Cyclopedia Of Economics 1st edition

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III. Debt Markets

Perhaps the best judges of Russia's officially minuscule economy (smaller than the Netherlands' and less than three times Israel's) - are the Russians. When the author of this article suggested that Russia's 1998 chaos was serendipitous (in "Argumenti i Fakti" dated October 28, 1998), he was derided by Western analysts but supported by Russian ones. In hindsight, the Russians were right. They may be right today as well when they claim that Russia has never been better.

The ruble devaluation (which made Russian goods competitive) and rising oil prices yielded a trade surplus of more than $50 billion last year. For the first time in its modern and turbulent history, Russia was able to prepay both foreign (IMF) and domestic debts (it redeemed state bonds ahead of maturity). It is no longer the IMF's largest debtor. Its Central Bank boastsĀ  $40 billion in foreign exchange reserves. Exactly a year ago, Russia tried to extort a partial debt write-off from its creditors (as it has done numerous times in its post-Communist decade). But Russia's oft-abused creditors and investors seem to have surprisingly short memories and an unsurpassed capacity for masochistic self-delusion. reports ("Russia Buys Financial Maneuverability" dated January 31, 2002) that "Deutsche Bank Jan. 30 granted Vneshekonombank a $100 million loan, the largest private loan to a Russian bank since the 1998 ruble crisis. As Russia works to reintegrate into the global financial network, the cost of domestic borrowing should drop. That should spur a fresh wave of domestically financed development, which is essential considering Russia's dearth of foreign investment."

The strategic forecasting firm also predicts the emergence of a thriving mortgage finance market (there is almost none now). One of the reasons is a belated November 2001 pension reform which allows the investment of retirement funds in debt instruments - such as mortgages. A similar virtuous cycle transpired in Kazakhstan. Last year the Central Bank allowed individuals to invest up to $75,000 outside Russia.

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