tag:blogger.com,1999:blog-25230932.post5463719079712937987..comments2023-10-06T10:10:06.982-04:00Comments on La Russophobe: Annals of Russian Snake OilLa Russophobehttp://www.blogger.com/profile/05672264388217953086noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-25230932.post-73139364428601891772007-08-08T17:45:00.000-04:002007-08-08T17:45:00.000-04:00The term "net capital inflow" has a nice ring to i...The term "net capital inflow" has a nice ring to it, sounds like investment, but in reality can mean borrowing a lot of money that will have to be repaid with interest <BR/><BR/>There is a telling article from businessweek.com entitled "The Rush to Invest in Russia" that was published January 20, 2006 that spells out the dangers of this "inflow". According to the author: "So where is all the money going? The Central Bank's data show that loans to Russian companies accounted for the bulk of the inflows. These were worth some $39.4 billion, up from $16.2 billion in 2004. Russian banks, too, were active in borrowing abroad, raising some $18 billion, or $5.3 billion more than they invested overseas. In comparison, portfolio investment amounted to just $3.1 billion -- still a big improvement from $800 million in 2004. An impressive wave of IPOs by Russian companies abroad was one factor behind the rise. <BR/><BR/>The growing share of loans could be grounds for caution, though. Although a healthy sign of bankers' confidence in Russian borrowers, bank lending generally brings fewer benefits to a recipient country than other forms of investment, and may even be risky if debts get out of hand. "There's a lot of debt being taken on which wouldn't be taken on in less-good times," says Breach. What's more, notes MDM's Westin, the surge in foreign borrowing partly reflects the weaknesses of Russia's own underdeveloped banking and financial systems. <BR/><BR/>More worrying than the build up of debt is that much of the new loans are going to state companies rather than to the private sector. For example, last year Russian gas concern Gazprom took out a mammoth $13.1 billion loan from a consortium of Western banks in order to finance its acquisition of the previously private Sibneft oil company. Likewise, state oil company Rosneft borrowed $6 billion from state banks, indirectly financed from abroad, to fund its controversial purchase of Yukos' main production unit. <BR/><BR/>STRENGTHENING GOVERNMENT. . That's why not all Russians are impressed by the healthy balance-of-payments data. Skeptical local newspapers argue that foreign borrowing is being used to finance creeping renationalization of the Russian economy -- a worrisome trend. Russia's finance ministry has also criticized the growing appetite of state companies for foreign loans. Last year finance minister Alexei Kudrin called for caps on the amount that state companies could borrow abroad."<BR/><BR/>In other words, the "inflow" can be a very negative thing depending on where the money is being spent and on what. The "inflow" can be a good thing if it is an investment that will allow you to generate more wealth in the future. An "inflow" is bad if it will leave you with a whole lot of debt and nothing to show for it. If anything, the Russian inflow seems to fall into the second caterogy as opposed to the first.Dr. Michel Bouchardhttps://www.blogger.com/profile/17341020514234182260noreply@blogger.comtag:blogger.com,1999:blog-25230932.post-19062599443234621812007-08-08T16:08:00.000-04:002007-08-08T16:08:00.000-04:00Actually, you can't use German Marks or French Fra...Actually, you can't use German Marks or French Francs anymore. They are on the Euro, but point taken.Anonymousnoreply@blogger.com