This is really no laughing matter now. When I woke up today, the RTS and the MICEX were down by more than 10%. When I check back a little later, the markets have halted trading after indexes crashed down to 17%.

Steven Dashevsky of Unicredit nails it when he tells the FT that “This is a good old-fashioned panic. It doesn’t feel like there is anyone domestically that can put the brakes on.”

Not that this has the government too worried. Just yesterday, President Dmitry Medvedev explained to a group (RSPP) of the country’s largest industrialists (who are getting a little bit frustrated with the state as they have seen 1/3 of the country’s GDP wiped off the stock market) that the country is not in crisis: “First of all, despite the active political life that never ceases in our world, the economy, fortunately, is not so highly dependent on political life. I think therefore that in the current situation our economic policy should remain unchanged regardless of various political events, change in leadership in some countries, other changes the political season could bring. We have big internal economic potential and a good solid domestic base, and so, despite the global economic problems today, the situation in our economy is absolutely stable overall. There is certainly no crisis or pre-crisis state here and our development continues. We are of course affected by international problems too, but I think it is within our power to resolve all of these problems on our internal market.”

Markets aren’t like potemkin civil society or democracy – you can’t just erect false institutions and expect to control events. The fact is that investor confidence in Russia is very much tied to internal and external political developments, and indeed the international isolation caused by the military adventures in Georgia have been very damaging to the economy. It leaves one baffled therefore to see the timing of Vladimir Putin’s announcement of a whopping 27% increase in military spending for the coming year – which seems to us like an illustration that he’s more concerned about his own populist survival than the checking accounts of the mid-level billionaires of the RSPP. Bob has written it many times in the past, but authoritarian capitalism really can start to break down below a certain level of GDP growth…

Last 5 posts by Robert Amsterdam

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