Vincent Varisano Russia's Counter-Sanctions Spark a National Cheese Revival

Vincent Varisano,

This article originally appeared in The Guardian

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Feta from Vologda and camembert from Krasnodar are on the shelves, but sustainability is not key for big producers. Could the emergence of local, organic producers teach the sector some lessons?

A year after Russia banned the import of dairy, meat and fish products from European and other western nations in response to sanctions against it over its actions in Ukraine, a wide array of cheeses is back on store shelves. Shoppers can expect to find the usual variety, but may be surprised to see mozzarella from Tver, feta from Vologda and camembert from Krasnodar.

Russia swoops on gang importing £19m of banned cheese from abroad

The negative impact of the sanctions is clear. Images of contraband western foodbeing incinerated in Russia have led to condemnation in a country where nearly16% of the population live below the poverty line. And the European dairy sector, which last year exported around €2.3bn (£1.7bn) worth of dairy products to the country, is starting to feel the hit. But as the government pushes for a more self-sufficient agricultural sector, and Russian cheeses come into their own, could there be positive consequences for sustainability in the cheese sector?

The rise of Russian cheese 

“When sanctions were first introduced, the feeling was, ‘Thank goodness, a breather’,” says Andrei Danilenko, chairman of Russia’s National Association of Milk Producers. “The Russian consumer has always been fussy in that basic cheeses can be produced in Russia, but real cheese has to be produced in Italy or France.” 

Many cheese producers were “on the edge of survival”, he says, as the market was heavily weighed towards imports. The rouble’s devaluation in the last year has made dollar-based imports twice as expensive.

A goal of Vladimir Putin’s newly appointed agriculture minister Alexander Tkachyov, is for Russian products to replace all food imports within a decade. In the last year, cheese made in Russia has increased by almost a quarter, while imports dropped more than ninefold, from 385,000 tonnes in 2014 to 41,000 tonnes in 2015, according to analysis by the National Association of MilkProducers.

Russian supermarket chains, lacking alternatives, have come after national cheese makers saying, “Give us cheese”, says Danilenko. Large cheese makers, such as St Petersburg-based Neva Cheese, have reaped the benefits of the import ban. Neva Cheese’s Sirtaki feta is now the country’s best-selling feta brand.

Local production, with shorter supply chains over which producers have more control, can help a sector become more sustainable. But the picture is complex in Russia. The country produces only 60% of the raw milk needed for dairy products, according to Danilenko. Some Russian cheese makers have resorted to “imported dry milk, dairy proteins and unfortunately there are those who use palm oil which is not supposed to be used”, he adds. 

Palm oil can be used as a cheaper alternative to dairy, and aside from its environmental impact, it is not considered an ingredient for “real” cheese.

The local organic movement

Bigger Russian businesses may be able to learn important lessons from small, local cheese producers who are seeking to promote organic produce with local ingredients from sustainable supply chains.

Giulio Zompi, an Italian restauranteur from Verona who has lived in Moscow for 12 years, makes mozzarella, ricotta and burrata for his Moscow deli. “We made a small logo, ‘Made in Russia by Italians’, as a kind of customer guarantee,” he says. And LavkaLavka, a farmers’ co-operative co-founded by Boris Akimov in 2009, aims to connect consumers with local producers and introduce the idea of organic to Russian consumers.

Akimov believes the sustainability of the Russian dairy sector depends on making smallholder goods marketable.

“Before the revolution, our food culture included a lot of dairy,” he says. “People in modern Russia know what mozzarella is but have forgotten what ryazhenka [soured, baked milk] is. There is a cheese fear among Russian farmers – we need to recover traditions.”

Six years ago, Akimov started to explore farmers’ markets, searching for “tasty, natural Russian food”. It started as a hobby, which then turned into a business that today includes a farmers’ cooperative with 200 organic farmers, five stores, a restaurant, a cafe and a vegetable box delivery business.

 

Russia is a haven for would-be organic farmers as land is relatively cheap and abundant, negating the need for many intensive agriculture inputs, yet to date there is no national organic certification. LavkaLavka is the first company in the country to create its own organic certification.

“We verify our farmers every year,” says Akimov. “I can’t say the system works perfectly. Some farmers ask ‘Why don’t you believe me?’ when we come to recertify them. Also, consumers don’t always understand, they think it’s just advertising. We need time to make this work.”

LavkaLavka sells camembert and chevre as well as Russian favourites such as cottage cheeses, curd and ryazhenka, traceable back to individual farmers who are profiled on the company’s website.

While LavkaLavka’s organic products are out of reach for most Russians, prices will be 30-40% lower in the farmers’ market it is opening in December in the Mega Khimki mall, one of eastern Europe’s biggest retail centres and home to many big-box retailers. “Our spirit is egalitarian, we don’t want to sell only to rich people,” Akimov says.

As a result of a drastically altered market, according to Danilenko, Russian consumers are now more willing to consider Russian-made cheeses. Local producers like LavkaLavka hope to use this new landscape to put organic, sustainable cheese on the menu.

via Vincent Varisano, Russia's Counter-Sanctions Spark a National Cheese Revival

Vincent Varisano Japan Bank: US Sanctions Could Lead to Direct Ruble-Yen Swaps

Vincent Varisano,

 

September 3, (Sputnik) - The Japan Bank for International Cooperation's senior managing director has said that the establishment is turning to Ruble-Yen swaps, as using the US dollar in transactions is difficult because of the Western anti-Russia sanctions.

Japan Bank for International Cooperation (JBIC) is turning to currency swaps as using the US dollar in transactions is difficult because of the Western anti-Russia sanctions, the bank’s senior managing director said answering a question from Sputnik.

“We’re now studying that [the effects of ruble devaluation]. We need some of the swap arrangements with the local banks. We are elaborating opportunities with Russian banks such as Gazprombank, VTB, VEB… Because of the US sanctions, we cannot use the US dollar anymore, we have to switch to other currencies,” Tadashi Maeda said on Thursday, speaking after a conference at the Eastern Economic Forum (EEF) in the Russian city of Vladivostok.

Commenting on the usage of the ruble in swaps, he noted that its interest rate is very high at the moment and this could “hinder” the swaps.

China launched swaps and forwards between the yuan and the Russian ruble in December 2014, making the ruble the 11th currency in the yuan swaps trading.

In October of last year, the Bank of Russia and the People's Bank of China reached a three-year agreement on currency swaps worth more than $2.4 billion.

In April, Chinese Foreign Minister Wang Yi said that he expected the overall trade turnover between China and Russia to reach $100 billion in 2015.

Russia is currently holding the Eastern Economic Forum (EEF) in the city of Vladivostok.

This is the first time that Russia has decided to hold a forum in the Far East since the introduction of Western sanctions over Moscow's alleged involvement in Ukraine's internal conflict, something that Russia has repeatedly denied.

China is sending an official government delegation and members of its business community to the EEF.

 

via Vincent Varisano, Japan Bank: US Sanctions Could Lead to Direct Ruble-Yen Swaps

Vincent Varisano Gazprom Keeps Scoring Goals - Revives German Asset Swap Deal

Vincent Varisano,

This article originally appeared at Natural Gas Europe

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Gazprom scored some goals also on Friday. In a few hours, it signed Shareholders’ Agreement on the Nord Stream 2 project; agreed with Austria’s  over the importance of long-term cooperation; and more importantly, it signed an agreement to close the deal on the exchange of assets with ’s subsidiary Wintershall Holding.

‘Today in Vladivostok as part of the Eastern Economic Forum Alexey Miller, Chairman of the Board of Gazprom, and Kurt Bock, BASF’s Chief Executive Officer, signed an agreement to close the deal on the exchange of assets between Gazprom and the company Wintershall Holding GmbH’ reads a note released on Friday.

According to the Wall Street Journal, the surprise U-turn underscores the challenge multinationals face navigating the standoff between Russia and the West over separatist violence in Ukraine.

The multibillion-euro asset swap with Germany’s BASF seemed dead in December 2014. BASF will expand its oil and gas production, while exiting gas trading and storage. Gazprom will control a jointly operated European gas trading and storage business, including the biggest underground gas storage facility in western Europe.

Meanwhile, Gazprom also reached other agreements. Miller met with OMV CEO Rainer Seele. If the deal is concluded, OMV will acquire a 24.98 per cent stake in the  in the development of Areas IV and V of the Achimov formation of the Urengoy oil, gas and condensate field in Russia, in exchange for a participation in assets of OMV. 

“This agreement is another step towards cooperation along the entire value chain with Gazprom. We are importing gas from Russia for our European customers. We are investing together into the security of supply realizing the Nord Stream 2 project and we are now extending our trustful partnership towards the production of natural gas in Siberia,” Rainer Seele commented.  

As said by Seele, Gazprom signed a Shareholders’ Agreement on implementation of the Nord Stream 2 pipeline project with BASF, , ENGIE, and Shell. 

“Nord Stream 2 will double the throughput of our direct, state-of-the-art gas supply route via the Baltic Sea. It is important that those are mostly the new gas volumes, which will be sought for in Europe due to the continuous decline in its domestic production.The fact that the global energy majors participate in the project bespeaks its significance for securing reliable gas supply to European consumers,” Miller commented.

via Vincent Varisano, Gazprom Keeps Scoring Goals - Revives German Asset Swap Deal

Vincent Varisano Volkswagen Launches $250 Mln Auto Factory in Russia

Vincent Varisano,

KALUGA, September 4 (TASS) - Volkswagen Group Rus launched the 250 million-euro auto engine factory in Kaluga in central Russia on Friday.

The facility is located on the territory of the Grabtsevo technological park close to the Volkswagen auto factory.

“The enterprise will produce Series EA211 gasoline-powered engines with a capacity of 1.6 liters for Volkswagen Polo and Skoda Rapid cars produced at Volkswagen’s Kaluga auto plant. A part of engines will be supplied to the Nizhny Novgorod factory for Skoda Octavia, Skoda Yeti and Volkswagen cars,” Technical Director of Volkswagen’s new factory Vitaly Nakhtigal said at a presentation of the new facility’s products.

The new facility will produce 150,000 engines a year and “will use the modern technology of metal stock’s dry machining,” Nakhtigal added.

Volkswagen Group Rus has been among the first foreign companies that has built and launched its own engine-making plant in Russia.

From 2016, 30% of cars produced in Russia should be equipped with Russian engines.

“We’re both increasing the percentage of our cars’ localization and making them more affordable for our Russian buyers,” Volkswagen Group Rus General Director Marcus Ozegovic said.

“Despite all economic difficulties, we have fulfilled all the obligations and this will become a true Russian product and an example of localization in Russia,” he added.

Local supplies for Volkswagen Group Rus are expected to reach 50% with the launch of the new engine-making facility in Kaluga, the company said earlier.

The technological process at the new enterprise will be fully automatized and use 13 robotic systems produced by German, Slovenian and Italian hi-tech companies.

The new gasoline-powered engines will meet Euro-5 environmental standards.

“The region has invested 34 million euros in creating the factory’s infrastructure,” Kaluga Region acting Governor Anatoly Artamonov said at the ceremony of the factory’s launch.

Volkswagen’s Kaluga auto plant produces Volkswagen Polo Sedan, Volkswagen Tiguan and Skoda Rapid cars. Its annual capacity is 225,000 cars a year. Volkswagen Group Rus has been manufacturing cars in Kaluga since November 2007 and employs about 5,000 people.

via Vincent Varisano, Volkswagen Launches $250 Mln Auto Factory in Russia

Vincent Varisano Russian Truck Makers Boom Thanks to Sanctions, Cheap Ruble

Vincent Varisano,

This article originally appeared  in Russian at Politrussia, translated by South Front

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Everyone knows that the Russian automotive market today is struggling through the crisis. Nevertheless the term “import-replacement” is most applicable to the Russian automotive world despite its complicated situation.

At least when it comes to trucks – Russian GAZs and “Urals” are steadily stealing the show. It’s important to note that from the beginning of the year, Russian truck market that’s most sensitive during a crisis fell by 60% during the 1st half of this year. Overseas truck brands were hit the hardest, some of which were forced to stop production in Russia. 

Brotherly Belorussian industry is not experiencing the best times either. The demand for Belorussian MAZ somewhat decreased as well. What we are witnessing is a substantial decrease in controlling share of the Russian market by western truck producers. Meanwhile the share of market control by Russian producers has significantly increased. Today “KamAz” and “Ural” together control nearly 70% of the market! 

The Rouble devaluation in 2014 and the continuous wreaking of the Rouble forced western automotive companies to leave the Russian market, meanwhile the Russian producers filled the lacuna the crisis created. Russian producers always created serious competition in price/quality ratio when it came to trucks. Russian trucks have always been famous for their ease of use, ease of exploitation and being easy to fix all for a low price.

The government played a big role in helping KamAz gaining a large share of the automotive market, at least according to KamAz representatives. At the end of March, Prime Minister Medvedev noted poor state of affairs in the Russian automotive industry during the government general assembly. He noted that the government will provide automotive industry funds to support it, including the industry in Tatarstan, Samara region (AvtoVaz) and in other regions. “Naturally, larger industries will receive greater support as that’s where economic crisis hit the most. That’s where the situation is almost critical. I am referring to the automotive industry… it is because of this these subjects were selected and so the respective targets will receive greater support. These are “KamAz”, “AvtoVaz”, “Altaivagon”, “Tverskoi train-carriage factory” – Dmitrii Medvedev noted.

Now lets crunch some numbers. “KamAz” and “Ural” took up a greater portion of the Russian market because their sales did not suffer as much as those of their Western counter-parts. “KamAz” reduced its sales by 50% to 7,7 thousand units. In terms of its profit, “KamAz” received more than 30 billion roubles in revenue, that’s one and a half times less than what the company received last year.

“Ural” truck production has been reduced by 8%, to 2,4 thousand units. Meanwhile the production of western truck brands in Russia has been decreased by 76%. Companies such as Volvo, Scania, MAN, Mercedes-Benz and others have nearly disappeared from the Russian market. Experts predict that in the next 5 years, it is very likely that western companies, if they do not disappear from the Russian market, they will occupy only around 20-25% of the Russian market. It is predicted that Western brands are very unlikely to gain higher market share than that.

However its not the western brands that are hitting rock bottom at the Russian market, it’s the Belorussian “MAZ” who’s sales have slumped by 84%. “MAZ” sold only around 600 trucks on the Russian market, that’s around than 4% of the market. Russian industry has taken over around 70% of the Russian market, as mentioned above – “KamAz” has increased its share by 10% to 54,3% of the market, “Ural” from “GAZ” group increased its presence by 9.7% of the market. Thus “Ural” controls nearly 17% of the Russian market.

GAZ group explains its high share of the automotive market by the fact that the Russian automotive market shrank more than the actuall decrease in “Ural” sales. Moreover GAZ group released new “Ural” model, “Ural-M” its release has already been realised in first half of 2015.

In terms of western producers, their market share has decrease to 24%, even worse their share is expected to decrease due to Rouble and further financial instability in the Russian Federation and on top of that domestic consumers prefer national products. A number of international companies have stopped production by this time. Like Volvo factory in Kaluga, paused production of its 15,000 planned trucks in February 2015. Its very likely that the production in this factory is unlikely to continue. Mitsubishi productions we halted in Naberezhye Chelnye, a bit later in April. The companies announced that their productions are likely to resume in September. At the same time the factories in Saint-Petersburg belonging to Scania, MAN and Daimler in Naberezhye Chelnye continue their production.

Modernised bonnet version “Ural-M”

KamAz productions are not slowing down either; infact the company increases its capabilities for the upcoming years, irrespective of the tough financial times. There is a high demand in the Kamsk factory. Demand is high in the government sector as much as in the commercial one. Fairly recently, the shores of Kamsk have released fresh 46 specially outfitted trucks for the emergency services. Kamsk truck production has exceeded all expectations, instead of trucks expecting to aid the emergency services in October this year; they fulfilled their ranks already this month. Its nice to know that our industry can still impress us. That’s not all; the enterprise has increased its minimal wage by 2.5% to 6120 Roubles. It’s not that much, but the trend is more than welcome.

At the end of July, KamAz stated that it will extend its working days in August. They explained this with a significant increase in orders for their products. “First working week will be a 5 day working week, from 3 to 7th August. Afterwards, most of our workers will take their planned paid leave as was planned last year. Leave taken by our workers, from 10th to 23rd August will be used to modernise our equipment use in our 24hr production schedule. Last week of August is planned to have 4 working days only from 24th to 27th August.” – Company announced.

Experts explain the success of Russian producers by the fact that Rouble devaluation and its repercussions force consumers to buy less expensive machinery. The government support influences high demand in Russian producers, government programmes make Russian producers price 10% cheaper along with other loans the government provides. Also the government orders play an important part in the high demand. On top of that the government is subsidising the acquisition of motor vehicles.

Our truck giants are experimenting on remote-controlled trucks; they are researching these monsters in their respective experimental departments. The leader in this field is KamAz is working on these systems jointly with “VIST Group”. In May, KamAz saw its first model of the remote controlled prototype based on KamAz 5350, its saw it’s first testing in Naberezhnye Chelny and on a special site in Moscow emergency services. It was first planned to start releasing this model in 2025, however circumstances are such that it’s very likely this model will be produced earlier. Now the machines are expected to be released by 2020. More than 17 billion Roubles are invested into the project. AvtoVAZ and GAZ are following KamAZ’s footsteps in developing autonomous trucks. Only time will tell how successful their developments have been.

The first Russian remote-controlled truck model is based on KamAZ 5350

Despite devaluation and other market related hardships, Russian heavy automotive industry is not going to surrender. Instead, it avoids any drama and tragedy in its course, it stands firm and endures the hardships. It is important to note that the government has been swift to provide the necessary support for Russian heavy industry. The Russian industry has shown itself in a bright light by taking the initiative and taking a respective share of the market in difficult circumstances. The western producers suffered greately in the Russian market because of the western sanctions, however this gives the Russian industry a once in a lifetime opportunity to become the dominant automotive industry in the post-USSR territory. The Russian industry is making a comeback!

via Vincent Varisano, Russian Truck Makers Boom Thanks to Sanctions, Cheap Ruble

Vincent Varisano Russia's First Stock Exchange Now 20 Years Old: It's Been a Crazy Ride

Vincent Varisano,

On September 1 traders celebrated the birthday of Russia's dollar-denominated stock exchange, the Russian Trading System (RTS), which was established exactly 20 years ago on September 1, 1995 with 100 listed shares and the index set at 100.

In 2006 the ruble-denomincated MICEX exchange was added to the mix – the home of the all-important Gazprom local shares – but the RTS remains the key index for most foreign investors, who used to make up half the market’s capitalisation, mainly as deals could be settled in safer domiciles like Cyprus.

The exchange, with just under 200 listed stocks, has often been the best performing index in the world or the worst, so it has been hard to make money consistently. Certainly with valuations depressed to rock bottom at the moment, few portfolio investors believe in Russian stocks and the market has suffered some of the heaviest outflows amongst the emerging markets in recent months.

The index set an all-time low in the wake of Russia’s first big financial crisis on August 17, 1998. The index bottomed out at 38.53 on 5 October 1998 after Russia defaulted on its sovereign debt.

Timing, rather than stock picking, has been the key to making money on the RTS and investors brave enough to plonk some money into the market at the end of 1999 would have enjoyed a ride to the market's all time high of 2,488 on 19 May 2008. That’s a hefty 6,357% price return in less than 10 years, or 54% annualized, according to VTB.

“The longest bull market lasted for eight consecutive months, ending in May 2002. The longest decline (also eight months) ended in January 2009, when the all-time low of 498 was posted on 23 January 2009,” VTB said in a note celebrating the birthday. “The sharpest daily moves in both directions were both achieved in the autumn of 2008, with a 22% increase on 19 September followed by a 19% drop on 6 October. The biggest monthly moves, though, were seen in the index’s early years: it was down 56% in August 1998, but grew the same 56% in December 1999. The most recent lows were achieved during December’s currency crisis (bottoming at 629 on 16 December). The index now trades at 834 points.”

 

via Vincent Varisano, Russia's First Stock Exchange Now 20 Years Old: It's Been a Crazy Ride

Vincent Varisano Market Volatility - US Federal Reserve Dithers: Russia Stays Calm

Vincent Varisano,

The thesis that it is US dithering about interest rates and not events in China that is behind the recent market volatility has received strong confirmation from the events of the last week.

At the start of the week financial markets - Wall Street included - plunged on fears of a September rate increase.

An article however had appeared in the Financial Times over the preceding weekend, written by the former US Treasury Secretary Larry Summers (a contender for the post of Chair of the Federal Reserve Board before Janet Yellen’s appointment last year).

In the article Summers said raising interest rates would be a dangerous mistake.

On Twitter Summers went further still - calling for more quantitative easing (ie. electronic money printing).

As news of Summers’s comments spread, the markets recovered.  

They got a further boost when on Tuesday William Dudley, a member of the Board of the Federal Reserve, also appeared to damp down prospects of a rate increase in September.

The markets responded with a spectacular recovery. In the last two days of the week oil prices surged by 15%.

Come the weekend and the pendulum in the policy debate in Washington swung back again. The monetary hardliners (who probably include Yellen) reasserted themselves, and the signals from the Federal Reserve Board went into reverse.

Comments made on Friday by Stanley Fischer, the Federal Reserve Board’s Vice Chair, suggested that an interest rate increase in September had not been ruled out after all.

This happened in conjunction with the publication of revised statistics of the performance of the US economy in the second quarter. These appeared to show the US achieving much higher growth than previously assumed.

Those who follow such things closely will know that there is a longstanding debate in the US about the reliability of US statistics.  

I am not qualified to comment on this debate. All I will say is that because the reliability of the statistics is widely doubted, when a revision of the sort we have just seen comes along there is inevitably suspicion that it has appeared for some purpose - in this case to justify a rate increase in September. Whether true or not, it is what many people believe, and it has an effect on what they do. 

Renewed concern the Federal Reserve Board will raise rates in September has had the predictable effect on the markets: they are all down, including oil which as I write this has fallen by 2.7% on the day.

The market volatility is causing concern around the world, including of course in Russia.

At the end of the last week the Russian government convened a meeting to discuss the volatility.  

The calm comments by the participants - in particular of Finance Minister Anton Siluanov and Central Bank Chair Elvira Nabiullina, which we reproduce below - show confidence that the situation is in hand.  

Siluanov said that he expects oil prices to remain low for some time. He also said Russia may have to adjust part of its budget spending to take account of this. There is no hint here of panic or crisis, just a calm acknowledgement of reality, and of steps being taken to deal with it.

As for Nabiullina, she appears to have no doubts about the underlying stability of the banking system, or of Russian banks’ and companies’ abilities to meet their foreign loan payments.  

Nor is she concerned with defending the rouble at any particular level. Her goal remains what it has always been: reducing inflation.

Achievement of this goal obviously requires the Russian authorities to take steps to insulate the economy as far as possible from the price effects of the rouble’s fall.  Nabiullina says as much.  

The sharp fall in imports already caused by last year’s devaluation, and the ban on food imports from the EU, means that to a great extent this has already been done.

At this point it is possible to make one further important point.

The rouble’s value is closely connected to the oil price, and the rouble’s fall last year was caused by the fall in the oil price.

Whilst this has also been true of the fall the rouble experienced this summer, it is important to say that because Russia is an emerging market economy the rouble would have fallen this summer anyway, even if Russia had not been an energy exporter.

The currencies of all emerging market economies, including ones that are major manufacturing exporters such as Vietnam and South Korea, have fallen this summer.  

Countries like Vietnam and South Korea are not energy exporters, so the fall in the oil prices is not the reason their currencies fell. The reason their currencies fell is because money has shifted from emerging market economies to the US in the expectation of a rate increase there.

It is the expectations of a US rate increase that is also behind the fall in the price of oil.  

It was also the trigger for the fall of China’s admittedly overvalued stock market, as money left China for the US causing the stock market to crash.

When it comes to currency depreciations, China is the big exception that proves the rule. 

Apart from a fractional and tightly managed devaluation, the value of the Chinese currency has held steady, not because China is any less affected by money flows to the US than other emerging market economies, but because China's currency is managed, and the Chinese with £3 trillion of reserves have the financial fire power to manage it.  

In the absence of such management the Chinese currency would have depreciated along with the others - according to some estimates by between 10-15% against the dollar. 

As it is China is believed to have spent around $200 billion to prop up its currency over the last few weeks - a figure that dwarfs the amounts Russia spent to support the rouble during any comparable period last year.

Russia’s currency is volatile not because Russia’s economy is insufficiently diversified. It is volatile because like other emerging market economies whose currencies have experienced similar volatility this summer, Russia’s financial system is small and immature causing Russian companies to look abroad for financing and loans.

Until this changes the rouble will remain volatile however “diversified” the economy becomes.  For this to change Russia needs to strengthen its financial system - something which is happening, but which takes time.

In the meantime, the Russian government has taken the precautions needed to protect the economy from the volatility, and it has every reason to remain calm.

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The following report is taken from the Russian Presidential Website:

“Vladimir Putin: ……….

We are aware of the situation on the Asian stock markets and the international financial currency markets, and the situation with oil prices. All of this has its effect one way or another on our financial market. I would like Mr Siluanov to comment on these developments and give his assessments.

Finance Minister Anton Siluanov: Indeed, Mr President, in the past days we have seen greater volatility on the world financial and commodities markets. We see that stock markets have gone down by about 10 percent, prices of raw materials have also gone down, there has been a weakening of currencies, especially those of the developing countries and especially those that export primarily raw materials. The national currencies of those countries have lost 5 to 15 percent.

The reason, of course, is the increasing unpredictability of the Chinese economy’s growth. The Chinese economy is currently one of the major economies influencing world demand, including demand for raw materials. Among such reasons, we also see the overproduction of oil; there are constant excessive volumes of oil being produced, while demand is not growing at the rate that was expected earlier. We are also witnessing pressure on financial markets, expectations of increased rates from the Federal Reserve System, which, as we know, may lead to a withdrawal of capital from developing markets.

The drop in oil prices is undoubtedly having the greatest effect on the Russian financial market. During the past month, the prices went down by some 20 percent, about 10 percent in the past week alone. This inevitably had an impact on the financial market of the Russian Federation: the ruble lost about 10 percent, just as many other currencies in countries, as I have said, with developing economies; the stock market here has dropped by about 15 percent since early August.

We have already witnessed a similar situation with the exchange rate early this year, but a rise in oil prices then led to a strengthening of the ruble. We should not rule out a repeat of this development. However, analysts dealing with the oil market say the oil price drop may be long term and we need to prepare for such a possibility and work to ensure financial and budget stability.

Of course, Mr President, we will comply with all our budget commitments for this year. This year we will need to use the reserves that we have accumulated, but these reserves are not unlimited, and for next year and the following budget cycle we have to align our commitments with the new macroeconomic situation. The Government is currently working on such proposals and we will present them for your consideration.

Vladimir Putin: Ms Nabiullina, would you like to add anything?

Central Bank Governor Elvira Nabiullina: Overall, I agree with the assessment provided by Mr Siluanov, but I would like to say that the key factor affecting the ruble, which is the price of oil, is volatile. We have already seen this year that it can go up and down: this year alone there was a period when it grew by 23 percent and then dropped by 38 percent. Therefore, we can expect change any minute.

True, our financial system is part of the global system and is not protected from all the existing risks. However, we modelled various scenarios well in advance, knowing that a pessimistic one is possible, so that we could prepare. Thus, for instance, whenever possible we increased our gold and currency reserves to create a long-term basis for our financial stability and to strengthen our safety net.

We have introduced currency refinancing mechanisms. We envisaged a $50 billion limit on loans to banks to avoid excessive pressure on the currency market. We have spent $34 billion of that reserve, and we believe that the remaining $16 billion would be enough. At the same time, we decided that we would not refinance these amounts for banks that have used up their annual limits so they feel more comfortable.

Moreover, we have decided to loosen bank regulation to allow our banking system to adapt. We have curtailed a number of measures because the banks did not need them, and were planning to discontinue more as of October 1. However, now, depending on how the situation is going to develop, we are ready to retain those measures with certain modifications.

The main thing now is for the exchange rate fluctuations to have a minimal effect on prices. I mean that after the drop in the exchange rate early this year we managed to get inflation under control. For 16 weeks, weekly inflation was about 0.01 percent, with the exception of the week when we had our traditional rate increase. Therefore, we will continue in the same way to ensure a further drop in inflation.

via Vincent Varisano, Market Volatility - US Federal Reserve Dithers: Russia Stays Calm