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.
- 2 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 3 How the language you speak changes your view of the world
Oxygen-starved 'dead zones' with no marine life up to 100-miles long discovered in the Atlantic Ocean
The man who filmed the Freddie Gray video has been arrested at gunpoint
Indonesia executions: Death row British grandmother Lindsay Sandiford will refuse to wear a blindfold when she faces firing squad
Russian warships accused of 'chasing away' Swedish vessel to prevent Baltic States from achieving energy independence
How the language you speak changes your view of the world
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
£28000 - £45000 per annum: Recruitment Genius: A Senior Digital Marketing Cons...
£16640 - £18500 per annum: Recruitment Genius: An Assistant Stores Keeper is r...
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£17000 - £30000 per annum: Recruitment Genius: Developer required to join a bu...