January 19, 2015 - GLOBAL ECONOMY - Here are the latest signs of contagion among Russia's neighbors from the plunging ruble. As financial analyst Martin Armstrong warns, "this is symptomatic of a deflationary contagion,... we are in a major economic collapse on a global scale. Most people do not understand that this is the real threat we face."
Collapse contagion? Former Soviet Republic devalues currency by 18% as currency wars ignite
Most Americans could never find the tiny former Soviet Republic of Turkmenistan on a map, but the energy-rich nation recently something that could certainly have global implications.
As reported by Agence France-Presse (AFP) and financial analysis website Zero Hedge, Turkmenistan just devalued its currency against the U.S. dollar -- for now, still the world's reserve currency -- by 18 percent. It was a move described by financial experts as "contagion" tied to the recent devaluation of Russia's currency, the ruble, which is plunging due to falling oil prices and Western economic sanctions over Moscow's annexation of Crimea.
As AFP noted:
The highly secretive Central Asian country has vast oil and gas reserves while most of its five million people live in poverty.
On [Jan. 1], the website of Turkmenistan's central bank published the rate of 3.50 manats to the US dollar, from 2.85 manats, a depreciation of 18.6 percent.
The fall continues
As the manat has been devalued, so, too, has the ruble against the dollar, which is being viewed with ire by average Russians and certainly by Russian President Vladimir Putin.
The day of the currency devaluation, all of Turkmenistan's monetary exchange centers were closed, officially for a public holiday (New Year's Day).
The official exchange rate set by the Asian nation's central bank for the manat had been 2.85 to the U.S. dollar, a rate that had stood since 2009. Earlier that same year, Turkmenistan had removed zeros from the manat in a redenomination after the official exchange rate reached 14,250 to the U.S. dollar.
President Gurbanguly Berdymukhamedov has led the country since 2006, after the death of an eccentric dictator, Saparmurat Niyazov. He built a golden statue of himself that rotated in order to face the sun.
There is additional economic turmoil in Turkmenistan, all tied to the devaluation of the currency. Earlier on Jan. 1, the country's oil and gas ministry announced that gasoline prices had risen 60 percent, though that dramatically higher price had not yet led to long lines at gas stations.
One liter of a type of gas on New Year's Day cost one manat, but previously it cost 62 tenge (or 22 cents under the previous manat-U.S. dollar exchange rate). Though some analysts believe the price increase is tied to the devaluation of the country's currency, AFP reported that no official explanation had been given.
Turkmenistan -- which provided drivers with 120 liters of fuel free per month from 2007 until July 2013 -- claims to be holding the world's fourth-largest reserves of natural gas and has vast oil deposits as well.
The country's former Soviet neighbors have also taken economic fallout from the fall of the ruble, which dropped 41 percent against the dollar last year.
Just the beginning?
For instance, as AFP reported:
Kyrgyzstan saw its local currency, the som, fall more than 17 percent in value against the dollar in 2014, while Tajikistan's currency, the somon, lost nearly 14 percent against the dollar. Kazakhstan's central bank back in February devalued its currency, the tenge, by about 19 percent.
In addition, the central bank in another ex-Soviet Republic, Belarus, has adopted emergency measures to stave off further economic damage. In addition, President Alexander Lukashenko has dismissed the Belarus prime minister.
Martin Armstrong, of Armstrong Economics, a financial analysis firm, sees more contagion ahead.
"Turkmenistan is energy-rich and this is the latest sign of seriousness of the collapse in oil," he wrote on his website. "This will contribute to now force the dollar higher as commodities decline, the energy producing nations will be compelled to devalue their currencies in an effort to try to make ends-meet. Devaluations will result in an attempt to create inflation to offset the deflation. We are in a major economic collapse on a global scale. Most people do not understand that this is the real threat we face." - Natural News.
Decline in Russia’s GDP to cause domino effect in the region - EBRD
The Russian GDP forecast for 2015 was downgraded from plus 0.2 percent to a 4.8 percent decline by the European Bank for Reconstruction and Development. It’s due to falling oil prices and geopolitical tension that could mean a regional economic downturn.The EBRD has revised its September’s forecast saying the main reason for it was a plummet in oil prices. The last forecast was made with oil priced of $58 per barrel.
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| #Russia's economic outlook has deteriorated (Brent crude oil v US$-Rub) Context http://bit.ly/1Bsp4o3 |
“The halving of oil prices has added to the problems in Russia, whose economic growth was already slowing down amid uncertainty and weak investor confidence after the imposition of sanctions in 2014,” EBRD said in a report on Monday.
The bank said a sharp drop in oil prices and the depreciation of the Russian ruble are putting pressure on energy exporting countries and emerging markets which have close ties with the Russian economy.
The GDP in the region is expected to fall by 0.3 percent this year, while in September it was expected to increase by 1.7 percent.
“The depreciation of the ruble has increased pressures on the currencies of economies with strong trade, investment and remittances ties to Russia, with the sharpest declines seen in Belarus, Turkmenistan and Armenia,” says the report. It predicts that economic growth in Armenia and Moldova in 2015 will be close to zero, and Belarus expects a decline in GDP of 1.5 percent.
For energy-importing countries in Eastern Europe, South Caucasus and Central Asia the negative effects of lower export demand and remittances from Russia outweigh the benefits of lower oil prices, says the EBRD.
“Energy exporters Kazakhstan, Azerbaijan and Turkmenistan have also been negatively affected by the lower prices” said the report.
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| #Ukraine on the edge' #Україна - dangerously low level of international reserves http://bit.ly/1Bsp4o3 |
The EBRD has also downgraded the GDP of Ukraine and expects it to decline by 5 percent in 2015 compared to the September’s forecast of 2 percent.
“The Ukrainian economy remains in a particularly precarious state, the report said. In addition to the impact of the conflict in the east of the country, there is currently uncertainty about the volume and timing of international financial assistance,” the report said.
The European Bank for Reconstruction and Development was founded in 1991 to support 'market-oriented economies'. It operates in 36 countries in Europe, CIS and North Africa. - RT.
Moody’s downgrades Russia to just above junk level
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| Reuters / Mike Segar |
Moody’s international ratings agency has downgraded Russia’s sovereign credit rating to Baa3, which is just one notch above the non-investment grade. It follows similar moves from Fitch and Standard & Poor's.
The agency said the sharp decline in oil prices and Russia’s national currency – which could further undermine the country's “subdued growth prospects” – were the reasons behind the downgrade.
“Although the rating agency expects Russia's current account to stay in surplus due to import compression and continued capital flight, the ongoing repayment of external debt by the corporate, banking and public sectors and the outflow of direct investment will likely increase the speed of erosion of official foreign reserve,” Moody's said.
Moody's also placed Russia on a review for additional downgrade amid risks of a further decline in oil prices, during which the agency will assess Russia’s “foreign currency reserves cushion” in a situation when the “international market access is restricted for Russian borrowers due to sanctions.”
The downgrade will have “limited effect on the Russian economy, as the situation is already tense,” Vladimir Tikhomirov, chief economist at BCS Financial Group, previously told RT. He added that Russia already has limited access to international finance, while most international institutional investors started to sell their holdings of Russian assets back in March 2014.
However, if Russia is downgraded to junk status, the Russian market "will start falling sharply and the pressure on the ruble will increase,” Tikhomirov warned.
Last week, Fitch Ratings, with dual headquarters in New York and London, downgraded Russia’s credit rating to BBB- from BBB, which is also just one step away from junk level. Back in December, Standard & Poor's revised Russia’s rating to BBB-, saying there is a 50 percent possibility it will drop Russia to junk level in mid-January 2015.
Russian institutions' ratings slashed one notch by Fitch
Also on Friday, Fitch downgraded by one notch long-term foreign currency Issuer Default Ratings (IDRs) and debt ratings of 30 Russian banks and financial institutions.The list includes Sberbank, Gazprombank, and Rosbank, in addition to Russian Highways State Company (AVTODOR) and Post of Russia.
The company says the downgrade "reflects Fitch's view that Russia's financial flexibility, and therefore ability to provide support to these entities, has somewhat reduced, as reflected by the downgrade of the sovereign rating.”
In regards to Sberbank, Russia's biggest lender, Fitch said the downgrade reflected the lowering of Russia’s country ceiling to 'BBB-' last week. Sberbank's ratings “remain underpinned by their standalone strength, as well as potential sovereign support,” the ratings agency said.
Fitch warned of "the potential for them to be downgraded further if Russia's sovereign ratings are slashed and the country ceiling lowered.” - RT.
