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14 Oct, 2008 02:39

Global coordination to financial market chaos still carries risks for Russia

Russian President, Dmitry Medvedev, has signed a package of laws aimed at stabilising the Russian financial system. This follows attempts made by worldwide governments to get the global economy back on track.

There has been some respite from the turmoil on the global financial markets, with international stocks jumping at the beginning of the week, after further international moves to rescue banks and prevent a meltdown of the global financial system. British Prime Minister Gordon Brown, who’s government has led the way with its response to the crisis, made it clear that he thought strengthening the balance sheets of British banks was essential.

“Theres not a bank in the world that has not been affected by the global storm, some more than others.  But at this time of uncertainty we want British banks to be able to lead the world, and to be as strong and well capitalized as any banks in the world.”

The British government will pump around £37 Billion into four of the country's leading banks, in a bid to shore up the financial system.  The Spanish Prime Minister says his country will guarantee up to €100 Billion with a bank bond issue.  The announcements follow other measures adopted by governments around the world, including Russia, to reinforce the financial system, and to prevent the chaos on it from flowing through to other economic sectors.

This united approach to tackle the financial instability has been received positively, at least initially.  However many experts say the relief could be short lived. Indeed, after a positive start to Monday trade the Russian markets continued to slide.

Igor Prokhaev, Analyst at Troika Dialog says the interdependence of the global financial markets means that the international steps to head off financial collapse need to work, and that if they don’t there could still be a significant downside for Russia.

“The coming days and weeks will see the situation in the developed countries clarify.  If we don’t see the result of the measures which are being taken right now, which are proposed right now, we can see a serious drop and meltdown in the market, and that will definitely hurt Russia as well.”

Meanwhile applications to Russia's state-owned Vnesheconombank for debt refinancing have exceeded the $50 billion allocated by the government. And even if the refinancing and bank guarantee plans take effect, Russia is likely to suffer the after-effects of a prolonged recession in its main trading partner nations.

Britain bails out its banks as Medvedev calls for change to global financial architecture
Panic engulfs global markets