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Russia economy sheltered for now from world shocks
By Svetlana Kovalyova

MOSCOW, Sept 19 (Reuters) - Russia's long-lamented poor global economic
integration will be a buffer against economic shockwaves triggered by attacks
on the United States in the short-term, analysts said on Wednesday.

Some suggested the export-driven Russian economy might profit from surging
oil prices caused by growing political tension after last Tuesday's
devastating events, while U.S and other major world economies fear a possible

But Russia's Deputy Prime Minister Alexei Kudrin warned against
over-optimistic expectations and said the government would stick to a
conservative budget policy to aviod macroeconomic instability.

"We should not become euphoric about our current economic achievements... We
cannot completely distance ourselves from what is going on in the U.S.,
Europe and Asia. The risks remain high," Kudrin told Russia's RTR state

Russia's economy had been recovering from the 1998 crisis boosted by high
prices for key exports -- oil, gas and metals.

The country posted record post-Soviet economic growth of 8.3 percent of gross
domestic product in 2000 and the government has forecast 5.0-5.5 percent GDP
growth this year.

"Russia remains isolated from international capital markets and our only
strong link with the global economy is foreign trade, which has not yet been
hit by the negative events," said Oleg Vyugin, chief economist at Troika
Dialog investment bank.

"Their short-term effect this year is likely to be neutral. There is no
threat of recession or debt default," said Vyugin, a former first deputy
finance minister.

He added that if there was a global slowdown or recession next year the
Russian economy would also suffer.

The Russian economy melted down in 1998 when world oil prices plunged and the
government lost control of mounting domestic debt.

Analysts said Russian fundamentals remained strong and 2001 macroeconomic
targets, including a 17-18 percent annual inflation forecast, would be met.

They said the government would net extra budget revenues from exceptionally
high oil prices in September, which would help Russia save some extra cash
for future foreign debt payments.

Russia's foreign debt bill will hit a peak of around $19 billion in 2003 from
$14 billion this year and next.

Prime Minister Mikhail Kasyanov said last Monday Russia planned to set aside
$5 billion in extra revenues this year to cope with the increasing payments.


However, the export-driven Russian economy cannot remain insulated from
global turmoils for long, and markets as well as key industries would be hit
in the medium-term, analysts said.

"Despite a very good current performance, Russia is still a transitional
economy and thus cannot be a safe haven. It remains vulnerable to global
risks and internal instability," said Yelena Romanova, an analyst at
Raiffeisenbank in Moscow.

If the world economy plunged into recession, demand for Russia's traditional
exports would fall, triggering a budget deficit in 2002, instead of the
widely advertised budget surplus of around 1.2 percent of GDP, analysts said.

"The best remedy against global shocks is a tight budget policy," said

The government has already started haggling over the 2002 draft budget with
parliament which wants more social spending.

Kudrin said the government may upgrade its forecast for this year's economic
growth but would maintain a conservative budget policy providing for the
implementation of all social programmes "in any event."

Analysts said the stock market, which accounts for a tiny part of Russia's
economy, has so far been less volatile than major world bourses due to strong
fundamentals, but would be exposed to global risks in longer term.

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