| JRL HOME | SUPPORT | SUBSCRIBE | RESEARCH & ANALYTICAL SUPPLEMENT | |
Old Saint Basil's Cathedral in MoscowJohnson's Russia List title and scenes of Saint Petersburg
Excerpts from the JRL E-Mail Community :: Founded and Edited by David Johnson

#11
Russia says outlook worse due oil, world economy
By Darya Korsunskaya

MOSCOW, Nov 21 (Reuters) - Russia said on Wednesday it would cut growth and oil price forecasts for next year and raise its inflation expectations due to the current weakness in world crude prices, its key export.

Finance Minister Alexi Kudrin said that a slowdown in the U.S economy, which accounted for a third of global gross domestic product, would lead to a downturn in other countries and "spur oil price falls."

But Kudrin vowed the country would be able to cope with its huge debt mountain of around $140 billion, despite the pessimistic outlook for global growth and oil prices.

"I cannot rule out that we shall have smaller growth with a lower(oil)price. We are now finishing our estimates and we shall announce them in the near future," Kudrin told reporters.

"We shall have to keep as a priority basic budget revenues and fulfil all obligations on paying salaries, the military and health. These obligations must be fulfilled under any circumstances, as well as foreign debt obligations."

Kudrin said the government could tap the central bank for loans in 2003, when foreign debt repayments rise to a peak of $19 billion.

He also said a lower inflow of oil dollars could force the government to seek loans from the International Monetary Fund if the oil price was below $16.5-14.5 a barrel.

Kudrin said the government had changed its crude oil forecasts after checking with international investment and financial agencies.

"We think an oil price forecast for 2002 of $14.5-$18.5 is the most realistic one. Thus our pessimistic forecast of $18.50 set in the budget before September 11, now looks optimistic."

Kudrin said that with an oil price of $15 per barrel, the government would not be able to collect export duties. The 2002 budget, drawn up when oil prices were at more than $20 dollars for Russia's main Urals export, was aimed at showcasing the country's new conservative management of its finances and includes a budget surplus for the first time.

The budget assumed an oil price of $18.50 to $22 a barrel however the government has said in the past it could manage its finances, including debt servicing, with prices as low as $15. The European Bank for Reconstruction and Development has said Russia could manage with the crude price at $12 a barrel.

RUSSIA MAY STILL RESIST OIL OUTPUT CUTS

Analysts said the current weak oil price still might not be enough to force Russia to cut production in tandem with OPEC in an attempt to lift crude which has fallen by over 30 percent since mid-September.

Investment house United Financial Group said Russia, the world's second-biggest crude exporter, was likely to continue to resist the oil cartel as a price war was less damaging in the long term than cutting output.

"The conclusion of our analysis suggests that it is financially and economically more attractive for Russia to engage in a price war with OPEC than to cut output and to support prices," it said in a research note.

Largely privatised Russian oil companies also favour keeping output stable, it added.

Benchmark Brent crude for January closed at $18.73 per barrel on Tuesday, $0.72 above the previous close. The Urals blend is usually $1-2 cheaper.

Kudrin said the government could raise its forecast for next year's annual consumer price inflation of 11-13 percent by 1.0-1.5 percent if the oil price was at or below $18.5 per barrel. Gross domestic product would rise less than the previously expected 3.5-4.3 percent.

However, the government left the average rouble rate for 2002 unchanged at 31.5 per dollar as the national currency was backed by central bank's gold and foreign currency reserves which now stand at $38.5 billion.

($-29.90 roubles)

Back to the Top    Next Issue