Summary: Is Russia on the brink? Image Source: Jeremy Nichol Ever since oil prices collapsed folks have wondered when Russia would follow. After all, falling oil prices have led to a fall in the Ruble. In 1998, the Ruble’s collapse caused a financial crisis. Isn’tanother one just around the corner? Well, this isn’t your father’s Russia. Back then Russia was running twin fiscal and current account deficits. They had to borrow just to keep their economy going. When the Ruble fell, their debt became unsustainably expensive. Default and economic collapse were all but inevitable. Value of Ruble in Dollars. Source: Bloomberg By contrast, until recently Russia has run a budget surplus. Their public debt is less than 20% of their economy—and most of that is denominated in Rubles. They’ve also been running a trade surplus, so they have substantial foreign reserves. Since Putin came to power in 2000—just as oil started rising—most Russians credit him with fifteen years of economic expansion, following decades of stagnation and decline. The current use of economic sanctions to pressure Putin to give up his military adventurism is a dangerous game. As their economy stalls, he could use additional foreign escapades to distract the public from problems at home. Russia is like a homeless man with a machine gun. They’re not a major power. But it would be a mistake to ignore them. Douglas R. Tengdin, CFA Chief Investment Officer Phone: 603-224-1350 Leave a comment if you have any questions—I read them all! Follow me on Twitter @GlobalMarketUpd www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net
