Economic Forum: London Pushes To Dump Dollar

June 6 (EIRNS)—City of London representatives directly, as well as Russian officials under pressure from London-centered financial interests, made their push to get rid of the dollar as the main international reserve currency a centerpiece of the just-concluded St. Petersburg Economic Forum in Russia.

On the last day of the three-day annual event, today, there was a special panel on "The Future of Reserve Currencies." Vedomosti reports that a key participant was one Ousmene Jacques Mandeng of the U.K. company Ashmore Investment Management, who demanded that developing sector ("emerging market") currencies quickly be brought into use in a multiple-currency reserve system. As head of Ashmore's Institutional Council on the Public Sector, Mandeng has been campaigning for this policy at least since The Banker—a publication of the London Financial Times—published his article, "Why Central Banks Need More Reserve Currencies," in November 2008.

More recently, Britain's Martin Gilman, the former International Monetary Fund representative in Russia, took to the pages of the Moscow Times to call for Russia and China to start dumping the dollar by selling the Treasury bills they hold as reserves.

At the session with Mandeng, Kremlin economics adviser Arkadi Dvorkovich said that new reserve currencies imply some center which would manage them. This could be a reformed International Monetary Fund, he said, echoing the scheme promoted by George Soros and others, for the IMF's Special Drawing Rights to become a supranational currency. Dvorkovich said that the SDR should function within a basket of reserve currencies, including the traditional ones, plus China's yuan. Alexei Kudrin, the Russian finance minister who coordinates closely with City of London circles, said earlier during the Forum, that he foresees the emergence of the yuan as a new world reserve currency within the next decade, if China moves to make it convertible.

President Dmitri Medvedev stoked attendees' interest in the topic of changing reserve currency models, claiming in his keynote speech, that over-orientation of the world economy to the dollar was even the chief cause of the current crisis. Things must be different in the post-crisis period, Medvedev said, as if such a time will simply arrive by itself one of these days. Noting that there has been talk about "new reserve currencies," the Russian President went on: "Many countries are moving from talk to actual action. This is true of Southeast Asia and Latin America, for example, and our national currency is being increasingly used in settlements with a number of countries." He claimed that the existence of the euro as a reserve currency had "played a big part in mitigating the global crisis impact in many European countries." Medvedev said that multiple reserve currencies, movement toward SDRs as a supranational currency, and the role of gold in the international monetary system should all be on the agenda for discussion.

Three weeks ago, senior Russian figure Yevgeni Primakov, the former prime minister and a member of the Academy of Sciences in economics, threw cold water on fantasies about the ruble's becoming a reserve currency, given Russia's economic condition, or any kind of mass departure from the dollar. "A rational approach to world financial reform is not compatible with the notion that it would be possible to downgrade the U.S. dollar," Primakov said on May 18. On June 1 in an interview with Regnum.ru, economist Yelena Veduta of Moscow State University joined the growing chorus in Russia, saying that the "ruble as reserve currency" scheme, of which Medvedev is enamored, is not going anywhere soon.

Investment Stopped by Big Russian Enterprises

June 4 (EIRNS)—The collapse of commodity prices and the plunge in industrial production in Russia are forcing Russia's big enterprises to slash investment programs, Nezavisimaya Gazeta reported today. These enterprises are the backbone of the Russian economy.

Russian Railways has cut its investment program by almost half, from 442 billion rubles ($14.5 billion) to 252 billion rubles ($8.3 billion). Itar Tass reports that passenger traffic on Russian Railways has fallen by over 11% so far this year, to 455.9 million people. Cargo shipments were down by almost 25% from a year ago, to 428.3 million tons. The railways carried 1.3 billion passengers in 2008, and 1.304 billion tons of cargo.

Other enterprises are also cutting investment. Nezavisimaya Gazeta quoted Nomos Bank analyst Igor Golubev saying that the Moscow power utility Mosenergo has "slashed its investment program by 60%. Overall, natural monopolies will cut their investment programs by more than 30% this year." Electricity generation has slumped by nearly 6% this year, and gas production is down by over 19%.

Alexei Belogoryev, head of the gas studies sector at the Moscow Institute for Natural Monopoly Problems, said that gas production is "one of the hardest-hit in the Russian fuel and energy sector." The crisis hit as the industry had to launch a whole new cycle of investment. "The sector needs more than $500 billion of investment in the next 20 years," he said. All the major energy projects planned for 2010-20, such as the development of the deposits in Yamal, East Siberia and the Far East, offshore deposits in the northern seas, and pipeline and LNG infrastructure projects, must begin from scratch. "If the country abandons these projects now, the domestic market will experience major gas shortages as early as 2010-2015," he said.

Putin Orders Back Pay for Desperate Workers

June 4 (EIRNS)—Dramatic protests by hundreds of unpaid industrial workers in the northwest Russian town of Pikalyovo, brought Russian Prime Minister Vladimir Putin there today, where he asserted that the workers' back wages of 41,240,000 rubles ($1.3 million) had to be paid immediately, Novosti reported. On June 2, up to 500 workers began blocking the highway near the town, some 200 km from St. Petersburg—where the St. Petersburg Economic Forum on world financial policy was about to begin—and caused a 300 km traffic jam. Earlier, on May 22, hundreds of workers, many of whom cannot afford food, stormed into the emergency meeting at a local administration building to demand payment.

Pikalyovo, which has 22,000 residents, is a "monogorod," a Soviet-era city dependent upon one industry—a plant which produced alumina, a compound used both to smelt aluminum and to produce ceramics. This plant used to be an industrial leader in all of Russia. The price for alumina has crashed, and this factory, and the adjoining cement and potash plants, shut down late last year. Since then, workers have received nothing, and have been reduced to living on nettle soup and dandelion leaves, Russia Today reported.

Putin announced that the plants will resume operations, whether or not their owners, including the heavily indebted (barely still) billionaire Oleg Deripaska's Basic Element group, agree. "If the owners cannot agree between themselves, the integrated complex will still be restored.... If you can't agree between yourselves, it will be done without you," Putin said.

Deripaska had to accompany Putin on his inspection, and the Prime Minister accused him of gross neglect, and his managers of "running around like cockroaches," unable to do anything. Deripaska is known for "entertaining" Lord Mandelson, when he was EU trade commissioner, on his yacht. Deripaska's financial operations have to "restructure" billions of dollars in debts to international banks by June 11, the Daily Telegraph reported today.

The State Duma committee on social policy has proposed nationalizing the plants, but this would be the first time this were done in Russia's "modern history," Novosti reported.

Putin has also instructed the government to give AvtoVAZ, Russia's biggest automaker, an interest-free loan of 25 billion rubles ($806 million). The company has $1.3 billion in debt, and has had to put its workers on "forced vacations" and short work in recent months.