debt to gross domestic product ratio and some other terms for EU member states.
The imminent development is Greece’s default. “It would be a huge blow for the European banking system,” he said.
Aleksandra Evtifyeva, an analyst at VTB Capital, said that Russian banks had learned well the lessons of 2009, when they had more liabilities in hard currency than assets.
“Now banks have more hard currency than rubles,” she said.
State finances are unlikely to be shaken by the euro crisis, says Anna Bodrova, an Investcafe analyst. She says that Russian holding of euro-denominated assets were insignificant with the bulk of funds put in U.S. paper.
“The faith in the Eurozone has not become stronger since the 2008 crisis, while faith in the United States has not been shaken,” she said.
She also said that the central bank continued buying gold to hedge European risks.
Russian investment is U.S. Treasures stood at a modest $110 billion this June out of a total $5.5 trillion issue, according to the U.S. Treasury Department. The investment shrank from $128 billion a year ago.
Evtifyeva said the Russian budget was unlikely to suffer either because the price for oil, the country’s key export and the source of budget revenue, is supported by the turmoil in the oil-rich Arab world with OPEC-member Libya halting its daily output of 1.3 million barrels.
“We are optimistic about commodities. Even if international gross domestic product growth slows down to two percent from four percent, it will not affect the oil market as supply is much lower now because of events in Libya,” she said.
Demand for another Russian staple export item, metals, is strongly supported by China, which accounts for 90 percent of international demand for iron and 40 percent for copper.