Josh Boak Washington
RUSSIA’S escalating financial crisis risks spilling beyond its borders and endangering parts of the global economy.
With economies in Europe, Japan, China and Latin America already ailing, fresh threats have emerged from Russia’s shrivelled currency, its move to boost interest rates, damage from plummeting oil prices and Western sanctions over Russia’s action in Ukraine.
The alarming 10 percent drop in the rouble over the past two days has amplified the economic turmoil in Russia. Investors fear that it may default on its foreign debt obligations – a move that would inflict hundreds of billions in losses on lenders abroad.
Some analysts worry that tensions will further escalate between Russia and the US and its European allies that imposed the sanctions. The White House upped the pressure on Tuesday when President Barack Obama committed to approving additional sanctions.
Few see President Vladimir Putin as backing down. “I do not expect him to blink,” said Ian Bremmer, the president of the Eurasia Group, a political risk and consulting firm.
The financial consequences for the US could be modest because of Russia’s diminished economic stature. Yet the geopolitical risk could ripple across continents.
Russia began the year as the eighth-largest economy with a gross domestic product (GDP) of $2.1 trillion (R24.5 trillion), according to the World Bank. A single rouble is now worth less than two pennies, having lost about 50 percent of its value against the dollar since January.
This means Russia’s GDP has been halved in dollar terms, putting it roughly on par with Mexico and Indonesia as the 15th largest economy.
Before financial markets opened on Tuesday, the Bank of Russia hiked its key interest rate to protect the rouble’s value. Nevertheless, the rouble fell as much as 20 percent in trade before regaining its previous day’s value by the close.
Russian officials have projected that their economy will shrink almost 5 percent next year. That will put a slight squeeze on its trading partners in Europe and Asia. – Sapa-AP