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Rice to make 'significant' speech on Russia
Sep 17 03:05 PM US/Eastern
US Secretary of State Condoleezza Rice will give "a significant speech" on Thursday about the consequences for Russia over its invasion of Georgia, a senior US official said.
"I would describe it as a significant speech about US-Russia relations as well as about Russia's place within the international system," the State Department official told reporters Wednesday on the condition of anonymity.
The speech will provide "an analysis of how we have gotten to this point, it talks about the kinds of choices Russia had before it and it talks about the international system and its response to Russia," he said.
The official was referring to choices Russia had before it invaded neighboring Georgia on August 7 and recognized the breakaway Georgian regions of South Ossetia and Abkhazia.
When asked if the speech would mention future possible measures or would be limited to the current responses of the international community, the official replied by saying "future possible" measures.
Since mid-August, Rice has hinted at retaliatory steps for Moscow's "disproportionate" military action against Georgia.
Several US officials have since raised the possibility of suspending negotiations for admitting Russia to the World Trade Organization.
They have even talked of excluding it from the Group of Eight leading industrial nations and the Organization for Economic Cooperation and Development.
http://www.breitbart.com/print.php?id=080917190529.6pmgtbo5&show_article=1
==============================================
Russian gunboat diplomacy in Crimea?
The Moskva cruiser took part in last
month's blockade of Georgian ports
The row over the future of Russia's Black Sea Fleet in Crimea could become a flashpoint in the already strained relations between Kiev and Moscow, says the BBC's Rupert Wingfield-Hayes, as he goes aboard the Russian flag ship in Sevastopol.
There is a very serious question being posed to the West in the wake of the Georgia conflict.
In the aftermath of Russia's invasion, should Nato move ahead more rapidly with plans to bring both Georgia and Ukraine inside its protective fence?
The argument being made by many Western commentators and politicians is that it should. But sitting in Moscow one cannot help wondering whether those calling for Nato to expand further and faster really understand the complexity and potential dangers involved.
This week I went to Sevastopol on the Black Sea coast of Crimea, Ukraine.
Sevastopol has twice been besieged by invading European powers. Just down the road is Balaklava where the British Light Brigade famously charged to their deaths in 1854. Florence Nightingale set up her hospital nearby. In 1941, it was Hitler's turn to lay siege.
Sevastopol is one of the most delightful cities anywhere. Once-grand neo-classical buildings dot the limestone hills that surround one of the most lovely natural harbours in Europe.
You can immediately see why the Russians chose this spot to build their great naval city.
Today, what is left of Russia's mighty Black Sea Fleet still rides at anchor in the harbour below.
I was taken aboard the flag ship, a huge grey monster called the Moskva (Moscow), an 11,000-tonne missile cruiser built during the Cold War to take on America's aircraft carriers.
The Moskva is now more museum piece than threat to the US Navy. But it, and its sister ships, still have the potential to bring the West and Russia in to conflict once more.
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On board with the Russian Black Sea Fleet
The problem is that, by a quirk of history, when the Soviet Union collapsed Sevastopol ended up in Ukraine. Russia has a lease on the naval base until 2017. Then Ukrainian President Victor Yushchenko says the navy must go.
But the Russians have no intention of leaving.
"We built this place more than 200 years ago," Rear Admiral Andrei Baranov, the current commander of Russia's Black Sea Fleet told me. "Its steeped in the history of the Russian Fleet."
'Punishing sword'
If you climb up the slopes behind the naval base you can find some of that history in the thousands of graves of Russian sailors, from humble deck hands, to famous admirals.
We built this place more than 200 years ago. Its steeped in the history of the Russian Fleet Rear Admiral Andrei Baranov head of Russia's Black Sea Fleet
In the naval church high on a hill overlooking the harbour, I met Father Igor.
With his long grey beard and flowing robes he was the very picture of a Russian Orthodox priest. But when it comes to Ukraine joining Nato he is every inch the Russian nationalist.
"The West is always trying to subdue Russia” he told me.
"Russia can remain patient for a long time, but then it will unleash its deadly punishing sword. Russia has already shown it can do it, in Georgia. The West shouldn't provoke it here."
Nato is seen by many Russians as being deeply antagonistic towards Russia. More than 90% of Sevastopol's population is ethnic Russian, and they are absolutely opposed to Ukraine joining the alliance.
'We choose Russia'
Sitting in a Sevastopol street cafe, my ears were suddenly assaulted by the sound of a mass of car horns.
Then up the street came a long line of cars all hooting madly, with huge Russian flags sticking out of their windows.
Far from being annoyed by this spectacle many of the other car drivers joined in the frantic hooting.
The convoy was from a group called "we choose Russia".
"The Ukrainian nationalists in Kiev are trying to push us Russians out of here," said the group's leader, local MP Gennady Basov.
"If this continues, we'll have no choice but to defend ourselves with any means possible."
"Does that include taking up arms?" I ask him. "By whatever means," he repeats.
It sounds like an empty threat. But there is no doubt that Ukraine's Russian minority is as determined as Moscow to stop Nato's expansion further east.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/europe/7622520.stm
===================================================
Russian trading halted as stocks plunge
Story Highlights
Russia pumps more money into banking sector as trading halts
Earlier RTS and MICEX fall by more than 10 percent
Central Bank: Daily "repo" liquidity fully used by banks for third day in a row
Russian banks face a crunch period in October
MOSCOW, Russia (AP) -- The Russian government pumped more money into an increasingly stressed banking sector Wednesday and the stock exchanges suspended trading amid turmoil that brought back bad memories of the country's financial collapse 10 years ago.
Russia's primary stock indexes, MICEX and RTS, plummeted for a third consecutive day, with banking stocks leading the way, prompting regulators to halt trading at midday. As of 5 p.m. (1300 GMT), trading had still not resumed.
In an emergency measure to shore up liquidity, the government said it would lend the country's three largest banks -- Sberbank, VTB, and Gazprombank -- up to 1.12 trillion rubles ($44.9 billion) for a minimum of three months, said the Finance Ministry in a statement.
"These are market-making banks capable of ensuring the liquidity of the banking system," said the statement.
"Essentially we're counting on them as core banks to be able to lend to small and medium banks," Finance Minister Alexei Kudrin said in televised comments.
The government is racing to restore confidence in the banking sector after a tumultuous few days on the Russian markets, which have been driven down by margin calls and an exodus of buyers.
The moves came a day after Russian stocks plummeted to their lowest level in nearly three years as tumbling oil prices and Wall Street turmoil focused concerns about Russia's commodity-driven economy. Since May, the RTS has fallen by more than 55 percent.
First Deputy Prime Minister Igor Shuvalov said Wednesday everybody needs to "calm down," and have faith in the government, the Interfax news agency reported. He promised more liquidity measures would be announced soon.
Nataliya Orlova, chief economist at Alfa Bank, said the situation was more serious than initially believed.
"The reason is a lack of trust," she said. "A number of banks are trying to estimate which banks are facing losses."
Boutique investment bank Kit Finance was poised to be the first victim in the crisis after the bank confirmed that it had defaulted on some short-term borrowings and was seeking a strategic investor.
Russia's investment climate has faced wider concerns about its health following a damaging corporate wrangle at Anglo-Russian oil venture TNK-BP, Prime Minister Putin's attack on a mining company over allegations of price-fixing and Russia's recent invasion of Georgia.
The Central Bank has pumped in ever-increasing amounts into the banking sector in recent weeks through its twice-daily "repo" auctions. It provided a record 365 billion rubles ($14.3 billion) on Wednesday, topping the previous day's record of 361 billion rubles ($14.1 billion). The Finance Ministry separately provided an additional 150 billion rubles on Tuesday, and said it would provide another 350 billion rubles to banks by Thursday.
The current situation is reminiscent of 1998 when many ordinary Russians saw life savings wiped out. Analysts, however, pointed out that small banking customers are now partially protected by deposit insurance and the government is a much healthier financial state than 10 years ago.
"Is this a repeat of 1998? Definitely no," said Kingsmill Bond, a strategist at Troika Dialog. "In 1998, the government had a lot of debt and very limited reserves. Today the Russian government has no debt and huge reserves."
Still, fears have mounted that the building crisis of confidence among investors and bankers could spread to ordinary Russians, prompting a run on banks.
"This is the most important question," Orlova said. "At the current moment it's fine because Russians are not deeply involved in the financial markets, but I think this is the risk. ... This would be much worse than a confidence crisis between the banks."
Russian stock indexes edged up in early trading, but then resumed their decline. The ruble-denominated MICEX fell by more than 10 percent at one point, before climbing back to a 3 percent decline just before regulators suspended trading on both exchanges at 12:10 p.m. (0810 GMT). The RTS fell 6.4 percent before the suspension.
Shares in Sberbank and VTB fell on MICEX by 9.6 percent and 15.7 percent, respectively.
Regulators had announced that trading would resume by 5 p.m. (1300 GMT), but that deadline came and went without a resumption of trading and no explanation.
Fearing that Russia's economy could face a repeat of the 1998 economic crisis -- which saw the ruble devalued, default on the country's sovereign debt, and widespread bank foreclosures -- the government has promised to pump more money into the banking system.
Russian banks face a crunch period in October, when quarterly value added tax payments are due. They will also have to pay back the short-term money borrowed from the government. Banks have already started to hunker down, closing their doors to many third-tier and some second-tier borrowers.
RIA-Novosti reported that Mirax Group, a large real estate developer building Europe's largest skyscraper on a Moscow river embankment, announced it would put on hold all new projects because of the global crisis.
Banking officials tried to calm investor fears.
"The problem now is of a more psychological nature than a real danger," Garegin Tosunyan, head of the Association of Russian Banks, told Ekho Moskvy radio. "If people begin taking their money and hiding it under the mattress, of course it will have a negative effect on the economy."
Find this article at: http://edition.cnn.com/2008/BUSINESS/09/17/russia.banking.ap
===================================================
FINANCIAL TIMES Sept. 17, 2008
Russia lays down the law for a world in need of its wares
Alan Beattie, Charles Clover
Russia has never been big on adopting international standards. While most of Europe had brought in the Gregorian calendar by the end of the 18th century, it took Russia until after the Bolshevik revolution of 1917 to fall into line.
But since last month’s Georgian crisis, Moscow has taken a string of actions that look to many like a deliberate abrogation of international economic rules. In quick succession, it held up streams of Turkish trucks at customs posts, announced it would suspend commitments made as part of its application to join the World Trade Organisation, banned poultry imports from 19 American companies and declared it would “review” the trade privileges it currently extends to Ukraine.
Anders Aslund at the Peterson Institute for International Economics in Washington, a critic of the current Kremlin, says: “Russia has been breaking agreements at the rate of about two a day.”
Ministers insist they are not turning their backs on the world. Dmitry Medvedev, Russia’s president, said this week that Moscow – the only big trading power outside the WTO – still wants to join the club. But trade officials and experts are not confident that Russia is prepared to make the sacrifices necessary. Moscow, they say, has a distinctly mixed record of binding itself with rules that constrain trade and investment dealings with foreigners.
When it emerged from the Soviet era in the early 1990s, Russia rapidly started collecting the badges of international economic respectability. Under Boris Yeltsin, president from 1991 to 1999, it agreed a flurry of bilateral treaties protecting foreign investors and signed the Energy Charter Treaty, which aims to guarantee security of investment and supply for oil and gas. In 1993 Moscow started the long and tortuous process of applying to join the WTO.
But even before Mr Yeltsin was replaced by Vladimir Putin, there were signs that the drive to end decades – indeed, centuries – of relative economic isolation was hitting potholes. The Russian parliament, or Duma, refused to back several of the bilateral investment treaties, including one with the US, and did not ratify the ECT.
Since Mr Putin’s succession, Moscow’s enthusiasm for international trade and investment rules has diminished sharply. Investment treaties tailed off abruptly, while Russia adopted a new model for its treaties that gave foreign investors much less protection than the Yeltsin-era version. The Kremlin also exploited ambiguities in existing treaties to argue that Russia itself has the power to determine whether or not its government’s actions constitute “expropriation” of foreign investors’ interests.
Some irate investors are trying to hold Moscow to account. After the Russian government in 2004 in effect seized the assets of the oil giant Yukos, Europe-based shareholders launched the largest investment arbitration claim in history. Their lawyers argue that according to the rules of the ECT, the treaty applies even though it was not ratified. (US shareholders have no such recourse, since the US is not itself an ECT signatory.
But experience suggests that collecting on any award might prove difficult. After Franz Sedelmayer, a German businessman, had property seized in St Petersburg, an arbitration panel ruled he was owed compensation in 1998. Russia refused to pay and it took nearly a decade of legal wrangling before he got a court to seize Russian government assets abroad. Emmanuel Gaillard, head of international arbitration at the law firm Shearman and Sterling in Paris, represents European shareholders of Yukos. He says: “Russia has a terrible record in compliance . . . They want to get the benefit of treaties without the obligations.”
Russia’s application to join the WTO was encountering problems even before the Georgian crisis. Each of the organisation’s 153 existing members has the right to block new entrants. Trade diplomats say that Tbilisi in particular has been making things difficult, retaliating for blocks that Moscow imposed on Georgian exports two years ago by preventing meetings of the official working party on Russia’s accession.
Mr Putin says that Russia will not join the WTO if the price is too high and has threatened to suspend import quotas of poultry and other produce agreed as part of its accession negotiations.
Moscow has further signalled it might revoke bilateral trade privileges for Ukraine, arguing that since its neighbour recently joined the WTO, all members of the group can use Ukraine’s privileged access to the Russian market as an export platform. There is little that Kiev can do about this. Despite various attempts to bind the former Soviet states into a unified free trade area, Russia and its immediate neighbours are still covered by an ad hoc patchwork of weak trade arrangements. Mr Aslund says that with the exception of Russia’s economic union with Belarus, these deals are “essentially meaningless”. Unlike most bilateral and regional trade pacts, they have little binding force or recourse to dispute settlement through arbitration.
All of this has left international investors and governments singularly short of statutory instruments to stop Russia throwing its weight around in the trade arena. When the EU suggested that it might stop negotiations over renewing a “partnership agreement” with Moscow – an arrangement Mr Aslund dismisses as of mainly symbolic value in any case – Vladimir Chizhov, Russia’s permanent representative to the EU, was blunt. “We don’t need these talks or this new agreement any more than the EU does,” he told reporters. “It is more a self-punishment for the EU.”
High world energy and food prices have put Russia, a big net exporter of both, in a powerful negotiating position. One of the EU’s key demands during Russia’s WTO entry talks is for Moscow to promise not to limit or tax its commodity exports – hardly a sign of strength from Brussels.
Masha Lipman of the Carnegie Moscow Center says: “If we envision Russia’s trading partners saying we are no longer importing from you, and no longer exporting to you, of course Russia would suffer, but this is totally inconceivable.”
Christopher Roberts, senior trade analyst at the law firm Covington and Burling, says: “The Russians have always been a great deal better than the Europeans at interfering in trade. If the Europeans try it, their traders are up in arms.”
Mr Medvedev said this week that Russia had no wish to be an outcast. “We don’t need any confrontation or isolation,” he said. “We had enough of it for decades.” But unless Moscow’s hand is forced by turbulence in its banking system or by a collapse in the demand for oil, the price of acquiring all the badges of international propriety may be more than it wants to pay.
=========================================
A Run on Russia
The main stock index is down 55% in four months, banks are starved for capital and teetering on the brink, the currency is at a one-year low and the government is throwing money at the problem. We're not talking about Wall Street.
The current carnage on Russian markets comes amid global market turmoil. But the dive in Moscow began before the wider world cared about AIG's balance sheet, and its chief causes are home-grown. To wit, the bill for eight years of Putinism is coming due. And a Kremlin leadership that only weeks ago brimmed with menacing self-confidence is struggling to slow this financial free fall.
AP
The first sign of trouble came in late July when Prime Minister Vladimir Putin lashed out at a Russian coal and steel company, Mechel, for alleged price gouging and appeared to threaten personally its chief executive. Mechel shares fell by a third, and the incident sent a chill through the market as a whole. Investors woke up to the systemic risk to property rights and the lack of any rule of law in Russia. They did so belatedly, we'd add, considering the attempted or successful expropriation of Yukos, BP and Shell assets and the blatant use of state resources to menace private business.
Another trigger was last month's war in the Caucasus. The Russians routed the Georgian army in four days and annexed -- in all but name -- its provinces of South Ossetia and Abkhazia. Then Russia got routed by the global economy. Since the war started, investors have pulled more than $35 billion from Russian markets. Russian businesses are having trouble getting access to international financial markets, as foreign lenders wonder if they can get paid back. Some $45 billion in foreign debt held by Russian corporates must be refinanced by the end of the year, and the cost of doing so is rising.
Other emerging markets have been hit hard in recent weeks, particularly the natural resource-driven economies. But Russia's is the worst performing market in the world this year. The decline from the all-time high in May wiped out $680 billion in value; Russia's entire GDP was just $1,286 billion as of last year. On Tuesday, the main ruble-denominated index was off 11.2%, the steepest fall since the 1998 ruble crisis. It plummeted yesterday as well, before regulators stopped trading for good at midday.
Each of the past three days, the Russian central bank injected over $10 billion into the money market, and also moved to prop up the ruble. The Kremlin yesterday lent the country's three largest banks $44.9 billion. Thanks to the oil and gas windfall of the past few years, Russia has built up a $573 billion reserve war chest that can tide the financial system over for a while and avoid a rerun of the 1998 crisis.
Not forever, especially if oil prices continue their fall. Russia's economy is hugely dependent on natural resources. In good times, the Kremlin pocketed the billions and didn't worry about pushing economic reforms. The outside investment needed to diversify was discouraged by the Kremlin's backsliding on the rule of law. Now the drop in crude prices is squeezing the country's blue chips and the Kremlin's coffers, even though on the current budget the Russian state will break even with oil at $70 a barrel or above.
Long reluctant to criticize the thin-skinned Putin regime, businesses have started to voice their unhappiness. On Monday Putin sidekick and President Dmitry Medvedev hosted 50 leading businessman at the Kremlin, and acknowledged that the Georgia war contributed to the country's economic troubles. He said Russia didn't want to be isolated, but added, "If they" -- meaning the West -- "try to stop us accessing certain markets there will be no catastrophe for the state or for those sitting here."
As it has turned out, much faster than anyone realized or hoped during the Georgian war in August, Western governments haven't had to do anything to have Russia pay a price for its aggressive behavior. Which is fortunate, considering the weak stomachs in Europe and at the State Department for any serious response to the war. Investors did it for them.
The war has also exposed the fiction that Russia is the next China -- an authoritarian political regime that's stable, predictable and on a path toward becoming a free-market economy. It's authoritarian all right, but it lags China on other counts. After this war, Russia is unlikely to join China in the World Trade Organization. Georgia and Ukraine, another potential target for Russian aggression, are in that club and in a position to block entry. But the bigger hurdle ought to be the WTO's standard that candidates be "market-based" economies ready to respect the commitments and rules of this international organization. By this standard, Russia doesn't belong there, or in the OECD or G-8.
Perhaps the Russian people, who give their leaders high marks in opinion polls, will begin to see the economic toll from Putinism and question whether their country is well-served by this leadership.
http://online.wsj.com/article/SB122169481775149987.html#printMode
===============================================
Georgia Says Cellphone Records Are Evidence Russia Started War
By Tara BahrampourWashington Post Foreign Service Wednesday, September 17, 2008; Page A14
TBILISI, Georgia, Sept. 16 -- Georgian authorities on Tuesday released recordings of cellphone calls they say are evidence that significant numbers of Russian troops began moving into the breakaway region of South Ossetia on Aug. 6, a day before war with Russia started.
Earlier, Georgian authorities had said Russian forces came through a tunnel from Russia late on Aug. 7, which the Georgians describe as the act of aggression that triggered their decision to order their own forces into South Ossetia. Russia says its troops came through the tunnel on the evening of Aug. 7, but only after Georgia launched an attack on Tskhinvali, the South Ossetian capital.
Who started the war, and when, has become the subject of heated debate here and in Moscow. Both Russia and Georgia have struggled to portray themselves as acting in self-defense or, in Russia's case, in defense of its smaller neighbor.
The timing of the Russians' entry into the tunnel is significant because it could clarify whether the troop movement was an act of aggression or a reaction.
Georgian officials said that one intercepted call on Aug. 6, released to The Washington Post on Tuesday, was a conversation between Ossetian militia members discussing an Ossetian soldier who had been accidentally wounded by a Russian who came in with a column of Russian troops. "From these Russians, from the Russian army, someone unintentionally fired, and this boy was wounded," an Ossetian is heard saying on the call, which was played on a Georgian commercial network.
In an Aug. 7 call, a man the Georgians identify as a guard at the tunnel says that it is "full" of Russian military vehicles and that the Russians have asked local authorities to come and check it. The New York Times disclosed that call and others from Aug. 7 and 8 on Tuesday.
Georgian President Mikheil Saakashvili told reporters Tuesday that the transcripts of the calls provided "incontrovertible evidence" that Russian forces had entered South Ossetia well before Georgian forces went in.
Russian Foreign Ministry spokesman Andrei Nesterenko called the Georgian claim "not serious," according to the Associated Press, adding that major troop movements would have been tracked by satellites of NATO alliance members.
Georgia's interior minister, Vano Merabishvili, said that after hearing intelligence reports of Russian troop movement on Aug. 6, Georgian authorities spent a day confirming them before responding by moving their own forces toward South Ossetia.
Asked why Georgia did not publicize the Aug. 6 date earlier, Interior Ministry spokesman Shota Utiashvili said the cellphone call recordings were temporarily lost in the chaos of war that followed.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/16/AR2008091603322.html
===========================================
Sep 17 03:05 PM US/Eastern
US Secretary of State Condoleezza Rice will give "a significant speech" on Thursday about the consequences for Russia over its invasion of Georgia, a senior US official said.
"I would describe it as a significant speech about US-Russia relations as well as about Russia's place within the international system," the State Department official told reporters Wednesday on the condition of anonymity.
The speech will provide "an analysis of how we have gotten to this point, it talks about the kinds of choices Russia had before it and it talks about the international system and its response to Russia," he said.
The official was referring to choices Russia had before it invaded neighboring Georgia on August 7 and recognized the breakaway Georgian regions of South Ossetia and Abkhazia.
When asked if the speech would mention future possible measures or would be limited to the current responses of the international community, the official replied by saying "future possible" measures.
Since mid-August, Rice has hinted at retaliatory steps for Moscow's "disproportionate" military action against Georgia.
Several US officials have since raised the possibility of suspending negotiations for admitting Russia to the World Trade Organization.
They have even talked of excluding it from the Group of Eight leading industrial nations and the Organization for Economic Cooperation and Development.
http://www.breitbart.com/print.php?id=080917190529.6pmgtbo5&show_article=1
==============================================
Russian gunboat diplomacy in Crimea?
The Moskva cruiser took part in last
month's blockade of Georgian ports
The row over the future of Russia's Black Sea Fleet in Crimea could become a flashpoint in the already strained relations between Kiev and Moscow, says the BBC's Rupert Wingfield-Hayes, as he goes aboard the Russian flag ship in Sevastopol.
There is a very serious question being posed to the West in the wake of the Georgia conflict.
In the aftermath of Russia's invasion, should Nato move ahead more rapidly with plans to bring both Georgia and Ukraine inside its protective fence?
The argument being made by many Western commentators and politicians is that it should. But sitting in Moscow one cannot help wondering whether those calling for Nato to expand further and faster really understand the complexity and potential dangers involved.
This week I went to Sevastopol on the Black Sea coast of Crimea, Ukraine.
Sevastopol has twice been besieged by invading European powers. Just down the road is Balaklava where the British Light Brigade famously charged to their deaths in 1854. Florence Nightingale set up her hospital nearby. In 1941, it was Hitler's turn to lay siege.
Sevastopol is one of the most delightful cities anywhere. Once-grand neo-classical buildings dot the limestone hills that surround one of the most lovely natural harbours in Europe.
You can immediately see why the Russians chose this spot to build their great naval city.
Today, what is left of Russia's mighty Black Sea Fleet still rides at anchor in the harbour below.
I was taken aboard the flag ship, a huge grey monster called the Moskva (Moscow), an 11,000-tonne missile cruiser built during the Cold War to take on America's aircraft carriers.
The Moskva is now more museum piece than threat to the US Navy. But it, and its sister ships, still have the potential to bring the West and Russia in to conflict once more.
Please turn on JavaScript. Media requires JavaScript to play.
On board with the Russian Black Sea Fleet
The problem is that, by a quirk of history, when the Soviet Union collapsed Sevastopol ended up in Ukraine. Russia has a lease on the naval base until 2017. Then Ukrainian President Victor Yushchenko says the navy must go.
But the Russians have no intention of leaving.
"We built this place more than 200 years ago," Rear Admiral Andrei Baranov, the current commander of Russia's Black Sea Fleet told me. "Its steeped in the history of the Russian Fleet."
'Punishing sword'
If you climb up the slopes behind the naval base you can find some of that history in the thousands of graves of Russian sailors, from humble deck hands, to famous admirals.
We built this place more than 200 years ago. Its steeped in the history of the Russian Fleet Rear Admiral Andrei Baranov head of Russia's Black Sea Fleet
In the naval church high on a hill overlooking the harbour, I met Father Igor.
With his long grey beard and flowing robes he was the very picture of a Russian Orthodox priest. But when it comes to Ukraine joining Nato he is every inch the Russian nationalist.
"The West is always trying to subdue Russia” he told me.
"Russia can remain patient for a long time, but then it will unleash its deadly punishing sword. Russia has already shown it can do it, in Georgia. The West shouldn't provoke it here."
Nato is seen by many Russians as being deeply antagonistic towards Russia. More than 90% of Sevastopol's population is ethnic Russian, and they are absolutely opposed to Ukraine joining the alliance.
'We choose Russia'
Sitting in a Sevastopol street cafe, my ears were suddenly assaulted by the sound of a mass of car horns.
Then up the street came a long line of cars all hooting madly, with huge Russian flags sticking out of their windows.
Far from being annoyed by this spectacle many of the other car drivers joined in the frantic hooting.
The convoy was from a group called "we choose Russia".
"The Ukrainian nationalists in Kiev are trying to push us Russians out of here," said the group's leader, local MP Gennady Basov.
"If this continues, we'll have no choice but to defend ourselves with any means possible."
"Does that include taking up arms?" I ask him. "By whatever means," he repeats.
It sounds like an empty threat. But there is no doubt that Ukraine's Russian minority is as determined as Moscow to stop Nato's expansion further east.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/europe/7622520.stm
===================================================
Russian trading halted as stocks plunge
Story Highlights
Russia pumps more money into banking sector as trading halts
Earlier RTS and MICEX fall by more than 10 percent
Central Bank: Daily "repo" liquidity fully used by banks for third day in a row
Russian banks face a crunch period in October
MOSCOW, Russia (AP) -- The Russian government pumped more money into an increasingly stressed banking sector Wednesday and the stock exchanges suspended trading amid turmoil that brought back bad memories of the country's financial collapse 10 years ago.
Russia's primary stock indexes, MICEX and RTS, plummeted for a third consecutive day, with banking stocks leading the way, prompting regulators to halt trading at midday. As of 5 p.m. (1300 GMT), trading had still not resumed.
In an emergency measure to shore up liquidity, the government said it would lend the country's three largest banks -- Sberbank, VTB, and Gazprombank -- up to 1.12 trillion rubles ($44.9 billion) for a minimum of three months, said the Finance Ministry in a statement.
"These are market-making banks capable of ensuring the liquidity of the banking system," said the statement.
"Essentially we're counting on them as core banks to be able to lend to small and medium banks," Finance Minister Alexei Kudrin said in televised comments.
The government is racing to restore confidence in the banking sector after a tumultuous few days on the Russian markets, which have been driven down by margin calls and an exodus of buyers.
The moves came a day after Russian stocks plummeted to their lowest level in nearly three years as tumbling oil prices and Wall Street turmoil focused concerns about Russia's commodity-driven economy. Since May, the RTS has fallen by more than 55 percent.
First Deputy Prime Minister Igor Shuvalov said Wednesday everybody needs to "calm down," and have faith in the government, the Interfax news agency reported. He promised more liquidity measures would be announced soon.
Nataliya Orlova, chief economist at Alfa Bank, said the situation was more serious than initially believed.
"The reason is a lack of trust," she said. "A number of banks are trying to estimate which banks are facing losses."
Boutique investment bank Kit Finance was poised to be the first victim in the crisis after the bank confirmed that it had defaulted on some short-term borrowings and was seeking a strategic investor.
Russia's investment climate has faced wider concerns about its health following a damaging corporate wrangle at Anglo-Russian oil venture TNK-BP, Prime Minister Putin's attack on a mining company over allegations of price-fixing and Russia's recent invasion of Georgia.
The Central Bank has pumped in ever-increasing amounts into the banking sector in recent weeks through its twice-daily "repo" auctions. It provided a record 365 billion rubles ($14.3 billion) on Wednesday, topping the previous day's record of 361 billion rubles ($14.1 billion). The Finance Ministry separately provided an additional 150 billion rubles on Tuesday, and said it would provide another 350 billion rubles to banks by Thursday.
The current situation is reminiscent of 1998 when many ordinary Russians saw life savings wiped out. Analysts, however, pointed out that small banking customers are now partially protected by deposit insurance and the government is a much healthier financial state than 10 years ago.
"Is this a repeat of 1998? Definitely no," said Kingsmill Bond, a strategist at Troika Dialog. "In 1998, the government had a lot of debt and very limited reserves. Today the Russian government has no debt and huge reserves."
Still, fears have mounted that the building crisis of confidence among investors and bankers could spread to ordinary Russians, prompting a run on banks.
"This is the most important question," Orlova said. "At the current moment it's fine because Russians are not deeply involved in the financial markets, but I think this is the risk. ... This would be much worse than a confidence crisis between the banks."
Russian stock indexes edged up in early trading, but then resumed their decline. The ruble-denominated MICEX fell by more than 10 percent at one point, before climbing back to a 3 percent decline just before regulators suspended trading on both exchanges at 12:10 p.m. (0810 GMT). The RTS fell 6.4 percent before the suspension.
Shares in Sberbank and VTB fell on MICEX by 9.6 percent and 15.7 percent, respectively.
Regulators had announced that trading would resume by 5 p.m. (1300 GMT), but that deadline came and went without a resumption of trading and no explanation.
Fearing that Russia's economy could face a repeat of the 1998 economic crisis -- which saw the ruble devalued, default on the country's sovereign debt, and widespread bank foreclosures -- the government has promised to pump more money into the banking system.
Russian banks face a crunch period in October, when quarterly value added tax payments are due. They will also have to pay back the short-term money borrowed from the government. Banks have already started to hunker down, closing their doors to many third-tier and some second-tier borrowers.
RIA-Novosti reported that Mirax Group, a large real estate developer building Europe's largest skyscraper on a Moscow river embankment, announced it would put on hold all new projects because of the global crisis.
Banking officials tried to calm investor fears.
"The problem now is of a more psychological nature than a real danger," Garegin Tosunyan, head of the Association of Russian Banks, told Ekho Moskvy radio. "If people begin taking their money and hiding it under the mattress, of course it will have a negative effect on the economy."
Find this article at: http://edition.cnn.com/2008/BUSINESS/09/17/russia.banking.ap
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FINANCIAL TIMES Sept. 17, 2008
Russia lays down the law for a world in need of its wares
Alan Beattie, Charles Clover
Russia has never been big on adopting international standards. While most of Europe had brought in the Gregorian calendar by the end of the 18th century, it took Russia until after the Bolshevik revolution of 1917 to fall into line.
But since last month’s Georgian crisis, Moscow has taken a string of actions that look to many like a deliberate abrogation of international economic rules. In quick succession, it held up streams of Turkish trucks at customs posts, announced it would suspend commitments made as part of its application to join the World Trade Organisation, banned poultry imports from 19 American companies and declared it would “review” the trade privileges it currently extends to Ukraine.
Anders Aslund at the Peterson Institute for International Economics in Washington, a critic of the current Kremlin, says: “Russia has been breaking agreements at the rate of about two a day.”
Ministers insist they are not turning their backs on the world. Dmitry Medvedev, Russia’s president, said this week that Moscow – the only big trading power outside the WTO – still wants to join the club. But trade officials and experts are not confident that Russia is prepared to make the sacrifices necessary. Moscow, they say, has a distinctly mixed record of binding itself with rules that constrain trade and investment dealings with foreigners.
When it emerged from the Soviet era in the early 1990s, Russia rapidly started collecting the badges of international economic respectability. Under Boris Yeltsin, president from 1991 to 1999, it agreed a flurry of bilateral treaties protecting foreign investors and signed the Energy Charter Treaty, which aims to guarantee security of investment and supply for oil and gas. In 1993 Moscow started the long and tortuous process of applying to join the WTO.
But even before Mr Yeltsin was replaced by Vladimir Putin, there were signs that the drive to end decades – indeed, centuries – of relative economic isolation was hitting potholes. The Russian parliament, or Duma, refused to back several of the bilateral investment treaties, including one with the US, and did not ratify the ECT.
Since Mr Putin’s succession, Moscow’s enthusiasm for international trade and investment rules has diminished sharply. Investment treaties tailed off abruptly, while Russia adopted a new model for its treaties that gave foreign investors much less protection than the Yeltsin-era version. The Kremlin also exploited ambiguities in existing treaties to argue that Russia itself has the power to determine whether or not its government’s actions constitute “expropriation” of foreign investors’ interests.
Some irate investors are trying to hold Moscow to account. After the Russian government in 2004 in effect seized the assets of the oil giant Yukos, Europe-based shareholders launched the largest investment arbitration claim in history. Their lawyers argue that according to the rules of the ECT, the treaty applies even though it was not ratified. (US shareholders have no such recourse, since the US is not itself an ECT signatory.
But experience suggests that collecting on any award might prove difficult. After Franz Sedelmayer, a German businessman, had property seized in St Petersburg, an arbitration panel ruled he was owed compensation in 1998. Russia refused to pay and it took nearly a decade of legal wrangling before he got a court to seize Russian government assets abroad. Emmanuel Gaillard, head of international arbitration at the law firm Shearman and Sterling in Paris, represents European shareholders of Yukos. He says: “Russia has a terrible record in compliance . . . They want to get the benefit of treaties without the obligations.”
Russia’s application to join the WTO was encountering problems even before the Georgian crisis. Each of the organisation’s 153 existing members has the right to block new entrants. Trade diplomats say that Tbilisi in particular has been making things difficult, retaliating for blocks that Moscow imposed on Georgian exports two years ago by preventing meetings of the official working party on Russia’s accession.
Mr Putin says that Russia will not join the WTO if the price is too high and has threatened to suspend import quotas of poultry and other produce agreed as part of its accession negotiations.
Moscow has further signalled it might revoke bilateral trade privileges for Ukraine, arguing that since its neighbour recently joined the WTO, all members of the group can use Ukraine’s privileged access to the Russian market as an export platform. There is little that Kiev can do about this. Despite various attempts to bind the former Soviet states into a unified free trade area, Russia and its immediate neighbours are still covered by an ad hoc patchwork of weak trade arrangements. Mr Aslund says that with the exception of Russia’s economic union with Belarus, these deals are “essentially meaningless”. Unlike most bilateral and regional trade pacts, they have little binding force or recourse to dispute settlement through arbitration.
All of this has left international investors and governments singularly short of statutory instruments to stop Russia throwing its weight around in the trade arena. When the EU suggested that it might stop negotiations over renewing a “partnership agreement” with Moscow – an arrangement Mr Aslund dismisses as of mainly symbolic value in any case – Vladimir Chizhov, Russia’s permanent representative to the EU, was blunt. “We don’t need these talks or this new agreement any more than the EU does,” he told reporters. “It is more a self-punishment for the EU.”
High world energy and food prices have put Russia, a big net exporter of both, in a powerful negotiating position. One of the EU’s key demands during Russia’s WTO entry talks is for Moscow to promise not to limit or tax its commodity exports – hardly a sign of strength from Brussels.
Masha Lipman of the Carnegie Moscow Center says: “If we envision Russia’s trading partners saying we are no longer importing from you, and no longer exporting to you, of course Russia would suffer, but this is totally inconceivable.”
Christopher Roberts, senior trade analyst at the law firm Covington and Burling, says: “The Russians have always been a great deal better than the Europeans at interfering in trade. If the Europeans try it, their traders are up in arms.”
Mr Medvedev said this week that Russia had no wish to be an outcast. “We don’t need any confrontation or isolation,” he said. “We had enough of it for decades.” But unless Moscow’s hand is forced by turbulence in its banking system or by a collapse in the demand for oil, the price of acquiring all the badges of international propriety may be more than it wants to pay.
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A Run on Russia
The main stock index is down 55% in four months, banks are starved for capital and teetering on the brink, the currency is at a one-year low and the government is throwing money at the problem. We're not talking about Wall Street.
The current carnage on Russian markets comes amid global market turmoil. But the dive in Moscow began before the wider world cared about AIG's balance sheet, and its chief causes are home-grown. To wit, the bill for eight years of Putinism is coming due. And a Kremlin leadership that only weeks ago brimmed with menacing self-confidence is struggling to slow this financial free fall.
AP
The first sign of trouble came in late July when Prime Minister Vladimir Putin lashed out at a Russian coal and steel company, Mechel, for alleged price gouging and appeared to threaten personally its chief executive. Mechel shares fell by a third, and the incident sent a chill through the market as a whole. Investors woke up to the systemic risk to property rights and the lack of any rule of law in Russia. They did so belatedly, we'd add, considering the attempted or successful expropriation of Yukos, BP and Shell assets and the blatant use of state resources to menace private business.
Another trigger was last month's war in the Caucasus. The Russians routed the Georgian army in four days and annexed -- in all but name -- its provinces of South Ossetia and Abkhazia. Then Russia got routed by the global economy. Since the war started, investors have pulled more than $35 billion from Russian markets. Russian businesses are having trouble getting access to international financial markets, as foreign lenders wonder if they can get paid back. Some $45 billion in foreign debt held by Russian corporates must be refinanced by the end of the year, and the cost of doing so is rising.
Other emerging markets have been hit hard in recent weeks, particularly the natural resource-driven economies. But Russia's is the worst performing market in the world this year. The decline from the all-time high in May wiped out $680 billion in value; Russia's entire GDP was just $1,286 billion as of last year. On Tuesday, the main ruble-denominated index was off 11.2%, the steepest fall since the 1998 ruble crisis. It plummeted yesterday as well, before regulators stopped trading for good at midday.
Each of the past three days, the Russian central bank injected over $10 billion into the money market, and also moved to prop up the ruble. The Kremlin yesterday lent the country's three largest banks $44.9 billion. Thanks to the oil and gas windfall of the past few years, Russia has built up a $573 billion reserve war chest that can tide the financial system over for a while and avoid a rerun of the 1998 crisis.
Not forever, especially if oil prices continue their fall. Russia's economy is hugely dependent on natural resources. In good times, the Kremlin pocketed the billions and didn't worry about pushing economic reforms. The outside investment needed to diversify was discouraged by the Kremlin's backsliding on the rule of law. Now the drop in crude prices is squeezing the country's blue chips and the Kremlin's coffers, even though on the current budget the Russian state will break even with oil at $70 a barrel or above.
Long reluctant to criticize the thin-skinned Putin regime, businesses have started to voice their unhappiness. On Monday Putin sidekick and President Dmitry Medvedev hosted 50 leading businessman at the Kremlin, and acknowledged that the Georgia war contributed to the country's economic troubles. He said Russia didn't want to be isolated, but added, "If they" -- meaning the West -- "try to stop us accessing certain markets there will be no catastrophe for the state or for those sitting here."
As it has turned out, much faster than anyone realized or hoped during the Georgian war in August, Western governments haven't had to do anything to have Russia pay a price for its aggressive behavior. Which is fortunate, considering the weak stomachs in Europe and at the State Department for any serious response to the war. Investors did it for them.
The war has also exposed the fiction that Russia is the next China -- an authoritarian political regime that's stable, predictable and on a path toward becoming a free-market economy. It's authoritarian all right, but it lags China on other counts. After this war, Russia is unlikely to join China in the World Trade Organization. Georgia and Ukraine, another potential target for Russian aggression, are in that club and in a position to block entry. But the bigger hurdle ought to be the WTO's standard that candidates be "market-based" economies ready to respect the commitments and rules of this international organization. By this standard, Russia doesn't belong there, or in the OECD or G-8.
Perhaps the Russian people, who give their leaders high marks in opinion polls, will begin to see the economic toll from Putinism and question whether their country is well-served by this leadership.
http://online.wsj.com/article/SB122169481775149987.html#printMode
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Georgia Says Cellphone Records Are Evidence Russia Started War
By Tara BahrampourWashington Post Foreign Service Wednesday, September 17, 2008; Page A14
TBILISI, Georgia, Sept. 16 -- Georgian authorities on Tuesday released recordings of cellphone calls they say are evidence that significant numbers of Russian troops began moving into the breakaway region of South Ossetia on Aug. 6, a day before war with Russia started.
Earlier, Georgian authorities had said Russian forces came through a tunnel from Russia late on Aug. 7, which the Georgians describe as the act of aggression that triggered their decision to order their own forces into South Ossetia. Russia says its troops came through the tunnel on the evening of Aug. 7, but only after Georgia launched an attack on Tskhinvali, the South Ossetian capital.
Who started the war, and when, has become the subject of heated debate here and in Moscow. Both Russia and Georgia have struggled to portray themselves as acting in self-defense or, in Russia's case, in defense of its smaller neighbor.
The timing of the Russians' entry into the tunnel is significant because it could clarify whether the troop movement was an act of aggression or a reaction.
Georgian officials said that one intercepted call on Aug. 6, released to The Washington Post on Tuesday, was a conversation between Ossetian militia members discussing an Ossetian soldier who had been accidentally wounded by a Russian who came in with a column of Russian troops. "From these Russians, from the Russian army, someone unintentionally fired, and this boy was wounded," an Ossetian is heard saying on the call, which was played on a Georgian commercial network.
In an Aug. 7 call, a man the Georgians identify as a guard at the tunnel says that it is "full" of Russian military vehicles and that the Russians have asked local authorities to come and check it. The New York Times disclosed that call and others from Aug. 7 and 8 on Tuesday.
Georgian President Mikheil Saakashvili told reporters Tuesday that the transcripts of the calls provided "incontrovertible evidence" that Russian forces had entered South Ossetia well before Georgian forces went in.
Russian Foreign Ministry spokesman Andrei Nesterenko called the Georgian claim "not serious," according to the Associated Press, adding that major troop movements would have been tracked by satellites of NATO alliance members.
Georgia's interior minister, Vano Merabishvili, said that after hearing intelligence reports of Russian troop movement on Aug. 6, Georgian authorities spent a day confirming them before responding by moving their own forces toward South Ossetia.
Asked why Georgia did not publicize the Aug. 6 date earlier, Interior Ministry spokesman Shota Utiashvili said the cellphone call recordings were temporarily lost in the chaos of war that followed.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/16/AR2008091603322.html
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US Senate congratulates Latvia on 90th anniversary, urges Russia to acknowledge occupation
18:38, 17. september 2008RIGA, Sep 17, BNS - The US Senate on Tuesday passed a resolution congratulating Latvia on the 90th anniversary of its independence and urging Russia to acknowledge the Soviet occupation of the Baltic states.
The resolution notes that already in 2005 the US Senate officially called on the Kremlin to issue a clear and unambiguous statement of admission and condemnation of the illegal occupation and annexation by the Soviet Union from 1940 to 1991 of the Baltic countries of Estonia, Latvia and Lithuania.
The Congress "calls on the President and the Secretary of State to urge the Government of the Russian Federation to acknowledge that the Soviet occupation of Latvia, Estonia, and Lithuania under the Molotov-Ribbentrop Pact and for the succeeding 51 years was illegal" the resolution says.
The document underlines that the US never recognized the Baltics as "Soviet republics" and maintained continuous diplomatic relations with these countries throughout the Soviet occupation.
The resolution also notes that the US "recognizes the common goals and shared values of the people of Estonia, Latvia, and Lithuania, the close and friendly relations and ties of the three Baltic countries with one other, and their tragic history in the last century under the Nazi and Soviet occupations."
FOR THE TEXT OF THE RESOLUTION: http://www.opencongress.org/bill/110-sc87/text
Baltic News Service
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10:00 17 September 2008
Yushchenko: Russia wants to destabilize Ukraine
President Viktor Yushchenko accused Russia on Tuesday of trying to destabilize Ukraine by encouraging separatists in the Crimea, as fears grow about Russia's willingness to throw its weight around the former Soviet Union.
In an interview with The Associated Press, Yushchenko sought to tamp down criticism of his leadership in Ukraine after the collapse of his pro-Western coalition raised the possibility of a third parliamentary election in as many years.
Russia's war with Georgia last month rattled Yushchenko's pro-Western government, which like Georgia has pushed for membership in NATO and the European Union. Many Ukrainians wonder whether Ukraine will be the next victim of Russia's drive to stop NATO's expansion to its borders.
Many fear Moscow could lay claim to Crimea, the Black Sea peninsula that once belonged to Russia and is now home to Russia's Black Sea fleet. More than half its residents are ethnic Russians.
Yushchenko said Russia was interested in causing "internal instability" in parts of Ukraine.
"Without a doubt, such scenarios exist," he said.
"For some of our partners, instability in Ukraine is like bread with butter," he said.
Yushchenko said Ukraine was too big and strong to give in to threats from Russia or a repeat of the war in Georgia, which resulted in Russia invading the country, routing its military and occupying large swaths of its territory. Moscow has recognized two breakaway Georgian regions as independent nations.
"Will they repeat the Georgian scenario?" Yushchenko asked. "For sure, no."
"Ukraine is not Georgia," he said. "I think that today to deal with a country like Ukraine in such an inconsiderate manner ... is not a good idea for anyone."
Russia wants to continue leasing the Sevastopol naval base in the Crimea from Ukraine after the current agreement expires in 2017. Yushchenko said the war with Georgia, with Russian warships based at Sevastopol participating, showed again that the Russian navy must leave Crimea.
Ukrainian officials also have accused Moscow of stirring trouble with claims that the Crimea belongs to Russia and by allegedly giving Russian passports to thousands of Crimeans to stoke separatist sentiments.
Yushchenko, who has made NATO membership the central theme of his four-year presidency, promised that Ukraine would eventually join the Western alliance, and he vowed to overcome domestic resistance to NATO. Opinion polls show more than half of Ukrainians oppose membership, with opposition strongest in the Russian-speaking regions in the east and south, including Crimea.
Yushchenko, wearing a striped black suit and red tie, spoke and gestured confidently during the 30-minute interview. His face looked nearly healed of the pock-like scars caused by the dioxin poisoning that briefly knocked him out of the 2004 presidential election race. He has suggested the near-fatal poisoning was masterminded in Russia.
Yushchenko spoke hours after his coalition was declared dead, starting a 30-day countdown for lawmakers to either form a new alliance or call elections.
Yushchenko said the collapse did not threaten the country's tumultuous democracy. He accused his coalition partner Yulia Tymoshenko — the prime minister who was his ally in the 2004 Orange Revolution — of betraying national interests and acting selfishly.
The alliance between the two leaders' parties disintegrated amid infighting ahead of the 2010 presidential election, in which both expect to compete.
Yushchenko's allies pulled out of the coalition after Tymoshenko sided with opposition lawmakers to curtail presidential powers. Yushchenko again accused Tymoshenko of acting on the Kremlin's behalf by failing to condemn the war in Georgia and of seeking to retain power at all costs ahead of the vote.
Tymoshenko said in a statement before the interview that she hoped Parliament would find a way out of the crisis.
Analysts believe that the next coalition may include the Russia-friendly Party of Regions and be more responsive to Moscow's demands.
http://eng.for-ua.com/news/2008/09/17/100015.html
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Baltic States: change in air as reliance on exports grows
Robert Anderson
Sept. 12, 2008
Lithuania, Latvia and Estonia are represented only by 14 companies in the CEE500 - and by just two in the top 100 - but that hardly does justice to their achievement in overcoming tiny home markets to become important niche exporters.
Baltic exporters turned westwards after regaining their independence from the Soviet Union in 1991, but are now increasingly looking east as Russia's economy booms and the eurozone slows down.
Diplomatic spats with Moscow have not stopped Baltic companies such as Parex Bank, Arco Vara real estate, Olympic Entertainment casinos and the IT wholesaler Elko from successfully entering the former Soviet Union, and the current international tension over Georgia so far looks unlikely to change this.
In fact, Baltic companies will have to rely even more on exports over the next few years as their domestic economies enter recession.
Estonia is in technical recession and Latvia is likely to follow before the end of the year, as rising inflation and the collapse of a housing boom depress consumer sentiment and investment.
Companies also face the challenge of improving productivity and keeping wage increases down. Fast wage inflation over the past few years - peaking at close to 30 per cent in Latvia in 2007 - will force many companies that used to rely on their cost advantage to move up to higher value-added production or close.
"A sizeable part of production has been based on low labour costs," says Erkki Raasuke, chief executive of Hansabank, the biggest Baltic bank. "This advantage is now gone."
Baltic companies should be well placed to make these changes as they are small and nimble, accustomed to downturns and rapid changes, and few remain state-owned outside the energy and transport sectors.
Foreign investors - particularly from Sweden - dominate banking and telecommunications, but private local groups have carved out strong positions in many sectors, particularly retail.
"Being small and flexible they will be able to handle this crisis," says Peter Elam Håkansson, chairman of East Capital, a Swedish fund manager that has invested widely in the Baltic states.
Seven of the top CEE500 companies come from Lithuania, the largest of the Baltic states with a population of 3.7m. Lithuania has the biggest domestic market and inherited the strongest manufacturing base from the Soviet period.
Unlike its neighbours it is also expected to avoid recession, though growth slowed sharply to 5.3 per cent in the second quarter.
Mazeikiu Nafta is the largest Baltic company by revenue at number 36, but this is a steep fall from its last ranking of 15, the result of a serious fire at the refinery at the end of 2006. This year Mazeikiu - which was privatised in 2006 to PKN Orlen of Poland, the largest CEE500 company - should climb back up the rankings, boosted by high oil prices.
Maxima is the second largest Baltic company at number 62, demonstrating Lithuania's strength in retailing, derived from its early consolidation of the domestic sector. Maxima, which is part of the locally-owned Vilniaus Prekyba conglomerate, has expanded throughout the Baltics and also into Bulgaria. Along with other Baltic retailers it has benefited from soaring retail sales over the past few years, fuelled by rising wages and easy credit, but it will now have to endure tougher times.
Latvia contributes five companies to the CEE500 and Estonia only two, and these are largely state-owned utilities or foreign-owned retailers and oil companies. Nevertheless, both countries have several interesting smaller companies that are expanding outside their tiny home markets.
Estonia has produced many more of these kinds of companies than its population of just 1.5m would suggest. Its government was the quickest to build a free market economy and it has continued to lead from the front, with liberal economic policies, including low taxes.
Tallink, number 228 in the CEE500, is the third largest Baltic company and the biggest that is listed on one of the area's three tiny stock exchanges. The ferry company has soared up the rankings since acquiring Finland's Silja Line in 2006, a rare example of a Baltic company taking over a western European rival.
Estonia has also produced Hansabank, which is now part of Swedbank of Sweden, as well as the listed companies Olympic Entertainment casinos and Arco Vara, a real estate and construction group.
Latvia can also boast several successful start-ups. Privately-owned Parex Bank, Latvia's second biggest and 46th in the CEE Top 50 Banks ranking, has expanded to become by far the largest independent bank left in the Baltic states. It has also built a profitable asset management and car leasing business in the former Soviet Union. However, it faces not just a depressed domestic market but higher funding costs ,which will constrain its growth.
Elko, an IT equipment wholesaler, is also looking east, increasing sales in Russia by 61 per cent in the first half of this year. Its owners are looking for more private equity investment or a listing to finance its continued expansion into central and eastern Europe.
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Lithuanian government allocated seven times less money than expected for referendum on Ignalina
Petras Vaida, BC, Vilnius, 17.09.2008.
The Government of Lithuania allocated for a referendum regarding prolonging operation of the Ignalina Nuclear Power Plant seven times less funds than the Central Electoral Committee had asked, Radio Vilnius informed.
Ignalina.
The referendum is to be held in October alongside parliamentary election, informs ELTA.
The lion's share of the referendum's budget had to be assigned for salaries to members of the Electoral Committee.
Though five millions euro received will be sufficient for printing out bulletins only; therefore the Central Electoral Committee intends to cover remuneration expenses from the money for organizing the election.
Parliamentary election and consultative referendum regarding the power plant will be held on October 12, 2008.
http://www.baltic-course.com/eng/energy/?doc=5249
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Tens of thousands of pilgrims from Lithuania and beyond descended on Siluva
BC, Siluva/Vilnius, 17.09.2008.
Tens of thousands of pilgrims from Lithuania and beyond have descended on this tiny town to celebrate the "apparition" of the Virgin Mary 400 years ago, predating even the better-known miracles at Lourdes and Fatima.
Historically, Siluva in central Lithuania has been a focal point not only for Roman Catholics but also for Lithuanian national and cultural identity during decades of brutal Russian and Soviet domination, writes ELTA.
The church maintains that in 1608 the Virgin Mary, holding an infant Christ, appeared above a rock to shepherds in a field near the town.
"There was a time when my beloved Son was adored by my people, but today people plow and sow," church teaching says Mary told the shepherds.
Many Lithuanian pilgrims pay homage by coming on foot. Locals say pilgrims have also traveled from neighbouring Poland and as far as the United States for the week-long celebration.
"We see traffic jams on our street, but they are full of people on foot not in cars!" local priest Father Erastas Murauskas told AFP/ELTA. He expects the largest wave of faithful on Sunday for the anniversary's main ceremonies.
The Virgin's legendary apparition predates others revered in Catholicism, notably to a peasant girl in the French town of Lourdes in 1858 – where Pope Benedict XVI will visit Sunday – and to three shepherd children at Fatima, in Portugal, in 1917. The Church holds the Virgin also appeared at Banneux, Belgium in 1933 and in Medugorje, Croatia in 1981.
Deeply devoted to Mary, the late Polish-born pontiff John Paul II visited Siluva 15 years ago on September 7, 1993.
Christianity first came to Lithuania in 1386 when the marriage of Lithuanian Grand Duke Vytautas and Queen of Poland Jadwiga forged an alliance between the two countries. It was the last European country to adopt the Christian faith, nearly four centuries after its neighbours.
Previously, the Teutonic knights, a German Roman Catholic order, had tried but failed to convert Lithuanians by force.
Catholicism became an integral element in the construction of the Lithuanian state and in shaping national identity.
"The defence of faith was regarded as integral to defending Lithuanian identity, culture and and the nation," said Luidas Jovaisa, a Lithuanian academic specialising in the history of religion.
As a province of Tsarist Russia during the 19th century, Lithuania faced a policy of Russification. The Latin alphabet was banned and Roman Catholic churches were either closed or turned into Russian Orthodox churches.
"At this time, the bishop of Samogitia Monsignor Valancius was the first to organise the distribution of clandestine periodicals in Lithuanian, printed in the Latin alphabet in neighbouring Germany," said Jovaisa.
"Later the nationalists used the network to distribute the first Lithuanian newspapers," he said.
It was the same scenario after Lithuania was annexed by the Soviet Union in 1940 until it regained independence in 1990-91.
Under the Soviets, churches were transformed into warehouses or museums of atheism while practising Catholics had to hide their faith.
Lithuanians have not forgotten their struggles for freedom. Some pilgrims here carry Belarus flags to show their support for the opposition in Belarus, disputing the rule of authoritarian President Alexander Lukashenko. Others carry banners with messages of support for Georgia.
"We supported the Georgians in their fight for liberty because we took the same road to freedom. For us, religion was a way to feel free," said another pilgrim Robertas, who declined to give his last name.
http://www.baltic-course.com/eng/baltic_news/?doc=1605&ins_print
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Nine out of ten Lithuanians give bribes
Danuta Pavilenene, BC, Vilnius, 17.09.2008.
Nine of ten Lithuanians deliberately give bribes, and only tiny part of residents become victims of corruption because of not being aware that their behavior is considered to be corruption.
This was study carried out by the Special Investigation Service, informs Lithuanian Radio.
Meanwhile, officials claim that residents are well aware of the fact that giving a bribe is a crime and that they become victims of corruption due to ignorance in very rare cases.
http://www.baltic-course.com/eng/analytics/?doc=5229&ins_print
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Finhill: decrease of oil price will reduce inflation in Lithuania
Danuta Pavilenene, BC, Vilnius, 17.09.2008.
It is likely that the sinking of the oil prices on the world markets will be long-term and will simplify the recovery of national economies as well as reduce inflation, claims Marius Buivydas, head of the analysis and evaluation department of the financial brokering company Finhill. This tendency will favorably influence the Lithuanian economy.
According to the analyst, the oil prices bubble is fading and this is thought to be related to scouted oil resources, decreasing liquidity and thinning belief that China and its neighbors may support economy growth.
"The decrease of oil price will favorably influence the oil consuming countries and affect the oil extracting countries in a negative way. The oil price slump in turn is expected to permit reducing energy costs and reactivate "cooling" economy. The slumping oil price is also to reduce inflation – both via the oil price component and by influencing food prices," the analyst explains. According to him, the analysis shows that the oil prices bubble was growing on speculations.
The analyst"s claims are confirmed by Lithuania"s inflation forecasts. According to the forecasts of the Lithuanian Department of Statistics, the monthly inflation calculated according to the harmonized index of consumer prices (HICP) will reach 0.4% in September this year and the annual inflation will stand at 11.11% compared to August. The average annual inflation should reach 10.74% in September.
According to Jurga Ruksenaite, chief specialist of the methodology and quality department of the Statistics Department, stabilization is forecasted for the petrol market, therefore this group of goods will not affect inflation in September.
http://www.baltic-course.com/eng/analytics/?doc=5226
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