Sliding Down
There will be no defaults
Nobody needs this blockchain
Another one
We can! But we need funds
Laugh if you want. Cry if you want
Sliding Down
Rosstat released data for April, which provides the first estimate of the decline in the Russian economy since the imposition of economic sanctions and confirms my hypothesis that the contraction will be gradual, shifting from one sector to another.
Rosstat does not give an estimate of GDP for the month. Still, it is traditionally assisted by the Ministry of Economy, according to which the economy declined at an annualized rate of 3% in April after growing 1.3% in March, 4.1% in February, and 5.6% in January. This estimate looks relatively modest, but “the devil is in the details”: The slight drop in GDP is explained by a sharp increase in “net exports” (exports minus imports) and high growth rates from December 2021 to February 2022. At the same time, the Development Center estimates that aggregate private demand fell 7% in April, and industrial production fell 5.5% relative to March. In addition, surveys show that many companies are actively de-stocking raw materials and components, which allows for maintaining production volumes today but is fraught with a sharp collapse tomorrow.
According to statistics, the Russian manufacturing industry continued to grow in April. Still, I am not inclined to overestimate this fact: All arms manufacturers, which operate in a continuous mode, fall into this category. At the same time, the cars’ production, internal combustion engines, and railway cars fell by 85%, 60%, and 25%, respectively, from April 2021. Production of furniture, which uses imported components (kitchen tables, cabinets, and mattresses), fell by 15%-20% from April of last year.
An essential indicator of the general economic situation was the decline in retail sales, which amounted to 9.7% from April of last year. Many experts believed this was due to the rush demand of the population in March; however, Rosstat data show that the peak of the rush demand occurred in late February. In their comments on this data, the Bank of Russia and the Ministry of Economy talk about a decrease in demand, but, in my opinion, it would be more correct to speak of a reduction in supply—remember the drop in car sales and a reduction in the range of non-food goods.
Export under pressure
In April, the Russian economy saw a slump in demand for its primary export commodities—oil, gas, and coal—whose daily production fell by 9.5%, 7.5%, and 5.5%, respectively. Notably, gas pumped through Russian gas pipelines fell by 18.5% in April vs. March, indicating an intense filling of storage facilities.
Production of potash fertilizers, whose exports were hit by sanctions, dropped by 38.5%. At the same time, Russian metallurgy, for example, did not show a decline, although one of the largest steel companies, Severstal, was hit by the EU sanctions and lost export opportunities to the European market.
Of course, it should be emphasized that the growth of world commodity prices more than compensated for the decrease in exports of Russian raw materials in physical terms.
To summarize: April provided the first quantitative data that allows us to talk about negative trends in the Russian economy. But this data is insufficient to make reliable forecasts: Remember, many straight lines can be drawn through one point.
There will be no defaults!
The committee regulating credit-default swaps (CDS) acknowledged a “default event” on Russian sovereign Eurobonds maturing on April 4. On that date, the Russian Finance Ministry was to redeem a $2 billion issue of dollar-denominated Eurobonds. More than 65% of the issue was owned by Russian investors and was redeemed in rubles. Attempts by the Ministry of Finance to force non-residents to agree to the same terms of debt repayment failed, and two days before the expiration of the 30-day grace period, the Ministry of Finance transferred dollars to repay their obligations. In doing so, however, the Ministry of Finance forgot that it had to add interest for the delay to the payment amount, which amounted to $1.9 million.
Although the Ministry of Finance tried to shift the responsibility for the delayed payment to “improper actions of financial intermediaries,” it stated that it was ready to settle all claims. This reaction, in my opinion, shows that the Kremlin has taken a political decision not to allow an official default to be declared. This is further confirmed by the fact that after London Citibank refused to perform the functions of Fiscal Agent, Registrar, Transfer Agent, and Paying Agent for four issues of Russian Eurobonds, the Ministry of Finance transferred those functions to the Russian National Settlement Depository. Thus, from now on, holders of those bonds will be able to receive coupons and principal amounts in full.
Nobody needs this blockchain
Rostec State Corporation unveiled the blockchain platform CELLS, which, according to its creators, could become an alternative to SWIFT in international settlements.
“The digital payment system on the blockchain platform can be used as a full-fledged replacement for SWIFT, providing high speed, security, and irrevocability of transactions. The system will make it possible to switch to settlements in national currencies, eliminate the risk of sanctions, and ensure the independence of national financial policies for clearing participants,” said Oleg Yevtushenko, Executive Director of Rostec.
According to him, CELLS provides up to 100,000 transactions per second with the possibility of considerable performance increase and storage and transfer of large multimedia files in a protected format.
I’m not ready to say anything about the technical component of this idea, but it looks like the state money was once again spent (sawed-off) to create a product nobody needs. The main advantage of SWIFT is not the technical characteristics of the computer complex but the fact that more than 11,000 banks and the largest companies in the world are connected to it. In this regard, I have strong doubts that the product of the company, 1) which is under EU sanctions and 2) which works closely with the FSB, will be in demand by anyone.
Another one
Anatoly Karachinsky, founder and owner of Russia’s largest software company IBS, was put on the U.S. SDN list in April as a member of the Board of Directors of Otkritie Bank (owned by the Bank of Russia) in connection with his attempts to circumvent U.S. sanctions. To maintain IBS’ ability to work with European and American customers, Karachinsky ceased to be a beneficiary of the IBS group by selling his shares to company managers.
Russian businessmen actively use this way of getting companies out from under sanctions, and—judging by the absence of any reaction from the U.S. and European Union bodies in charge of sanctions policy—it does not cause any complaints.
We can! But we need funds
The entire resource of Russian satellites is used in the interests of the Defense Ministry, said Roscosmos head Dmitry Rogozin.
The Defense Ministry has an orbital constellation. There are very few of them so far—now, Russia has just over 160 civil and military satellites. And there are thousands deployed against our army... I will not hide it; the complete resource of Roscosmos spacecraft is now actively involved in the interests of the Defense Ministry...we have actually become by and large part of our Armed Forces.
Rogozin admitted that Russia still does not have all-weather and all-day surveillance radars, but he did not promise this problem would be solved quickly. For starters, there is no money for it.
Only at the end of the year will the Kondor-FKA show up. Next year we will make two more radars. We have defined goals, and the tools are clear. The only thing missing is financing.
Laugh if you want. Cry if you want
Oleg Morozov, a Duma Deputy and Chairman of the Duma Control Committee, announced the possibility that a “military minister” from a NATO country might be kidnapped on Ukrainian territory.
At some point, very shortly, some military minister of some NATO country will go to communicate with Zelensky—by train to Kyiv—and will not reach it. He’ll wake up somewhere in Moscow.
When asked if the question was about the kidnapping of a foreign official, the deputy replied affirmatively.
Yes. And then we’ll figure out who gave what orders and who is responsible for this, among other things.