Stock markets around the world continue to fall despite the Bush Administration’s preemptive strike before the New York Exchange opened on Tuesday. The Federal Reserve tried its own version of shock and awe as it cut interest rates a “dramatic” 0.75 percent. The monetary defibrillator worked for a bit. The New York Exchange didn’t dive as much as expected. The Dow shaved off only 1.5 percent of its value. Few however believe that the rate cut will do much to plug Recession’s bullet holes. According to the Financial Times, economists at Davos are unconvinced the monetary shock will “succeed in boosting a sickly US economy.” Stephen Roach of Morgan Stanley called the Bush response “a dangerous and reckless and irresponsible way to run the world economy”. One can’t help note the irony when the free marketeers cry to the State for help in managing a floundering economy.
Back in Russia, the Fed’s jolt sent markets on a “rollercoaster ride.” The RTS dove 5.8 percent, climbed back to the black by afternoon, but then dipped again before closing. The net loss was 1.6 percent for the day. The MICEX was in the next car. It too rode the market’s wave. It dropped 8.7 percent, but climbed to end with a net loss of 1.1 percent.
Russian investors are not worried. They see Russia’s economy as still too detached from “Western woes.” Maybe. Considering that Russia’s economy is based on the high rates of oil and gas consumption in Asia and Europe, one has to wonder if dives in those regions will eventually hit Russia down the road. The fact that Russian markets fell with the rest of the world must worry some. So much so that Finance Minster and Deputy Prime Minister Alexei Kudrin made a point to speak up at Davos and reassure the world of Russia’s stability. “In the past few years Russia has managed to achieve economic stability piling up substantial international reserves, which play the role of an airbag. I believe Russia will soon be the focus of attention as a haven of stability.” A survey cited by the FT suggests that 73 percent of Russian CEOs agree and are fully confident that 2008 will bring growth in revenue. This is compared to 36 percent of American CEOs, 31 percent of Japanese, 43 percent of British, and 28 percent of French. Only CEOs in China (73 percent) and Brazil (63 percent) join their Russian counterparts in having a positive outlook for 2008. Well, we are only 23 days into the year. We still have a lot of time to see if that confidence pans out.
It’s true, as some have pointed out, that Russia doesn’t have many of the features of the current global economic slide. It doesn’t have much of a financial system, no widespread mortgage system, very little by way of a credit system. Yet, Russia’s so-called detachment from the global economy has failed to shield it from global economic slumps of the past. Russian economic “detachment” didn’t save it from the pinches of the global economic crises of the 1870s, 1890s, and 1970s. It was only during Stalin’s tripartite “Revolution from Above” did Russia escape the pangs of global economic slide.
The question now is where will Russia present economy be when all is said and done. And so the waiting game begins.