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27 Jul, 2011 07:57

The U.S. debt impasse and Russia

With global market becoming alarmed at the political impasse preventing a lifting of the U.S. debt ceiling Business RT spoke with Anton Struchenevsky, Senior Economist at Troika Dialog and Alexander Morozov, Chief Economist at HSBC
The U.S. debt impasse and Russia

RT: How will turmoil on global markets, stemming from US debt ceiling negotiations, affect Russia?AS:“There are two sides of the coin. On the one hand, the US debt issue poses a threat for all developing economies, including Russia, as dollar goes down and foreign investors take their money out of the country. But on the other, a weaker dollar increases revenues from Russia’s commodity exports, which will provide for a positive trade balance and help to cope with a budget deficit.”RT: How does the situation today differ from what we had before the 2008 crisis?AS:“In fact, this time Russia is in far better position than it was in 2008. In the first half of that year there was massive capital inflow, which was sharply replaced by an outflow when the crisis burst. Dollar was going up and oil prices were falling. This time the situation is quite the opposite – investment flows are weak and dollar goes down. So, Russia will be affected in case the US economy defaults, but commodity revenues will help the country perform better than the rest of the world. ”RT: How big an impact will it have on Russian equities?AS:“Sure, it’ll slow down Russia’s equity market, but with the oil price remaining above $100/bbl investors will come back to the market in the end.”RT: How will turmoil on global markets, stemming from US debt ceiling negotiations, affect Russia?AM:“Basically, I think that a technical default in the United States has little chance of happening. Anyway, if it does happen, a global recession similar to that in 2008 might burst. But, I repeat, to my mind, it’s highly unlikely.”RT: Do you think Russians should convert their dollar savings to some other assets, Roubles, for instance?AS:“I wouldn’t recommend that, frankly. Certainly the USA and Europe have their problems but so does Russia, with high inflation remaining the main economic concern. So, my general advice would be to diversify among major world currencies. Today many investors prefer precious metals, especially gold, and currencies of countries the less affected by the current turmoil – Swiss Franc, Canadian and Australian dollar, for example.”