http://en.rian.ru/columnists/20110811/165702862.html
Topic: England's summer of discontent
09:40 11/08/2011
Weekly column by Marc Bennetts
“England pays for its tolerance,” ran the headline in one leading Russian daily, as rioting swept the UK. There was a similar gleefulness to other reports here in Moscow of the disturbances, many of which focused on “immigrant rioters.” But these articles perhaps said much more about Russian xenophobia than the real situation in London and other cities.
When I spoke to family members and friends in the cities hit by rioting, it was notable that not one of them mentioned the racial make-up of the rampaging mobs. Russians, however, were obsessed with the theme. “You let these immigrants in and this is what they do,” one colleague commented.
The Komsomolskaya Pravda paper went even further, putting forward the view that the disturbances would sweep over “all of England and lead to genuine chaos in the country.” It even suggested that “radical Islamists” would team up with the looters.
“And then,” the piece went on, positively foaming with the anticipation of more schadenfreude to come, “the disorder will spread to the continent…”
The reports of “immigrant violence” also saw Russia’s wanna-be Breiviks flock to internet forums to give vent to their pet racial supremacy theories. Many of them were undoubtedly among the thousands here who subscribed to a now deleted site formed in honor of the Norwegian psycho.
But CCTV images released by police and media footage indicated that the looters were a fairly multi-racial group, united only in their desire to sport a new pair of trainers or a nifty laptop. Indeed, one report spoke of white children as young as 10 looting shops in Enfield.
There were, of course, Russian voices of dissent.
“This disorder isn’t connected in any way with skin color!” one reader commented on the article. “Just look at the photos and videos! There are blacks and whites there.” “England has a massive underclass – of all colors,” another pointed out.
Whatever the riots are a sign of, it’s probably wrong to say they reflect racial tensions in the UK. The initial spark may have been the shooting of a young black man by police, but it’s likely that a fair number of the “feral rats” tearing the country apart were entirely unaware of the incident that led to Britain’s summer of discontent.
So why did so many Russians get so worked up about the ethnicity of the rioters?
Well, for a start, it was the lazy way to report the story. With a few notable exceptions, Russian journalists are generally extremely reticent to do any real reporting. The foreign correspondents for many Russian media organizations generally shy away from actually going out and talking to people on the streets. The “immigrant angle” is by far the easiest to write up, and also has the advantage of pandering to widespread racial intolerance at home.
But there was something else, too. The bizarre and unpleasant subtext seemed to be that Britain was somehow wrong to be so politically correct, that it would be much better off following the example of Russia, where people of a “non-Slavic appearance” are regularly beaten and killed on the country’s streets.
It’s odd to compare all this casual, off-hand racism with the official line during the Soviet period.
In his 1985 book “Britain Without Fog” (a play on the common Russian belief that the UK is covered in perpetual fog), Soviet journalist Vladimir Simonov saw race relations in London and elsewhere in quite a different fashion.
“For the British police, black skin is damning evidence. Are you an immigrant? The descendent of an immigrant? Then your place is behind bars,” he wrote under a photo of leering cops detaining a terrified black youth. “There is no limit to the cruelty of the guardians of law and order when dealing with black citizens.”
Or this, the caption to a photo of inner-city disturbances.
“A house in a region for ‘coloreds’ burns. Or is it British democracy that has driven its black citizens to desperation?”
Even more poignant – and prophetic – is the caption under the photograph of a scowling skinhead, his middle finger raised as the cops lead him away.
“‘Made in London’ the tattoo on his forehead says – but more precise would be ‘Made by unemployment, and an atmosphere of violence and racial hatred.’ We fear for your future Britain!”
Of course, all this was perhaps more the result of Soviet ideology rather than any real sympathy with immigrants in the UK. Still, the difference in tone is startling. I can’t help but wonder what the very same journalists spewing out stories about “immigrants” would have written had the Soviet Union not collapsed.
But if the disturbances weren’t all the fault of “immigrants,” then what caused them? There are no easy, glib answers. The fun factor is one that shouldn’t be ruled out, though. People love a bit of excitement, something to relieve the everyday monotony. And rioting provides a genuine adrenalin high. For both blacks and whites.
A Golden Russian Firebird for Foreign Investors
11 August 2011
By Elena Kolchina and Viktor Nossek
Similar to the phoenix, the firebird is an icon of resurrection and renewal. But the Russian fairy-tale bird can be both a blessing and a curse.
One of the most famous firebird stories is Igor Stravinsky’s ballet “Firebird.” Prince Ivan wanders into the magical kingdom of Kashchei the Immortal, where he captures the firebird. When the prince meets 13 princesses and falls in love with one, the firebird agrees to help him and explains that Kashchei keeps his immortality in a giant egg. Once Ivan smashes the egg, destroying the despot, the magical kingdom disappears and everyone wakes up to become real people.
Now let’s retell the story, replacing Ivan with the investor; the magical kingdom with the market; Kashchei with the United States; and the egg with ratings.
With Russia playing the role of the firebird, you have a picture of today’s international debt markets.
 Three years ago, emerging markets were considered the high-risk domain of the specialist investor, while retail investors were advised to keep most of their money somewhere safe like U.S. treasury bills. The credit crisis has turned the world on its head.
While foreign investors and economists remain cautious on Russia, the rapid development of the local ruble bond market belies this stance and highlights the remarkable transformation the country has made. One of the leading candidates for default in 2009 is now one of the safest bets in the world.
The volume of Russia’s domestic bond issues almost doubled in size recently and is headed toward pre-crisis levels. At the same time, credit quality remains high as leverage is still low both at the sovereign and corporate level. Therefore, there is still upside for investors as continued corporate deleveraging and improving credit metrics will support further spread tightening, while declining inflation will drive a broad market rally.
Meanwhile, financial distress in the euro-zone periphery is forcing investors to radically reassess credit risk. The United States enjoyed a triple-A rating until last week because it has never missed a payment in the 94 years it has been a sovereign borrower. But that doesn’t mean it won’t default now. The cheap finance from the decade-long bull run in bonds in the developed world is coming to an end. With it, the structural deficits caused by overly generous pay-as-you-go pensions and cheap mortgage finance will only increase.
That the U.S. debt-ceiling deal was allowed to go to the wire highlights the seismic changes under way. Developed markets are supposed to be paragons of stability and U.S. T-bills are supposed to be the gold standard of reliability. Where is that stability and reliability now? If the emerging markets were marred by political risk in the not-so-distant past, today the global economy is threatened by instability in Washington.
Russia doesn’t have any of these problems. The economy is among the world’s least leveraged, and with corporate and household debt of 40 percent and 8 percent, respectively, it is in fact underleveraged.
Like Prince Ivan, investors find themselves in a magical kingdom where the developed markets have always been the dominant force and Russia the villain. What will smash the egg are the new macroeconomic realities.
The Kremlin is revving up for an epic investment binge as it prepares to host the 2014 Winter Olympics and the FIFA World Cup in 2018. The expansion and modernization of the country’s infrastructure, coupled with private capital investment, will become the main driver for investment spending for decades. The International Monetary Fund has predicted that investment will jump to at least 25 percent of gross domestic product between 2012 and 2015.
Russia ran a budget surplus between 2000 and 2008, and the last time the current account went into the red was 1998. With no need to borrow, the debt-to-GDP ratio sank below 10 percent, so when Russia did return to the bond market in 2010, investors were gagging for fresh paper. The government has also been able to tap abundant local liquidity as yields continue to tighten. And thanks to the recovery of oil prices, Russia’s budget deficit this year is expected to be a modest 1 percent or 1.5 percent of GDP.
Russian corporations have also increased borrowing post-crisis. Most of the funds raised have been used to improve their debt profiles. The fundamental strength of the country’s industrial bonds is obvious. Balance sheets are among the least geared in the world, operating margins among the highest.
The magical kingdom is fading away as investors wake up to a new reality. The yield gap between Russian and Brazilian bonds has narrowed steadily over the last five years. Taking into account Brazil’s new tax on foreign inflows, the yield differential has fallen to about 2.4 percent. Dollar-denominated bonds in Russia are now trading with a spread over Brazil’s of just 20 basis points.
The risk that remains is the overextended emerging market currencies, particularly the real. Since 2007, the Brazilian currency has appreciated in real terms by 55 percent, and the ruble has appreciated by 20 percent. Much of the rally in the real has been driven by hot money inflows, and if the recent hikes in the tax on foreign exchange transactions have to be extended to longer-dated paper to stem this then almost all the yield differential between Brazil and Russia will disappear, exposing the disproportionately high foreign-exchange risk in Brazil.
Meanwhile in Russia, the Central Bank’s switch from exchange rate targeting to inflation targeting last year will further reduce inflation and strengthen the ruble.
Russia has been battling double-digit inflation for decades, but saw the rate shrink to single digits for the first time in modern history in the spring of 2008. With the country’s engine of growth having switched from oil to domestic consumption over the last decade, curbing inflation is even more vital.
A combination of interest rate hikes, higher reserve requirements, a stronger ruble and slowing growth of food prices will all help. The consumer price index has already peaked and will start falling from the current level of 9.4 percent year on year toward the range of 7 percent to 8 percent by year-end, before falling further next year.
In other words, in three short years, Russia’s credit cycle has made a fairy-tale transformation, and today the country’s credit quality is among the highest in the world. For the West, however, the pain of decline is cumulative, and the longer the developed world shirks deep structural reforms, the more difficult they will be.
Russia is a firebird rising from the ashes of the global crisis. A rerating of global risk is under way. Kashchei’s egg of immortality — the ratings and risk assessments based on credit histories of the last 100 years — is about to be crushed, and investors are waking up to a new reality.
Viktor Nossek is head of research in London and Elena Kolchina is head of fixed income in Moscow at Renaissance Asset Management.
Read more: http://www.themoscowtimes.com/opinion/article/a-golden-russian-firebird-for-foreign-investors/441910.html#ixzz1UhLVAN7R
The Moscow Times
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