From Volume 7, Issue 45 of EIR Online, Published Nov. 4, 2008
Russia and the CIS News Digest

LaRouche's New Bretton Woods Tops the News in Russia

Oct. 31 (EIRNS)—Quoting the American economist Lyndon LaRouche on the global financial crisis has become de rigueur in the Russian media. Yesterday, the major dailies Komsomolskaya Pravda and Novaya Gazeta cited LaRouche, one with a 15-year-old quotation and the other with an invented one, for the sole apparent purpose of lending credibility to their articles.

Today the daily paper Vzglyad ("Viewpoint"), one of Russia's two leading economics dailies, brought forward LaRouche's ideas in an essential context: in their article about the meeting President Dmitri Medvedev held today on preparations for the Nov. 15 Group of 20 nations summit on the worldwide financial crisis. Author Natalya Zhuravlyova noted that "Medvedev's ideas [about a new financial architecture] will obviously resonate in the world community." The main example provided in Vzglyad was Helga Zepp-LaRouche's appeal for a New Bretton Woods conference, which the paper presented with special emphasis on the attack on globalization and derivatives speculation, contained in the 2007 edition of that appeal.

Also drawing attention to LaRouche's record, and his authoritative proposals, is the mass circulation of Prof. Stanislav Menshikov's article, "The Crisis Leaps Across the Planet," with its focus on LaRouche's unique forecasting accuracy, and a Russian translation of LaRouche's own "Free Trade vs. National Interest: The Economic Debates About Russia."

Medvedev Prepares Anti-Crisis Package For Nov. 15 Summit

Oct. 31 (EIRNS)—Russian President Dmitri Medvedev is preparing a "definitive package of measures" for presentation at the Nov. 15 G-20 meeting on the world financial crisis, which will take place in Washington. This was announced in a Vesti TV interview last night by First Deputy Prime Minister Igor Shuvalov, who is in charge of coordinating Russia's financial crisis policy. Medvedev's first Message to the Federal Assembly, an annual state of the Federation address, will be given Nov. 5 and will hinge on the world financial crisis, other officials said.

On Oct. 31, Medvedev convened a small working meeting with Shuvalov and other Cabinet members and aides, to prepare Russia's Nov. 15 intervention. Medvedev minced no words about the severity of the crisis. What he outlined as his idea of what Russia will bring to the meeting was still short on substance, however, at least as far as was made public. Calling the present situation "a full-scale international financial crisis," Medvedev said that Russia had warned of this and tried to put it on the agenda of last June's G-8 meeting; he listed several principles, touching on points such as the "legitimacy" of international financial institutions, multiple reserve currencies, and better "risk-management." He said the latter must be "based on modern management technology—not on the historic principles at the foundation of the Bretton Woods system." Medvedev did not specify if, by "Bretton Woods," he meant the Keynesian model adopted after the death of Franklin Roosevelt, or today's post-1971 speculative system (often, mistakenly, termed "Bretton Woods" in Russian debates), but he went on to say that a new system should include "a harmonized system of international and national standards for financial market participants," with "a common, unified set of rules, rules that can be broadly applied without having to make concessions to national standards." He posed the current problem in terms of the "Anglo-Saxon" vs. "continental European" systems, but identified these as "accounting rules," not fundamental economic principles.

Also on Oct. 31, Prime Minister Vladimir Putin held a session with some of the same Cabinet ministers, and others, about further measures to buffer the impact of the global financial crisis on the Russian economy. He announced a plan to support key, real-economy sectors of Russian industry. It has three main elements:

1. Measures to prevent mass bankruptcies of companies, while defending investors' and lenders' rights. The purpose of this, Putin stressed, is "to support investment projects in our economy." He said that Russia is strong enough not to abandon essential projects that were already adopted as a matter of policy, but that they will all be monitored with respect to their efficiency, and ensuring their financing.

2. Finding ways to support key economic sectors. The priorities are construction, machine-building, the defense industry, raw materials sector, retail trade (because of its social role), and agriculture. Efforts to promote export of manufactures will not be abandoned.

3. Support for small and medium businesses.

None of these measures will work, Putin said, "unless we stop speculative capital flight out of Russia." He said that this was occurring because Russian companies want to create their own, private stabilization fund, by purchasing foreign currency. Citing the condition of international markets, Putin pointed out that this is no solution. "Let me repeat," he said, "that Russian money should work in Russia. And any corporate egoism, in any sector, should be stopped."

In particular, Putin warned, "any attempts to convert to foreign currency and take out of the country the resources we are allocating to support the real sector of the Russian economy should be stopped, as harshly as necessary." Therefore, the government's plan mandates the Central Bank to monitor the actions of banks receiving government support.

Officials Deny Ruble Devaluation Rumors

Oct. 27 (EIRNS)—The plunge of international crude oil prices towards $60 per barrel is the context for a wave of ruble-devaluation rumors sweeping Moscow, accompanied by numerous official statements that things can be kept under control. On Oct. 24, trading was suspended on the dollar-denominated RTS and ruble-denominated MICEX stock exchanges in Moscow, which both remained shut today and are slated to resume business on Oct. 28. Their cumulative drop is now about 75% since a high in May.

Creating more nervousness than the stock markets (which are a smaller factor in Russia, than in other countries), is pressure on the ruble. According to an RIA Novosti report today, the Russian Central Bank spent about $13 billion of the country's gold and currency reserves, last week alone, on interventions to support the ruble. The reserves have declined by $80 billion since July, and are now approximately $516 billion. Novosti noted that the ruble, which reached a high of 23 to the dollar in July, is now officially at 27.35 to the dollar, with currency-trading kiosks on the street selling dollars for over 28 rubles.

Responding to a flood of articles and economists' interviews in the media, predicting a 1998-style devaluation of the ruble (at the time of Russia's default on its government bonds, after hedge-fund-driven hot money attacks), Central Bank and government officials rushed to deny that this was about to happen. Deputy Finance Minister Pankin said on TV on Oct. 24, "To say that there is some sort of catastrophe waiting for us, that this will be a second 1998, is categorically impossible." Today, reports, Central Bank deputy chairman Alexei Ulyukayev asserted that foreign banks operating in Russia, as well as some Russian banks, were purchasing foreign currency on a large scale, which "promoted the appearance of rumors about an impending devaluation of the ruble."

The same report says that well-known economist Mikhail Delyagin, director of the Institute of Globalization Problems, has compared the situation to that of 1998, claiming that the ruble liquidity, pumped by the Central Bank into the Russian banking system during October, is being immediately sold for dollars. The Dutch conglomerate ING fed into the nervousness, saying in a just-published report which Russian media are covering, that Russia's reserves might suffice to prevent devaluation of the ruble, "at least in 2008," according to

These developments can be expected to have an impact on high-level Russian deliberations about what a new financial architecture should look like, insofar as one popular element, under wide discussion, and mentioned publicly by Medvedev and Putin, has been for the ruble to be the pivot of one of several regional currency blocs.

Global Breakdown Crisis on Agenda at SCO Meeting

Oct. 30 (EIRNS)—The Shanghai Cooperation Organization (SCO) countries met today in Astana, Kazakstan, with members Russia, China, Kazakstan, Kyrgyzstan, Tajikistan, and Uzbekistan represented by their prime ministers. Some nations with observer status, such as India, Pakistan, Mongolia, and Iran, sent ministers other than the head of government. Among those present are countries that will be decisive in any solution to the current global breakdown crisis, which was visibly on the leaders' minds and on their agenda. Clear policy orientation was not forthcoming, however.

Prime Minister Putin talked in terms of "tectonic shifts in the structure of international relations," evidenced in recent financial turmoil. He denounced "economic egoism," and called for "collective structures of global management," such as the SCO, to play a great role in creating a new financial architecture.

President Nursultan Nazarbayev of Kazakstan called on the SCO prime ministers to "work out a joint system of measures for fighting crisis phenomena with minimum losses." Kazakstan's Prime Minister Karim Masimov called for a meeting of finance ministers and central bank heads of the SCO, to work out measures to deal with the financial crisis. In his view, modernization of major industries, with infrastructure projects in energy and transport, must be a priority, and regional integration will work to the advantage of all SCO members.

Nazarbayev emphasized the importance of security in the region, especially because of the effects of the financial crisis, citing a surge of criminality in the context of deteriorating living conditions in Eurasia. Prime Minister Masimov proposed bringing together SCO agriculture ministers to discuss food supplies, export duties, and other issues, as part of a food security program. Kyrgyzstan's Prime Minister Igor Chudnov supported this initiative, citing a regional food security strategy as being critical. Masimov also proposed coordination on economic activity in Afghanistan, as a security issue for the SCO, and an Asian Energy Strategy within the SCO. "Projects to establish a unified energy market and SCO common transport corridor could become bright examples of a global approach to defining the forms and mechanisms of cooperation," he said. Masimov noted the "West China-West Europe International Transit Corridor" project to transport goods from China-Kazakstan, China-Central Asia, and China-Russia-West Europe.

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