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Putins Secret Gamble on Reserves Backfires Into Currency Crisis

By Evgenia Pismennaya, Ilya Arkhipov and Brad Cook Dec 18, 2014 for Bloomberg News
2015
2015-01-06 16:00

 

By Evgenia Pismennaya, Ilya Arkhipov and Brad Cook  Dec 18, 2014

http://newconcepts.club/website/articles/500.html

 

Kremlin insiders gathered in secret last February to answer a crucial question for Vladimir Putin: Could Russia afford the economic blowback from taking over Crimea?

Moscow said yes.

Markets aren’t so sure.

As President Putin exulted at the Winter Olympics in Sochi 10 months ago, aides assured him Russia was rich enough to withstand the financial repercussions from a possible incursion into Ukraine, according to two officials involved in the talks.

That conclusion now looks like a grave miscalculation. Russia has driven interest rates to punishing levels and spent at least billion, or 17 percent, of its foreign-exchange reserves trying to prevent a collapse in the ruble from spiraling into a panic. So far, nothing has worked.

Despite the assurances in Sochi, Putin now faces what could be the nation’s most serious economic crisis since 1998, when Russia’s devaluation and default reverberated around the world. U.S. and European sanctions and, more significantly, plummeting oil prices are eroding the reserves that emboldened Putin to annex Crimea despite an international outcry.


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