Zyuganov victory will give foreign investors the jitters
Saturday 15 June 1996
Money talks, and what it says about Russia is that foreign investors are apprehensive about the outcome of tomorrow's elections. The flow of Western capital into the country has dried to a mere trickle of less than $1bn (pounds 6.5bn) so far this year - less than half of last year's rate.
According to Erik Nielsen, an expert on Russia working for Goldman Sachs, the investment bank in New York: "Investors have been sitting on the fence. If Yeltsin wins there will be an inflow of capital. If Zyuganov wins, there will be a sharp withdrawal
One of the first to withdraw on any sign of departure from the path of free market economics would be the International Monetary Fund, which rewarded Mr Yeltsin's reforming efforts with a $10bn (pounds 6.5bn) loan, announced in March.
"The IMF has shown as much flexibility as it is going to. It would probably look for the first exit," one official predicts.
Pre-election nerves have already taken their toll of the Russian economy.
Short-term interest rates in the financial markets started to rise sharply as early as March, touching an annual rate of 145 per cent at the beginning of this month.
Notwithstanding Mr Yeltsin's electoral spending promises, the crippling rise in the burden of interest payments on government borrowing has forced recent cuts in other spending and greater efforts to collect taxes. A $2.7bn loan from Germany and $500m offer from France have helped out.
On the other hand, Russian companies and citizens have been sending their foreign currency out of the country, just in case. Foreign exchange reserves have fallen by about a quarter, or more than $4bn, since the end of March.
Susanne Gahler at JP Morgan, another US investment bank, thinks Western investors are nervous about the prospect of a Zyuganov victory because he is an unknown quantity. "When he appeared at the World Economic Forum in Davos he presented himself as a reformer. Domestically, he has campaigned on an anti-Western line." Mr Yeltsin has the advantage of a track record, she says.
Others agree that the uncertainty is the problem as far as the financial markets are concerned.
Maxim Shashenkov, a Russian working for Merrill Lynch in London, says: "It is difficult to say exactly what Zyuganov's policies would be - there is a big gap between his rhetoric and Russian economic realities. But the risks would be very serious." He predicts a sharp negative reaction by foreign investors in Russian financial markets if Mr Zyuganov and the Communists win.
That reaction could spill over into the West. There are fears that Russian events could hit the Deutschmark and German stockmarket for the first time since the attempted military coup in August 1991. German banks have lent about $35bn to Russia, accounting for two-thirds of Russian external debt to the private sector.
Mr Nielsen of Goldman Sachs observes: "The big Western corporations that have invested in Russia would probably have to sit out a Zyuganov presidency."
But the investors who can flee would do so.
International Women's Day 2014: The shocking statistics that show why it is still so important
Feminist quotes to inspire you on the International Women's Day
Oscar Pistorius trial first week: Never mind a media scrum – murder case becomes bizarre safari following the tracks of a wounded lion
International Women’s Day: 'When a man gives his opinion, he's a man. When a woman gives her opinion, she's a bitch' - feminist quotes from female icons to inspire you
Malaysia Airlines plane: Oil slick is first sign that missing flight crashed into sea killing up to 239 on board
Apple's Tim Cook: Business isn’t just about making profit
Thousands of young people forced to go without food after benefits wrongly stopped under 'draconian' new sanctions regime
Ukraine crisis: New navy chief 'defects' and surrenders Crimean HQ as Putin claims ultranationalists forced intervention
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Ukraine crisis: Russia dismisses '3am ultimatum' as 'total nonsense'
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
- 1 To those who can’t see the point of International Women’s Day: you are the very reason it exists
- 2 International Women's Day 2014: The shocking statistics that show why it is still so important
- 3 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 4 Orgasm machine to deliver climax at the push of a button
- 5 Liam Neeson turned down James Bond role because late wife Natasha Richardson said she wouldn't marry him if he took it
£12000 per annum: Inspiring Interns: A small but growing chain of boutique hot...
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£45 - 60k Per Annum: Charter Selection: Highly profitable leisure brand, marke...
£30000 - £50000 per annum + Highly Competitive Salary: Austen Lloyd: Residenti...