Market Insiders: What keeps Russia buffered from world economic crisis

The impact of the crises in the Euro zone and the United States on the Russian economy will be substantial but not deep.

Oleg Vyugin, chairman of the Russian National Association of Securities Market Participants, believes the two main dangers the crisis in Europe and the United States poses to the Russian economy are the dampening of oil prices and the outflow of capital. However, the money-printing policies of the Federal Reserve and the ECB should mitigate both these issues and Russia shouldn’t expect any serious threats to its economy.

Vyugin also predicts the ECB will continue buying bonds of countries unable to pay off their debts until the major European players reach an agreement on what should be done. He also says that if the ECB buys most of the sovereign debt that needs to be redeemed next year, the impact on inflation will only be a couple of percentage points, “which is not a drama”.

But Vyugin was also critical of how the Russian state spends its gas and oil revenues and called for “a new approach on how to use this windfall revenue”. This involves lowering the taxes or reducing the level of state ownership in the economy to get the private sector to the job more efficiently. He also chided the very slow decision making process in government and says some changes in the area would be useful. However, at the same time, he predicted that people shouldn’t expect any major changes after the upcoming parliamentary and presidential elections.

Bob Foresman, the head of Barclay’s Capital Russia, believes the upsides of the Russian economy outweigh its downsides. He says it boasts an extraordinarily low debt-to-GDP ratio, a strong macroeconomic situation and political stability. This he says can be far more productive than the incessant bickering over the budget in the US Congress.

He goes on to say, no country is immune to the global economic crisis and Russia will certainly be affected by it. He also says some investors still consider Russia a risky environment because of the arbitrary legal processes but believes the perceived risk is higher than the real risk.