As demand for commodities weaken around the world, Russia’s economy and related exchange traded fund (ETF) may see the deleterious effects of being heavily reliant on exporting resources, but there is a plan in the works.
Russia approved a revised draft budget for 2009 that shows the first budget deficit in eight years, with revenue at $195 billion compared to spending at $282 billion, according to China View. The government plans on using capital from its large reserves to cover the deficit, which is around 7.4% of GDP, but it may go higher. In the anti-crisis plan, the deficit will be reduced to 3% of GDP in 2011.
Prime Minister Vladamir Putin has stated that printing money to solve the problem is not prudent and they won’t be borrowing from abroad, reports Alex Nicholson for Bloomberg. The government will, however, borrow $12.3 billion more than it repays on the domestic market, or 1% of GDP for the year.
The government expects a 2.2% contraction in the economy this year, Russia’s first recession in 10 years. Inflation will reach 10% next year and it is hoped that it will slow to 7.5% by 2011. There is a $46.6 billion bailout planned.
Finance Minister Alexei Kudrin says the government won’t be helping all companies essential to the economy, so there will be some bankruptcies. In the seven-point plan, there are provisions in social welfare, maintaining industrial capacity, boosting domestic demand, promoting small businesses, dealing with corruption, support for the financial system and outlining long-term development.
- Market Vectors Russia ETF (RSX): up 8.6% in the last week; up 30.6% in the last month; up 4.5% in the last three months; note that RSX has moved above its 50-day moving average
Max Chen contributed to this article.
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