SOURCE: The St. Petersburg Times
DATE: Issue #1434 (98), Tuesday, December 16, 2008
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TITLE: Corporate Governance Slammed By Shareholders
AUTHOR: By Jessica Bachman
PUBLISHER: Staff Writer
TEXT: MOSCOW — When equity markets were climbing, credit was flowing freely and the economy was prospering, many satisfied minority shareholders with stakes in profitable Russian companies did not concern themselves with issues of corporate governance and shareholder rights.
But Russian equity markets have fallen about 70 percent since their all-time high in May and cash-strapped oligarchs have been driven to take desperate measures to avoid margin calls and hang onto their assets.
Now, broaching the topic with some distressed investors is likely to evoke a stream of expletives. After one such bout, Ian Hague, the director of Firebird Management, sighed heavily and apologized.
“Sorry, but that’s the way I’m talking these days,” said Hague, whose company invests heavily in Russian equities.
Investors like Hague are no longer “shutting their mouths” about unfair treatment, says minority-shareholder rights activist Alexei Navalny.
“When the market was going up, nobody cared about how much shareholder capital managers were siphoning off for personal use. Now the crisis has pushed the minority to begin talking about their rights. They are demanding responsible corporate expenditures.”
Recent actions by Russian corporations testify to the precarious state of corporate governance in Russia.
On Dec. 3, Sibir Energy’s stock took a 57 percent nosedive after the company announced that it would buy $340 million worth of distressed real estate assets from the firm’s majority shareholders, Shalva Chigirinsky and Igor Kesayev.
The shareholders have denied reports that the sale was an effort to stave off a margin call on their 47 percent holding in the company.
“The Russian government could have stepped in and repaid their accounts, instead [Chigirinsky] chose to wreck the value of Sibir by injecting his worthless real estate into it,” Hague said.
Sibir’s board defended the investor bailout, claiming that the company’s success hinges on its majority Russian ownership structure.
According to Navalny, Chigirinsky’s sale and the board’s approval of the asset purchase perfectly characterize the treatment of minority shareholders in Russia.
“For [the majority shareholders] the minority are kinds of invisible, abstract, stupid people who give them money,” said Navalny.
“Because the minority shareholders are not people to them, they can’t be taken into consideration when there is a big decision to be made,” he said.
Billionaire Vladimir Potanin carried out a similar asset shuffle in mid-October when he sold $600 million in assets, including a stake in Rusia Petroleum and his 35 percent stake in the U.S. fuel cell maker Plug Power, to Norilsk Nickel’s power company OGK-3.
Potanin is the mining giant’s dominant shareholder.
Some are more sanguine on the issue, however, arguing that minority shareholders in Russia aren’t any worse off than other investors.
“There is natural tendency to be a bit paranoid about minority rights based on a perception with historical problems with minority problems,” said Frank Mosier, head of Kazimir Partners, which manages Russia-focused equity funds.
“But the situation globally and in Russia doesn’t have to do with majority or minority. It has to do with the global banking system, and I don’t think minority investors are being treated any differently than they have always been in Russia.”
Although other investors agree that there have always been risks related to corporate governance and minority rights in Russia, they say now — in a time of crisis — investors who used to overlook these issues are starting to pay attention.
“When the going was good and money was cheap, people glossed over the issue. But now it’s very much back on the agenda,” said Robert Procope, a Russia fund manager at Charlemagne Capital.
“And we are definitely concerned. Minority shareholders have been treated with contempt in recent high profile instances.”
In one recent high-profile case, billionaire Mikhail Prokhorov, owner of about half of power utility TGK-4, backed out of a 15 billion ruble buyout offer to minority shareholders, citing a government decision to place the company on a list of natural monopolies because it owns a gas pipeline in the Ryazan region.
Onexim was obliged to make the offer in June after acquiring a majority stake in the company but canceled it just before the payments came due, when TGK-4’s share price was down 50 percent from the time of the offer and the purchase at the higher June levels was no longer attractive.
Onexim maintained it could not acquire more shares without state approval because the utility was part of a strategic sector, which Onexim, as a Cyprus-registered company, would be disqualified from purchasing.
Prosperity Capital Management, along with other minority shareholders, took a large blow when Onexim reneged on the deal — worth close to $1 billion.
“It is completely frivolous. TGK-4 has a small pipeline that serves 10 clients and makes $10,000 per year. It is a minute part of the company and that somehow qualifies it to become a natural monopoly,” said Mattias Westman, Prosperity’s founding partner.
TITLE: Wave of Arrests in Protests Across Russia
AUTHOR: By Sergey Chernov
PUBLISHER: Staff Writer
TEXT: Dozens of protesters were arrested Sunday during an anti-Kremlin protest in St. Petersburg aimed at the government’s handling of the economy and constitutional changes that prolong presidential terms.
The police said more than 60 protesters were detained near the Gostiny Dvor mall on Nevsky Prospekt, St. Petersburg’s main street, where the opposition groups had gathered, while more than 100 activists were reportedly detained at a similar event in Moscow. Protesters said no fewer than 100 were detained in St. Petersburg.
The date for the latest in a series of so-called Dissenters’ Marches was chosen to coincide with the Decembrist Uprising in 1825 that demanded Russia’s Tsarist autocracy be replaced with a constitutional monarchy or a republic.
Marches were held simultaneously in Moscow and St. Petersburg by Other Russia, the pro-democracy coalition formed by Garry Kasparov’s United Civil Front (OGF) and Eduard Limonov’s banned National Bolshevik Party (NBP), with a number of other political parties and movements joining them.
On Thursday, City Hall, which had earlier refused all three routes proposed by organizers in St. Petersburg without offering any alternative route, suggested the protest be held as a stationary meeting, rather than a march, in one of two distant gardens.
For safety reasons, the organizers agreed to a rally at Chernyshevsky Gardens in the west of the city, but insisted that protesters would still gather at the originally suggested site near Gostiny Dvor metro station, as it had been advertised on leaflets and stickers, and then walk along Nevsky’s sidewalks to the destination.
Before 2 p.m., when the event was due to start, the police presence in the center was immense, with heavy OMON special-task police trucks and armored vehicles parked on corners all along Nevsky Prospekt, and extensive police foot patrols. Six buses were parked in a line along Gostiny Dvor, obscuring the entrance to the metro, where more than a 100 people had gathered. Hundreds of policemen waited in the area.
On Saturday, the NPB said that the authorities were planning to use 3,000 policemen to police the event, with 1,000, including 250 OMON policemen, stationed around Gostiny Dvor.
A police spokesman declined to comment on the figures on Sunday, giving the standard answer that the “force was sufficient for ensuring public order.”
Arrests started minutes before 2 p.m. when policemen approached an elderly woman from both sides who was walking peacefully with a poster reading “Stop the Genocide of Pensioners,” protesting against Russia’s notoriously low old-age pensions, and escorted her into a bus. Next was a man who held a poster saying “Change Those in Power, and Not the Constitution!” — one of the march’s slogans. A short while later, a young woman who had covered her mouth with a surgical mask with the word “Censorship” written on it was arrested.
What appeared to be indiscriminate arrests soon followed, including that of Vitaly Milonov, a deputy with the city’s Legislative Assembly and member of the pro-Kremlin party United Russia.
Milonov was taken to a bus but released minutes later after producing his deputy’s card. Several NBP members on the scene lit flares and raised a red NBP flag with the word “Censorship” instead the banned hammer and sickle logo in protest against the police’s actions. They were also detained.
The rights of detainees were violated both in buses and in courts, activists said.
A witness who identified herself as Nadezhda said by phone on Monday that she saw a police colonel press his fingers into the eyes of a detained man and say “Didn’t I tell you that I will pop your eyes out?”
Although a police spokesman said the detentions were made as the result of violations of public order, the charge of “disobeying police orders” was broadly used. This offence is punishable with either a fine or up to 15 days in custody.
In the days preceding the Dissenters’ March, pressure on oppositionists increased. Many activists were visited by policemen who wanted to obtain signed statements that they would not take part in the protest.
On Thursday, the organizers said they agreed to City Hall’s proposal to hold a stationary meeting instead of a procession.
“We were forced under tough pressure from the security services to accept an obviously unlawful offer about conducting a stationary meeting at Chernyshevsky Garden,” said Olga Kurnosova, the local leader of OGF, and Maxim Reznik, local Yabloko Democratic Party leader, in a joint statement on Saturday. In a further development, Reznik was harassed by an unknown man and questioned by police after the rally on Sunday (see related story, page 1).
Not every organizer or major participant made it to the rally.
Kurnosova, who returned Sunday from Moscow, having attending the founding conference of the new democratic movement Solidarity on Saturday, said she managed to evade the police at the Moscow Station by getting out of a different wagon from where her ticketed seat was located and went to a friend’s house after finding out that four police vehicles were parked next to her house with a number of policemen walking around.
“For the past three days I have not felt well, but when I called an ambulance, since my mobile phone is tapped the police came first, and the ambulance five minutes later,” said Kurnosova by phone from Pokrovskaya Hospital on Monday. She has been diagnosed with hypertension.
Three policemen attending the scene, including one with an assault rifle, asked paramedics if Kurnosova was really ill, and followed the ambulance to the hospital where they remained, she said, adding that the last officer did not leave the hospital until 9 p.m.
OGF activist Mikhail Makarov, who was officially in charge of conducting the meeting at Chernyshevsky Gardens, which was agreed with both the protesters and the City Hall, left his home at 1:30 p.m. on Sunday to find that the tire of one of the wheels of his car had been slashed, he said by phone on Monday.
When he was replacing the wheel, a traffic policemen approached, checked the numbers on the engine and elsewhere in the car, concluded there was an inconsistency and drove Makarov to Police Precinct 60.
“They were obviously marking time and only let me go 15 minutes before the rally ended. That’s how I ‘conducted the meeting,’” Makarov said.
Local NBP leader Andrei Dmitriyev was detained when he was walking on Moskovsky Prospekt heading to Gostiny Dvor at 1 p.m. on Sunday. He was charged with “using obscene language in public.”
Maxim Malyshev, the local leader of the left-wing Red Youth Avant-Garde (AKM), was brutally beaten by two unknown men near his house at around 10 p.m. on Saturday.
The stationary meeting gathered between 400 and 500 protesters at the distant Chernyshevsky Garden surrounded by the police. Reznik, the leader of Narod movement Sergei Gulyayev, musician Mikhail Borzykin of the rock band Televizor and others spoke. The police did not interfere.
• The Moscow event was similarly thwarted as police seized demonstrators and shoved them into trucks, reported The Associated Press. Organizers said 130 people were detained around the capital but police put the number at 90.
News broadcasts on the main television networks made no mention of the Moscow crackdown or of the protest in St. Petersburg.
Police also seized Other Russia co-leader Eduard Limonov along with a handful of bodyguards as they walked toward the square. They were bundled into police vehicles.
TITLE: Reznik Faces New Investigation Following Dung Attack
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: It has been less than six months since Maxim Reznik, the leader of the St. Petersburg branch of the democratic party Yabloko and one of City Hall’s most vocal critics, was cleared of physically assaulting three policemen, but now the politician appears to have once again landed in hot water.
Police are looking into the circumstances of an incident on Sunday that saw two young men reportedly shower Reznik with slops and dung while filming the assault. Reznik allegedly responded by beating up one of the assailants.
After participating in a Dissenter’s March on Sunday afternoon, Reznik and several other members of Yabloko were having a meal in the Modus cafe on 4th Sovietskaya Ulitsa, when they were suddenly approached by two men who emptied a bucket of dung-sullied waste over Reznik.
The politician’s associates helped stop the men and hand them to police.
The officers refused to detain a third man who was filming the incident.
Later on Sunday Reznik was called to a police station for “a series of investigative actions” when he was accused having beaten up a man. The alleged victim had submitted an official statement to the police. The police officers refused to disclose the man’s identity either to Reznik or to the media.
In the meantime, a criminal case was opened against the two young men who allegedly assaulted the politician.
In a similar incident a week before, Reznik was attacked by unknown men who threw a large amount of green antiseptic into his face. The incident occurred before the start of a regional conference for the new democratic movement Solidarity.
The police failed to detain the assailants on that occasion.
Liberal politicians and human rights advocates see a clear connection between Reznik’s political activity and the escalation of such incidents. They maintain that Reznik is the target of provocateurs attempting to both humiliate him with such actions and complicate his activities by hampering them with police intervention.
Yury Vdovin, deputy head of the human rights group Citizens Watch stressed that as opportunities for legal political activity for oppositionists have dwindled under Putin, many politicians who challenge the authorities find themselves facing a witch-hunt.
“Unlike in the Soviet era when dissidents were imprisoned or persecuted with the use of politically-charged laws, these days politically-motivated cases are disguised as administrative crimes or felonies,” Vdovin said.
In March, Reznik was charged with insulting and physically assaulting a state representative, a crime that carries a prison term of up to five years.
Shortly after 2 a.m. on March 3, Reznik was leaving Yabloko headquarters in central St. Petersburg when, according to accounts given to reporters by him and his lawyer, he saw a street fight a few meters away. He intervened to try to stop the fight. Within a minute, Reznik claimed, a police van arrived at speed, and officers seized him. Mysteriously, the men who had been fighting managed to escape and their identities were never established.
Reznik, who spent 18 days in custody, was convinced the case was linked to his oppositional political activities. The politician feels the incident was intended to prevent him from taking part in a Dissenters’ March later on March 3 and the New Agenda for Democratic Movement meeting on April 6.
In September, the Dzerzhinsky Federal Court threw the case against the politician out and dropped all charges. The three police officers who had filed suits against the politician withdrew their evidence from the case.
TITLE: New Anti-Kremlin Group Holds Kick-Off
PUBLISHER: The Associated Press
TEXT: KHIMKI, Moscow Region — Garry Kasparov and other prominent liberals launched a new anti-Kremlin movement Saturday.
The organization, called Solidarity, aims to unite the country’s liberal forces and encourage a popular revolution similar to those in other ex-Soviet countries.
“We are fighting for victory because we have something to say to our people and something to offer them,” Kasparov said at the founding congress Saturday in a Moscow-region hotel. “On this very day, we are in a position to take stock of past mistakes and act differently.”
Much of the public has lost faith in liberal democracy, which remains associated with the chaos, poverty and corruption that emerged in Russia in the 1990s.
“One of the tasks of the Solidarity movement is to rehabilitate those basic principles that, unfortunately, for a significant or even overwhelming portion of our fellow citizens, have become associated with failure, misery or reduction of freedom,” Kasparov said.
TITLE: Extremist Group Claims It Decapitated Immigrant
AUTHOR: By Nabi Abdullaev
PUBLISHER: Staff Writer
TEXT: MOSCOW — The severed head of a Tajik man murdered last week in an apparent hate crime was discovered in a dumpster in western Moscow, investigators said Thursday.
In a disturbing twist, an obscure ultranationalist group claimed responsibility for the slaying by e-mailing a photograph of the victim’s detached head to two human rights organizations, the groups said Thursday.
The victim’s head was discovered wrapped in a plastic bag in a dumpster Wednesday on Ulitsa Tolbukhina, near Kuntsevskaya metro station on the Moscow western outskirts, the Investigative Committee said in a statement.
An autopsy confirmed that the head belonged to a 20-year-old native of Tajikistan whose decapitated body was discovered last week near the village of Zhabkino, a few kilometers south of Moscow, the statement said.
The victim and a fellow Tajik worker at a local food warehouse were walking home last Friday evening when they were attacked by about 10 men, who shot them with pellet guns and proceeded to beat them, according to investigators.
The murder victim died at the scene, having been stabbed in the torso six times before he was beheaded, investigators said. The other Tajik worker managed to escape and was subsequently hospitalized in critical condition.
A police source identified the murder victim only by his last name, Azizov, Interfax reported. Repeated calls to the Tajik Embassy in Moscow went unanswered Thursday afternoon.
The chiefs of the only two nongovernmental organizations tracking hate crimes in Russia said Thursday that they had received an e-mail this week from a previously unknown ultranationalist group claiming responsibility for the slaying.
The e-mail, from a group calling itself the Militant Organization of Russian Nationalists, attached a digital photograph showing the victim’s head resting on a wooden chopping block, said Galina Kozhevnikova, head of the Sova Center xenophobia watchdog.
“The message said that with this beheading, the group is demonstrating its resolve to further fight against occupiers,” Kozhevnikova said.
TITLE: Stabbed U.S. Student Relocated
PUBLISHER: The Associated Press
TEXT: MOSCOW — The mother of an American exchange student who was stabbed in Russia says her son has been transferred to a hospital in Finland.
Eighteen-year-old Stanley Robinson, of Providence, Rhode Island, was stabbed by unknown assailants in the southern Russian city of Volgograd on Dec. 5. Robinson is black; officials say the attack may have been racially motivated.
The head doctor of the Russian hospital where Robinson had been treated said Friday that his condition was grave but stable.
TITLE: 12 Killed in Arctic Mine Blast
AUTHOR: By Svetlana Osadchuk
PUBLISHER: Staff Writer
TEXT: MOSCOW — At least 12 people were killed and several others injured in a blast in a Murmansk region mine where raw materials are extracted for producing fertilizers, officials said Friday.
The blast at the Rasvumchorrsky mine, outside the Arctic town of Kirovsk, occurred at around 8:30 p.m. Thursday as workers were arranging explosives in preparation for a controlled blast, Irina Gretskaya, a regional Emergency Situations Ministry spokeswoman said by telephone.
“A fire broke out after the blast, and 18 people were at the site,” Gretskaya said. “Six managed to escape from the mine and were hospitalized with various injuries. The rescue teams later found the bodies of 12 other workers.”
The mine is owned by Apatit, a major producer of apatite, a phosphate mineral used in most fertilizers. The company is owned by PhosAgro, a domestic producer of complex fertilizers.
At the time of the explosion, workers had already placed 18 tons of explosives and were planning to place another 30 tons ahead of the controlled blast, which was scheduled for Monday, Apatit spokeswoman Vera Belousova said.
Regional prosecutors opened a criminal investigation in connection with possible safety violations leading to the explosion, said Galina Mashyanova, a spokeswoman for the Murmansk Regional Prosecutor’s Office. The region’s top prosecutor, Maxim Yershov, has taken personal control of the investigation, Mashyanova said.
The country’s industrial safety watchdog said it had created a special commission to determine the cause of the blast.
“Our purpose is not to revoke the companies’ licenses, but rather to prevent such accidents and to improve the safety conditions both at this site and similar ones,” said Alexei Shpagin, a spokesman for the Federal Service for Ecological, Technological and Atomic Inspection.
Apatit said in a statement Friday that it had suspended operations at the Rasvumchorrsky mine indefinitely. The company operates three other mines in the region, containing an estimated 3.5 billion tons of phosphate ore.
TITLE: Heckler Interrupts Address Given by President
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — President Dmitry Medvedev defended a recent constitutional amendment extending presidential terms from four to six years, but was heckled by an opposition activist during a speech on Friday, Constitution Day.
Addressing officials and legal scholars at the Kremlin, Medvedev suggested the proposed amendment would prepare the country to confront 21st-century challenges.
“The Constitution is a fundamental document,” Medvedev said. “But that doesn't mean that we can’t look at it through the eyes of modern people, people who live in the 21st century.”
Critics deride the amendment, quickly approved by the State Duma last month, as a ploy to further strengthen the Kremlin’s grip over the country and pave the way for Prime Minister Vladimir Putin to return to the Kremlin for a 12-year rule.
The amendment must now be passed by at least two-thirds of the country’s regional parliaments — a process likely to be a mere formality.
During Medvedev’s speech, youth opposition activist Roman Dobrokhotov began heckling the president, calling the amendment “shameful.”
When Medvedev began talking about human rights, Dobrokhotov, leader of the youth group We, shouted that human rights are not respected in Russia and that the country has no civil society, Gazeta.ru reported. A brief scuffle ensued between Dobrokhotov and security guards, who tried to usher the activist from the hall. Medvedev then asked them to leave Dobrokhotov alone.
“Really, you don’t have to take him away, let him stay and listen,” Medvedev said, Interfax reported. “To be honest, the purpose of the Constitution is to allow everyone to voice his opinion.”
The audience applauded Medvedev’s comments, but the security guards removed Dobrokhotov from the auditorium anyway, news agencies reported.
It was unclear how the activist managed to get into the event, given that security at such speeches is typically very strict. Dobrokhotov’s cell phone was switched off all day both Friday and Sunday.
TITLE: Kremlin Appears To Be Rattled by Unrest
AUTHOR: By Nikolaus von Twickel
PUBLISHER: Staff Writer
TEXT: MOSCOW — Sociologist Yevgeny Gontmakher has painted a disturbing picture of what might emerge from the financial crisis.
As Gontmakher sees it, a provincial industrial town will see huge protests after massive layoffs at its main factory next year. The authorities scramble haphazardly to contain the unrest. Violence will spread, ultimately reaching Moscow.
The scenario, published under the headline “Novocherkassk 2009” in Vedomosti last month, is purely fictitious. But it triggered a very real reaction from the authorities. The government’s media watchdog fired off a warning to Vedomosti that it was inciting extremism. Vedomosti is part of Independent Media Sanoma Magazines, the parent company of The St. Petersburg Times.
Novocherkassk is a town in the southern Rostov region where Soviet police brutally quashed rioting workers in 1962.
Gontmakher, a deputy social protection minister and Kremlin official in the 1990s, said he had not expected such a response from the government, but the threat is real and growing daily as the crisis takes it toll. “Of course they are worried, and they should be,” he said of the government.
Prime Minister Vladimir Putin, on the other hand, has said Russia should be able to get through the crisis with minimal problems. He has repeatedly denied that his government bears any responsibility for the crisis, saying the economic downturn spread from the United States and has infected “all the economies of the world.”
But Gontmakher is by no means alone in arguing that Russia’s political stability, seen as a major achievement of Putin’s eight-year presidency, is deceptive. The crisis has already led to a wave of layoffs across the country, despite the fact that Russian companies traditionally reduce wages before shedding staff.
Putin himself acknowledged in his televised question-and-answer session last week that the number of unemployed workers was expected to increase next year to “a little over 2 million” from the current 1.7 million.
In another sign that the government is nervous about disorder, President Dmitry Medvedev last month ordered law enforcement agencies to stamp out any social unrest linked to the crisis. “If someone tries to exploit the consequences of the financial crisis … they should intervene, bring criminal charges. Otherwise, there won’t be order,” he told senior police officials at a public briefing in St. Petersburg.
Incidentally, Putin and Medvedev visited Novocherkassk this February and laid flowers at a stone in memory of those killed in 1962.
Vladimir Ryzhkov, a former independent State Duma deputy and liberal opposition activist, said much of the crisis has been brought on by the government and its refusal to deregulate the economy, be held accountable by the parliament and allow political competition.
“This crisis did not arise because of events in America. It arose because of [the government’s] mistakes,” he said.
Ryzhkov said Russian companies would not have secured so much foreign debt during the last three years — decisions that now have led the economy to the brink of bankruptcy — if the parliament had been given oversight over the government’s actions. He singled out Medvedev and Deputy Prime Minister Igor Sechin as being particularly responsible for the current financial straits, noting that Medvedev, who was chairman of Gazprom before acceding to the presidency this spring, and Sechin, Rosneft’s chairman, had overseen heavy foreign borrowing by the two state corporations over the past three years.
Yet opinion polls indicate that the government faces little public discontent. Trust in Putin stood firmly at 59 percent in late November while trust in Medvedev dipped slightly from 45 percent to 44 percent, according to a survey by state-run VTsIOM. The poll had a margin of error of 3.4 percentage points.
The government’s popularity will depend largely on its ability to stave off the crisis, said Nikita Belykh, the former leader of the Union of Right Forces, who this week was nominated by Medvedev to become the governor of Kirov.
“The Kremlin has enough money to keep the situation under control for a few months. But in the medium term, political changes are inevitable, and there will be clashes between powerful political groups,” Belykh said.
Two factors in the government’s favor, he said, are its ability to control information through state media and Russians’ tendency to be apolitical. However, popular anger against the authorities could increase considerably because the public is feeling increasingly alienated from the country’s leadership, he said.
Ryzhkov said the crucial question was whether the government could balance the budget over the first half of 2009. “The turning point will come when they cannot pay off state corporations’ gigantic debts anymore,” he said.
The government’s financial capabilities are largely linked to oil prices, which have fallen to less than $50 a barrel from a high of $147 in July.
“If oil falls below $20, there will be a revolution,” said Vladimir Pribylovsky, a political analyst with the Panorama think tank.
He said Putin’s popularity rested on the fact that ordinary people had gotten a share of the riches, in stark contrast to the 1990s when a tiny minority got very rich while the majority sank into poverty.
“Crises will break out left and right if the Kremlin oligarchy can no longer share the wealth with the people,” Pribylovsky said.
While the economic boom of recent years has increased the real incomes of most people, inequality levels have not come down. Moscow’s Gini index, a scientific standard for measuring income distribution, is estimated at 0.6, making the capital one of the world’s most unequal cities.
Putin’s popularity is almost entirely built on the economic boom, so it could crumble if the economy goes bust, said Olga Kryshtanovskaya, a sociologist who tracks Kremlin politics. “Everyone was happy as long they got government money,” she said.
That puts the government in the difficult position of how to trim spending. Cuts to the public sector would upset bureaucrats, while cuts to defense would anger the powerful siloviki.
The government has shown reluctance to speak out openly about the crisis after many people saw their savings vanish in two previous crises — the Soviet collapse in 1991 and the 1998 default. The authorities “only have two choices — to lie or to create a panic. In 1998, they chose the truth and panic, and the result was very bad,” Kryshtanovskaya said.
In late November, the Economic Affairs Committee of the Council of Europe’s Parliamentary Assembly warned that a global recession would threaten “to undermine the very foundations of democracy” in many countries.
Interestingly, the government appears to have stepped up its efforts to rein in opposition groups. Last month, remnants of the Union of Right Forces, or SPS, were folded into a new pro-business party called Right Cause, a move that is widely seen as a Kremlin attempt to round out the political spectrum with obedient parties.
Belykh, who resigned from SPS saying cooperation with the Kremlin was unacceptable, raised eyebrows in liberal circles this week with his decision to accept Medvedev’s invitation to become governor.
Ryzhkov said that even though Russia’s opposition was weak and divided, there were people in the regions who were willing and able to challenge the government. “I will not name anyone, but I can tell you that there are terrific specialists on economic and political reform who could make up a Russian dream team that would fix the flagrant mistakes made by Putin’s people,” he said.
In the meantime, people are wondering how bad matters will get. Harald Leibrecht, a German lawmaker with the liberal Free Democrats and deputy chairman of the German-Russian parliamentary group, said the Vedomosti incident showed that the situation was not as rosy as depicted by Putin and Medvedev.
“It is very strange but telling” that the newspaper received the warning, Leibrecht said in e-mailed comments.
The warning is probably linked to government fears that the country might slide into the chaos of the 1990s, he said.
The media watchdog, the Federal Service for Oversight over Communications and Mass Media, has the power to ask a court to revoke a newspaper’s license after issuing two warnings. But Vedomosti lawyers have decided that last month’s warning did not qualify has an official warning but as a reminder.
In any case, the head of the watchdog, Boris Boyarskov, was dismissed last week by Medvedev after four years in the post, Interfax reported Wednesday. The circumstances behind the decision were unclear.
TITLE: Fur Trade Sweats Out A Seasonal Crisis
AUTHOR: By James Kilner
PUBLISHER: Reuters
TEXT: MOSCOW — The fur industry is awash with chat about the crisis — the crisis of another mild Russian winter cutting demand for the coats considered part of its heritage.
This year’s total fur sales — mainly coats — will halve to about $2.5 billion, and 2009 will remain tough, said Sergei Stolbov, head of the Russian Fur Union.
“It’s a complex situation for the fur business because, as well as the financial crisis, we also have to deal with worsening weather conditions,” he said during an interview in his windowless office in central Moscow.
Russia has been hit badly by a global economic crisis, and many bankers believe that a 10-year boom that drove soaring consumption is about to stall.
But for the fur industry, milder winters are the problem.
Moscow temperatures have hovered above 5 degrees Celsius in the first 11 days of December compared to a historical average of about minus 5 C, though in Siberia freezing temperatures are still the norm.
“When people are not cold, they don’t need a fur coat,” Stolbov said.
Now that spare cash is tight and the winter is mild, fur coats have dropped off people’s shopping lists. Temperatures have risen globally, a change some scientists blame on greenhouse gases from burning fossil fuels.
At a market in the suburbs of Moscow, Tatyana Kolyeskina — dressed in an ankle-length mink fur coat — cast a hand along dozens of furs hanging on the sides of her stall. The fox and mink coats ranged from 25,000 rubles ($895) to 60,000 rubles, and sales were down.
A woman trying on a fur coat during a fur fair in Moscow earlier this week.
“This is the worst I’ve seen it in 15 years of working here,” she said. “The crisis is bad, but these winters are dreadful.”
Images of Russians wrapped in fur and hurrying through snowy streets with their breath freezing in the air have been increasingly rare in the last three years.
But furs still make good gifts. On Wednesday, President Dmitry Medvedev presented Argentine President Cristina Fernandez with a silver fox fur hat at the Kremlin, where they held talks aimed at promoting trade and energy ties.
In his office, Stolbov of the Russian Fur Union frowned and said the combination of a warm winter and the economic crisis meant that the situation was worse than the 1998 crisis, when Russia defaulted on domestic debt and allowed the ruble to devalue.
“There was a crisis in 1998, but that was a financial crisis. There was a cold winter then and demand for fur coats stayed high,” he said.
Despite Western consumers ditching fur for ethical reasons, Russians still consider fur a stylish status symbol.
Alongside China, Russia is the biggest fur market in the world.
The industry employs about 200,000 people in Russia, Stolbov said, although most furs now are imported.
Outside Stolbov’s office, a light drizzle fell and cars splashed through dirty puddles in the uneven road. There was barely a fur coat in sight.
“Who asked Putin when will there be snow?” Stolbov said rhetorically, referring to Prime Minister Vladimir Putin’s three-hour phone-in session at the start of December. “That person must have worked for the fur industry.”
TITLE: Ruble Devalued by Central Bank Twice in 1 Week
AUTHOR: By William Mauldin and Alex Nicholson
PUBLISHER: Bloomberg
TEXT: MOSCOW — Russia’s central bank devalued the ruble for the second time in a week Monday after policy makers spent $161 billion of reserves trying to defend the currency and oil revenue slumped.
The ruble fell as much as 1.8 percent to a four-year low of 37.6772 per euro after Bank Rossii widened its target exchange rate against a basket of dollars and euros. A spokesman, who declined to be identified because of bank policy, said the band was increased without specifying the amount.
Russia has drained 27 percent of its reserves, the world’s third-largest, trying to stem a 16 percent decline in the currency against the dollar since August as the price of oil fell 69 percent, constricting economic growth and companies’ ability to refinance debt. Standard & Poor’s cut its credit rating on Russia for the first time in nine years last week.
“It is possible we will see two to three more devaluations this week,” said Martin Blum, head of emerging-market currencies and fixed income strategy at UniCredit SpA in Vienna. “Russian policy makers are serious about continuing the one percent devaluations.”
Bank Rossii allowed the ruble to fall against a target exchange rate by 8.8 percent, from 7.7 percent last week and 3.7 percent a month ago. The ruble dropped for the ninth time in 10 days on Wednesday. Against the dollar, the currency fell 0.2 percent to 27.7365. Those movements left the ruble at 32.2019 versus the central bank’s basket, which is made up of about 55 percent dollars and the rest euros.
The currency has fallen 5.9 percent against the basket in six increases of the trading band since Nov. 11.
A one-time, 20 percent devaluation is needed, according to Moscow brokerage Troika Dialog. Goldman Sachs Group forecasts a decline of as much as 25 percent versus the basket.
Russians withdrew six percent from bank accounts in October, the most since Bank Rossii started collecting the data two years ago. Deposits in foreign currency, meanwhile, rose 11 percent.
“A significant weakening of the dollar against the euro provides a very good opportunity for the central bank to widen the corridor without alerting the population too much,” said Tatiana Orlova, economist at ING Groep in Moscow.
The world’s biggest energy producer is suffering as the price of Urals crude, its main export blend, has dropped 69 percent from a July record to $44.13 a barrel, below the $70 average required to balance the nation’s 2009 budget. The Russian economy may now go into reverse, according to Deputy Economy Minister Andrei Klepach, the first government official to suggest that the Russian economy is heading for recession.
Deutsche Bank AG cut its estimate for growth in Russia’s gross domestic product to one percent next year, from 3.4 percent previously.
The central bank’s foreign-exchange reserves decreased by $17.9 billion to $437 billion in the week to Dec. 5, more than the $11.25 billion decline that was the median estimate of five economists surveyed by Bloomberg. Prime Minister Vladimir Putin pledged on Dec. 4 to use the nation’s reserves stockpile, still the world’s third largest, to prevent “sharp” movements in the currency. The reserves are about 24 times bigger now than they were on the eve of the default 10 years ago.
Declines in the euro and other currencies against the dollar have led to the reduction of about $30 billion in the value of reserves from August through October, Deutsche Bank wrote in a note dated Dec. 9. Government plans to help companies refinance debt have also lowered reserves, the bank said.
Besides spending to prop up the ruble, the government has pledged about $200 billion in loans, tax cuts and other measures to boost liquidity and reduce borrowing costs as the 50-stock RTS Index heads for its worst year since 1998. The government is giving state-run Vnesheconombank $50 billion from the package to help companies pay off foreign debt.
S&P downgraded the nation’s sovereign debt to BBB, the second-lowest investment grade rating.
TITLE: Klepach Forced to Backtrack On Use of Word ‘Recession’
AUTHOR: By Maria Levina
PUBLISHER: Special to The St. Petersburg Times
TEXT: MOSCOW — Deputy Economic Development Minister Andrei Klepach was forced to clarify his comments Friday after saying the country has entered a recession that might last through the first two quarters of 2009.
“The recession has already begun and, I’m afraid, it won’t end in two quarters,” Klepach said, Interfax reported.
The term “recession” commonly refers to two consecutive quarters of negative growth.
Fourth quarter gross domestic product will grow by 2.6 percent and GDP growth for the year will be around 6 percent, almost 1 percent less than the previous Economic Development ministry forecast of 6.8 percent to 6.9 percent, Klepach said.
Klepach later clarified his use of the word “recession,” saying he only meant that Russia had entered a period of slower, not negative, growth.
Prime Minister Vladimir Putin on Friday emphasized that the economy would grow at 6 percent in 2008, and the Kremlin’s press service issued a statement asking journalists to focus on Putin’s words instead of Klepach’s.
“I am sure our economy is solid enough to weather the period of instability,” Putin said. He later admitted concern, however, over new data showing that the unemployment rate rose to 6.1 percent in October, or 4.6 million jobless people, increasing by 372,000 from October 2007.
Although Russia is not technically in recession, it is clearly in an environment of much slower growth, economists say.
Earlier this week, the State Statistics Service released data showing that Russia’s GDP growth had slowed to 6.2 percent in the third quarter of 2008, a three-year low, and was 1 percent lower than an earlier forecast by the Economic Development Ministry.
The economy grew by 8.5 percent and 7.5 percent in the first an second quarters of 2008, respectively.
A poor fourth quarter in 2008 will stand in sharp contrast to last year, when the economy grew at 9.8 percent in the last quarter, with December posting sky-high growth of 11 percent, and overall 2007 GDP growth standing at 8.1 percent. But economists say the worst will only materialize in the first half of 2009.
“It will get a lot worse in the first and second quarters of 2009,” said Chris Weafer, chief strategist at UralSib. “Russia might technically avoid negative GDP growth because of large government spending, but adjusted for this spending, the rest of the economy will see negative growth.”
“GDP growth in the fourth quarter will be zero if both November and December show a contraction of 3 percent,” said Yekaterina Malofeyeva, chief economist at Renaissance Capital. She expects fourth quarter GDP to be flat or slightly positive.
“Growth may resume after the second quarter of 2009, as the Central Bank’s policy of ruble devaluation helps exporters and imports fall, boosting domestic producers,” Malofeyeva said.
Falling commodity prices suggest that Russia could soon face its first trade deficit in 10 years, with the October trade surplus hitting a 13-month low and Urals futures for December delivery closing at $42.6 per barrel on the RTS on Friday.
TITLE: OPEC Seeks Russian Output Cuts
AUTHOR: By Stephen Bierman and Vibeke Laroi
PUBLISHER: Bloomberg
TEXT: MOSCOW — Lukoil said OPEC may ask Russia to cut output this week to help arrest a five-month slide in oil prices. StatoilHydro ruled out Norwegian participation.
OPEC, the producer of more than 40 percent of the world’s oil, is meeting in Algeria on Wednesday to consider scaling back production further after previous attempts failed to halt a $100 slump in oil prices from a record. The group has urged non-OPEC members Russia, Mexico and Norway to help shoulder the burden, as they did a decade ago when crude slumped toward $10 a barrel.
The Organization of Petroleum Exporting Countries is seeking a cut from Russia, the world’s second-biggest producer after Saudi Arabia, of “between 200,000 and 300,000 barrels a day,” Lukoil Chief Executive Officer Vagit Alekperov said Monday in Moscow. Sandrine Toerstad, head of market analysis for StatoilHydro, said “prices are too high for Norway to cut.”
“The bottom line is that Russia needs the money more and needs a higher oil price more than Norway,” said Chris Weafer, chief strategist at Moscow-based UralSib.
Lukoil, Russia’s largest non-state oil producer, will cooperate with any government decision to cut production, Alekperov said.
President Dmitry Medvedev on Dec. 11 said that Russia may cut oil output and participate in new and existing “suppliers organizations.” A delegation of Kremlin officials and Russian oil executives, including Alekperov, plan to attend OPEC’s meeting on Wednesday in Oran, Algeria.
The price of Urals crude, Russia’s main export earner, has slumped 70 percent since reaching a high in July to $43.37 a barrel, below the $70 average needed to balance the budget. Russian crude production declined for an 11th straight month in November, by 0.3 percent from a year earlier, to 9.82 million barrels a day.
Falling oil prices have forced Lukoil to cut investment in the next few years and delay the start of international projects, Alekperov said.
Oil output in Russia is likely to fall next year, making any action in support of OPEC “opportunistic,” Renaissance Capital Chief Strategist Roland Nash told Bloomberg TV by phone on Monday. “I would be very, very surprised if Russia would do any further commitments or even become a member of OPEC.”
TITLE: Putin Urges $200 Billion State Bailout for 1,500 Concerns
AUTHOR: By Alex Nicholson
PUBLISHER: Bloomberg
TEXT: MOSCOW — Russian Prime Minister Vladimir Putin said 1,500 companies may receive financial support as part of the government’s efforts to stabilize the slowing economy.
Putin called for a list of companies eligible for assistance at the federal and regional levels to be confirmed by Wednesday. The state may buy equity stakes in key companies, restructure tax debts and provide loans and guarantees, Putin said at a government meeting on Monday.
“This system we are creating must encompass no fewer than 1,500 Russian companies,” Putin said.
Russia is deploying a bailout package worth about $200 billion after investors pulled $211 billion out of the country since August, according to BNP Paribas. Finance Minister Alexei Kudrin said on Dec. 3 that the government would provide an additional 300 billion rubles ($11 billion) to guarantee companies’ loans as industrial output shows signs of contraction.
The measures must be “closely analyzed” so the companies “don’t get hooked” on state handouts, Putin said.
Kudrin said the government has drawn up a list of about 300 companies, accounting for about 85 percent of gross domestic product that employ more than 4,000 people, and whose output is valued at more than about 16 billion rubles a year, that will get special consideration if they apply for financial help.
In a bid to boost liquidity and bring down interest rates on loans, legal changes allowing banks to apply for one-year unsecured loans from the central bank will be approved before Jan. 1, Kudrin said in televised comments after the meeting.
Putin’s government is facing the biggest economic challenge since 1998 as wage arrears and unemployment rise. Russia’s economy will contract in the first three quarters of next year as oil prices decline and the global credit freeze crimps investment, Barclays Capital said in a report.
TITLE: In Brief
TEXT: Auto Tariff Protests
MOSCOW (Bloomberg) — Russia’s plan to raise tariffs on imports of foreign cars drew protests in the far-eastern city of Vladivostok on Sunday, Agence-France Presse reported.
About 3,000 people rallied in the city center waving signs, while another 3,000 gathered near the airport, in protest over a bill signed by Prime Minister Vladimir Putin on Wednesday to temporarily raise tariffs on foreign cars in order to help support Russian car-makers, the news service said.
About 200,000 people are employed in the import, selling and servicing of foreign cars in and around Vladivostok, AFP said, citing Anastasia Zagoruiko, a protest organizer.
Gazprom Rating Falls
MOSCOW (Bloomberg) — Gazprom’s credit-rating outlook was lowered to “stable” from “positive” by Moody’s Investors Service, after it changed its outlook for Russia last week.
Moody’s ranks Gazprom debt Baa1, its third-lowest investment grade ranking, the same as the country’s sovereign debt, according to a statement released on Monday.
Kudrin Optimistic
MOSCOW (Bloomberg) — Russia’s economy will probably expand by as much as three percent next year and isn’t in recession, Finance Minister Alexei Kudrin said.
Kudrin, also a deputy prime minister, was speaking at a briefing broadcast on state television on Monday.
Russian Railways Sale
MOSCOW (Bloomberg) — Russian Railways, the country’s rail monopoly, said it canceled the sale of a stake in its transportation unit because of the global financial crisis.
The company dropped plans to sell 25 percent of Refservice on Thursday after interested investors couldn’t take part “due to the difficult financial markets situation,” Moscow-based Russian Railways said in an e-mailed statement on Monday.
Refservice, which operates temperature-controlled rail cars, reported third-quarter net income of 766 million rubles ($28 million) on sales of 4.5 billion rubles, according to Russian accounting standards, the company said.
CB Extends Term
MOSCOW (Bloomberg) — Russia’s central bank will increase the term of unsecured loans to banks to one year, Interfax reported, citing Prime Minister Vladimir Putin.
The government and Bank Rossii agreed on the increase on Monday, the Moscow-based news service reported. Putin said legislation regulating the central bank must be amended to allow for the longer term, Interfax reported.
Deputy Finance Minister Anton Siluanov on Friday raised the possibility of extending the term of the loans.
New Rice Duty Touted
MOSCOW (Bloomberg) — Russia may introduce a seasonal duty of 230 euros ($309) a metric ton on rice imports to support local farmers after grain prices fell and imports jumped.
The government’s Commission for Protective Measures in Foreign Trade supported introducing the duty between Feb. 1 and April 30, the Agriculture Ministry said in a statement late Friday.
Rice imports jumped 32 percent between January and September compared with the same period a year earlier, to 227,100 tons, the ministry said.
TITLE: Car Sales Set to Decline, Manufacturers Hike Prices
AUTHOR: By Boris Kamchev
PUBLISHER: Special to The St. Petersburg Times
TEXT: The financial meltdown has led automakers to urgently increase the price of their most popular models, while the decline in car export volume continues. Several major automobile producers operating in Russia have announced that the prices of their cars will increase after the upcoming holiday season. Prices will increase by between two and 20 percent, depending on the model and brand of the car.
Car sales posted a 15 percent year on year decline, bringing down predicted growth for 2008 from 41 percent to just 31 percent, according to data from the analytical agency Autostat. The agency expects that 2008 sales will decline from a projected 3.2 million to around 2.8 million, while the forecast for 2009 will undergo a substantial correction, decreasing by as much as 25 percent.
In recent months, the global financial crisis has also dragged down the international car markets, with auto sales plummeting worldwide. In the U.S. and Germany — the world’s leading auto consumers and producers — domestic companies have suspended production, and auto giants such as Ford, General Motors, Chrysler, Volkswagen and BMW are seeking multibillion state loans for saving the industry.
Driven by soaring demand for foreign cars, many major world brands have invested heavily in the Russian auto industry and opened factories here or established joint ventures with Russian partners. GM was the latest company to open a car plant in Russia. Despite the huge financial obstacles and bankruptcy threats at home, the company decided to invest a further $300 million in the country to produce 70,000 cars a year, including the Chevrolet Captiva at its St. Petersburg plant. GM began production in Russia at its first plant, opened in 2007, in the Russian enclave of Kaliningrad.
Some automakers such as Volvo are increasing their prices on the Russian market due to the decline of the ruble against the dollar, and the increase of the Swedish krona against the ruble. Mitsubishi, Ford and even the domestic brand Lada are expecting changes in their pricing policy after the holidays.
Industry insiders say that another reason for the rise in car prices could be the increase of import duties for new passenger vehicles.
Prime Minister Vladimir Putin last month signed a regulation increasing the import duties for new passenger vehicles and lorries from 25 to 30 percent, and altering the category of second-hand vehicles from those more than seven years old to those more than five years old.
According to government plans, subsidizing the interest on loans taken out by auto manufacturers to restructure and modernize their business, and supporting lease sales schemes should be the next steps in supporting the domestic auto industry.
Ford has already announced that production at its plant in Vsevolozhsk near St. Petersburg will be suspended for longer than usual over the holiday period — from Dec. 24 until Jan. 21 — due to the need to reduce production volumes next two month, resulting in a production cut of 3,500 cars.
“The measures reflect our volume production assessments related to the acute situation on the auto market,” said Yekaterina Kulinina, spokeswoman for Ford. She confirmed that last month Ford sold 14,039 cars — 21.4 percent fewer than in the same period last year, but 3.6 percent greater than in October.
GM-Avtovaz and Volkswagen Russia also announced they would suspend production at some point during the next two months.
However, the Russian auto industry has grown significantly during the last couple of years, and forecasts are optimistic.
According to experts, direct investment in the Russian car industry has exceeded $3 billion during the last six years. About another $2 billion is expected to be invested in the establishment of new foreign cars assembly plants and the expansion of existing ones during the next two to three years.
“Operating facilities are expected to produce 750,000 foreign cars per year, and if all the projects begun are successfully completed, the total assembly volume of foreign models could reach 1.5 million units by 2010-2011,” said Sergei Tselikov, director of Autostat. He added that the same figure was produced by the entire Russian car industry in 2008, including domestic plants.
Key industry projects include Volkswagen’s planned Kaluga plant, which is worth more than $500 million. Almost the same sum of investment is planned for a second Kaluga enterprise realized by the joint efforts of PSA and Mitsubishi. More than $500 million will be invested by the domestic automaker Sollers in three auto manufacturing and components projects: in Naberezhnye Chelny, Alabuga and Ulyanovsk.
Other projects, such as the joint GM-Avtovaz venture in Togliatti, Ford in Vsevolozhsk, GM TagAZ, Avtotor and Avtoframos, have direct investment ranging from $200 to $300 million. The launching of the Volga Siber plant in Nizhny Novgorod cost about $280 billion. Japanese auto giants Toyota, Nissan and Suzuki are investing an estimated $200 million each in their plants in St. Petersburg.
St. Petersburg, which has earned the title of the Russian Detroit due to the number of global auto giants that have either launched production or are building plants here, is yet to see additional investments in the city’s auto industry. At the beginning of this month, City Hall signed a protocol of mutual understanding with the heads of seven Korean companies which are to supply auto components to Hyundai.
The companies Deawon, Donghee, Doowon, Sejong, Shinyoung, NVH and Sungwoo Hitech are planning to build plants in the Kamenka industrial zone near to Hyundai’s plant, which is currently under construction. Maxim Sokolov, chairman of City Hall’s Committee for Investment and Strategic Projects, said that the city would allocate the Korean companies 24 hectares in Kamenka by the end of the year. The total investment volume is $200 million. The enterprises will produce automobile seats, body parts, mufflers, air conditioners, rubber mats and other components by 2010 together with the auto plant. The capacity of the enterprises is 150,000 kits per year with the possibility of increasing it to 400,000 kits. The capacity of Hyundai’s plant is 100,000 cars per year.
Magna, a world leader in manufacturing auto components, recently announced that in the first quarter of 2009 it would start producing plastic components for car interiors and exteriors for automakers in St. Petersburg. The Canadian manufacturer has rented a 12,000-square-meter workshop complex from SM Dors company, located on the territory of the Izhorskiye factories, and plans to invest $60 million. The Vsevolozhsk Ford plant, to which Magna will supply bumpers, will become the first customer.
Despite the crisis, no auto companies have yet declared their Russian projects to be frozen.
Some project deadlines have been extended and plans have been modified; for example Ford in Vsevolozhsk has postponed the launch of its Mondeo assembly line from autumn of this year to spring 2009. Renault has not started work on its Sandero project in Moscow or its Logan MCV project in Togliatti, having postponed them to 2010 and 2011 respectively. The Volkswagen plant in Kaluga has reduced its plans for 2009, down approximately 20,000 units. Other plants remain quiet, though experts are not ruling out the possibility that virtually all of them will have to correct their plans for 2009-2010.
TITLE: Forecasts Vary for Production Staff
AUTHOR: By Shura Collinson
PUBLISHER: Staff Writer
TEXT: Like many other sectors of the economy, the manufacturing industry currently faces the threat of job losses and wage cuts as production rates fall. Local recruitment experts are divided on the general outlook for personnel in the manufacturing sphere for next year. Some maintain that mass job losses are not expected in the manufacturing sector of St. Petersburg and the Leningrad Oblast in the near future.
“According to our information, there are no large-scale personnel cuts taking place at present. As previously, there is a shortage of qualified specialists, and I can say with confidence that the situation is unlikely to change in the future,” said Alexandra Evseeva, branch manager at THI Selection in St. Petersburg.
Other recruitment companies, however, said that they had already seen an inflow of candidates from various manufacturing companies.
“Some employees were laid off, and others decided to leave their jobs themselves as the result of decreased production volumes and consequently, lower salaries,” said Irina Beregovaya, consultant at Consort Petersburg.
While there is little sign at this stage of the crisis forcing production enterprises to close down entirely, many plants are reducing their output.
“Some manufacturing enterprises in the Leningrad Oblast are laying off staff in connection with the fact that production capacities are being reduced due to problems with the delivery of raw materials, so for example instead of 10 production lines, only six will remain in operation, and staff cuts have been made accordingly,” said Ludmila Gordeeva, another consultant at Consort Petersburg.
Beregovaya said that aside from the current economic crisis, one of the main personnel problems for manufacturing enterprises was often their location.
“Even when there is not enough work available, not every candidate will agree to consider a job offer if the place of work is located to the north of the city and oblast and the candidate lives in the south,” she said.
Evseeva said that reports of factory closures as a result of the crisis had been exaggerated in the media. “Many manufacturing enterprises have so-called ‘shutdown’ periods in order to clean and repair the equipment — this is standard practice. Traditionally, this happens during the New Year holidays. In the crisis situation, the media have paid too much attention to this fact, linking it directly to more global problems.”
Last week, Ford announced that its plant in Shushary, just outside St. Petersburg, would close for longer than usual over the New Year holidays as the result of decreasing demand.
“According to our forecasts, qualified manufacturing specialists will be minimally affected by the crisis,” said Evseeva.
Manufacturing employees are not defenseless in the face of salary decreases and job cuts, as more and more belong to trade unions whose task it is to protect their rights.
“According to data from the Federation of Trade Unions for St. Petersburg and the Leningrad Oblast, 800,000 people belong to a trade union,” said Elena Skalon, training and development manager at THI Selection. “The priorities for trade unions are ensuring the provision of reasonable wages, a well-equipped working area, normal working conditions and holiday entitlement and reliable social guarantees.”
TITLE: Manufacturing Reaches Post ’98 Financial Collapse Low
AUTHOR: By Boris Kamchev
PUBLISHER: Special to The St. Petersburg Times
TEXT: The outlook for Russian manufacturing seems gloomier than ever after output in November shrank to 39.8 points, its lowest level, from 46.4 in October, according to Vneshtorgbank Europe.
Analysts say it is the worst manufacturing result since the 1998 financial collapse: in September that year, the index’s figure was 43.2.
“At the moment nobody can tell exactly how the economic situation in Russia and abroad could develop further. Undoubtedly, companies are not insured from the crisis, and it’s the same with the fall of people’s purchasing power, as far as the fast moving consumer goods (FMCG) sector is concerned,” said Anton Saraykin, media relations manager at JT International.
Indications show that new orders are falling fast, output is down and employment is down too, while stocks of finished goods are rising.
“Inflationary pressures are abating somewhat with output prices dropping. We expect that GDP growth on average will drop to 2.5 percent year on year in 2009,” said Lars T. Rasmussen, an analyst at Danske Bank.
“Driving the rapid contraction of the manufacturing sector in November was a record fall in incoming new work,” VTB said in the statement. New export contracts tumbled due to “fallout from the global financial crisis.”
According to the World Bank estimates, the country’s economic growth will slow three percent next year from an average of seven percent in the last decade. Growth in 2007 was 8.1 percent.
“Industrial production in particular could contract in the coming months. We have already seen that happen in Ukraine, where industrial production dropped 20 percent in October. We expect the construction sector to contract sharply,” Rasmussen said.
Some analysts are optimistic, pointing out that the government can use up to $200 billion to handle the crisis — the total sum allocated from gold and currency reserves since August. In June, state reserves amounted to $600 billion — among the highest in the world.
“Observing the growth of our business in Russia and other markets gives us confidence that we will come out in good condition. Therefore we continue to invest in our factories and brands,” said Saraykin.
TITLE: Novolipetsk Steel Slashes ’08 Outlook
AUTHOR: By Alfred Kueppers
PUBLISHER: Reuters
TEXT: MOSCOW — Novolipetsk Steel, controlled by billionaire Vladimir Lisin, on Friday joined the growing list of the country’s steel majors to cut full-year guidance in response to plummeting fourth-quarter demand.
NLMK, the country’s fourth-largest steelmaker by volume, expects 2008 sales of roughly $11.6 billion and core earnings of about $4.8 billion, respectively 7 percent and 4 percent below the already-reduced guidance issued in October.
NLMK, which reported higher third-quarter profits year-on-year, is also preserving cash by scaling back investment.
“Due to the substantial worsening of the market caused by the global financial crisis and deteriorating prospects for the steel industry in the medium term, NLMK has substantially reduced capital expenditures for the fourth quarter of 2008 and put its capex program under review,” the company said in a statement.
Russia’s steel sector has come under pressure as the global financial crisis leads mills to cut output and halt investments in the face of evaporating consumer demand for housing, new cars and other durable goods.
Though all steel producers have suffered globally, the country’s mills have been especially hard hit because clients are not paying for products, sucking cash out of the entire production chain from raw materials to finished products.
But analysts forecast NLMK, unlike rivals Severstal and Magnitogorsk, is likely to stay in the black this quarter.
“It is not a very complicated enterprise, unlike Severstal, which has many international assets that are not doing well,” said Semyon Mironov, steel analyst with Credit Suisse.
“Novolipetsk owns a low-cost coal operation, so unlike Magnitogorsk, they don’t need to buy,” he said.
Vertical integration helped NLMK’s nine-month net profit rise 66 percent year-on-year to $2.76 billion, slightly ahead of the $2.73 billion Reuters consensus.
TITLE: Daimler Forks Out For Stake in KamAZ
AUTHOR: By Maria Antonova
PUBLISHER: Staff Writer
TEXT: MOSCOW — German manufacturer Daimler inked a deal Friday to purchase 10 percent of Russian truck maker KamAZ at a price 3.5 times the stake’s current market value.
The deal calls for $250 million to be paid immediately, and another $50 million to be paid in 2012 if the business develops favorably, Troika Dialog CEO Ruben Vardanyan said Friday, after the deal was signed by Daimler, Troika Dialog, KamAZ, and state corporation Russian Technologies.
The sides agreed on an exclusive strategic partnership between Daimler and KamAZ, a 40-year-old truck producer based in Naberezhniye Chelny, Tatarstan.
“This is a landmark event for the auto industry,” said Sergei Chemezov, head of Russian Technologies, which holds a 37.8 percent stake in KamAZ.
“Daimler’s decision to go into Russia during the crisis shows serious and long-term commitment,” he added.
The signing was delayed by 90 minutes as signatories worked out the details of the deal. Chemezov explained the holdup with a Russian proverb, saying, “Measure seven times and cut once,” first in Russian and then in German.
Russia’s truck market has great potential for growth, as half the country’s trucks are at least 10 years old, said Andreas Renschler, a Daimler AG board member responsible for Daimler Trucks.
Although “the industry is currently facing a perfect storm,” the world will still need modern trucks after the crisis, he said.
Daimler plans to use KamAZ’s production sites and distribution network to increase its presence in Russia and the CIS. One of its first Russian projects will be establishing a localized unit for the light Fuso truck, Renschler said.
The purchase is widely seen as an attempt to keep up Daimler’s market share, as competitor Volvo is scheduled in January to launch a truck plant in Kaluga capable of producing 10,000 trucks annually.
Daimler sold 1,300 of the 154,000 trucks over six tons produced in Russia in 2007.
KamAZ builds about three-quarters of Russia’s large trucks and about half of other cargo vehicles. It exports every fourth vehicle to about 30 countries worldwide.
The $250 million price tag, though almost 3.5 times the current market value for a 10 percent stake in KamAZ, is “optimal” in the current situation, said UBS analyst Ilya Makarov, adding that market prices are volatile and don’t reflect KamAZ’s market share.
“KamAZ is interested firstly in the dealership network and the support from the government in this deal,” Makarov said, adding that a larger stake would be financially difficult as “Daimler is still dealing with debt left over from Chrysler.”
DaimlerChrysler paid $650 million to Cerberus Capital Management in 2007 to take over Chrysler Group and its liabilities, but the firm still has about a 20 percent stake in Chrysler, which is facing bankruptcy along with General Motors after the U.S. Senate rejected the proposed $14 billion bailout plan Friday.
Daimler will be acquiring part of a firm that has hit upon hard times amid a worsening global financial situation. KamAZ is laying off about 3,000 non-staff workers, said KamAZ CEO Sergei Kogogin, citing unfavorable market conditions.
TITLE: Pushkin Brewery to Stop Production Indefinitely Due to Falling Demand
PUBLISHER: Bloomberg
TEXT: MOSCOW — Anheuser-Busch InBev, the beer company formed last month in a $52 billion takeover, will shut down a brewery for an indefinite period to cut costs as local growth weakens.
Production at the plant in the town of Pushkin, just outside St. Petersburg, was to stop Monday, Ilya Lysenko, spokesman for the company’s Russian unit, said Friday.
Anheuser-Busch InBev, maker of beers from Stella Artois to Budweiser, will raise production at some of its nine other Russian plants to compensate, he said.
“As soon as the economic situation becomes favorable, we’ll consider resuming production” in Pushkin, Lysenko said. “We are optimizing production activity and cost efficiency.”
InBev, which purchased Anheuser-Busch last month, reported weakening sales in Russia in October as cold weather and turmoil in financial markets affected demand in one of the company’s fastest-growing markets. Western European beermakers have acquired Russian brewers in recent years to spur growth as domestic markets stagnated or shrank.
A “slight contraction” in first-half profit margins continued in the third quarter, and the cost of sales per hectoliter will be higher than expected after commodity prices rose, InBev said Oct. 3. Anheuser-Busch InBev will offer jobs at other Russian plants to some of the 250 workers at the Pushkin site, according to a statement from the local unit.
TITLE: Manufacturing Hit by Plummeting Ruble
AUTHOR: By Alex Nicholson
PUBLISHER: Bloomberg
TEXT: MOSCOW — Russian Prime Minister Vladimir Putin’s pledge to avoid a “sharp” devaluation of the ruble and let the currency fall gradually has dissuaded citizens from storming banks to withdraw their savings as they did during the crisis of 1998.
It also has prompted Russia’s first credit-rating downgrade in nine years and may prolong the decline of the nation’s manufacturing industry. A one-time, 20 percent devaluation is needed even though the ruble has fallen 15 percent against the dollar since August and the central bank widened its trading band six times since Nov. 11, said Anton Struchenvsky, an economist at Moscow brokerage Troika Dialog. The central bank said it weakened its defense of the ruble again Monday.
“It’s like using a tourniquet: The blood doesn’t flow, the arm goes numb, but if you keep it tight for long the tissue will die,” Struchenvksy said. A devaluation is “the only way to let the blood, the money, back into the economy.”
After oil-fueled growth averaging more than seven percent a year, the Russian economy may now go into reverse, according to Deputy Economy Minister Andrei Klepach, the first government official to suggest that the Russian economy is heading for recession. Industrial production fell an annual 8.7 percent in November, Interfax reported Monday, citing an unidentified government official. Russian producer prices fell an annual 8.4 percent in November, the biggest drop on record, Interfax reported.
The central bank has burned through a quarter of its reserves, or $161 billion, since August to stem the ruble’s decline. International and domestic investors have pulled about $211 billion from the country, BNP Paribas estimates, after the price of Urals crude oil dropped 64 percent, credit markets seized up and Russia fought a five-day war with Georgia.
The budget surplus narrowed by almost 300 billion rubles ($11 billion) last month as tax collection plummeted. Energy accounts for 73 percent of Russian exports outside the Commonwealth of Independent States.
Putin and Dmitry Medvedev, the 43-year-old president he picked to replace him, are trying to avoid a rerun of the 1998 financial crisis, when the government defaulted on $40 billion of debt and devalued the ruble 70 percent. Russians hammered on the locked doors of the country’s collapsing banks as their savings were wiped out, and demonstrators carrying rubles in miniature coffins marched past the central bank headquarters.
That devaluation, in tandem with a surge in oil prices, paved the way for the economic boom of recent years as Russian manufacturers reaped the rewards of a competitive exchange rate for their exports while nudging imports from store shelves.
The economy grew 6.4 percent in 1999 and 10 percent in 2000, the year Putin came to power as president.
This time around, the global recession means customers for Russian goods inside and outside the country may be hard to find, even if prices of goods do fall.
A sharp devaluation “is not going to be enough to save the economy from a major slowdown,” said Neil Shearing, emerging markets economist at Capital Economics in London.
If the ruble drops more, the accelerating inflation of the early 1990s may reappear and combine with rising unpaid wages and unemployment to choke spending, according to Shearing.
“The ruble-dollar rate is on every corner of Moscow,” displayed on signs outside foreign-exchange kiosks and banks, he said. “It’s seen as a bellwether for the economy. It’s going to have an impact on consumption, not just through the impact of higher prices for imports, but because it hits confidence.”
The global slump also has reduced demand for Russian metals and energy. Magnitogorsk Iron & Steel, Russia’s third-largest steelmaker, said last month it was in talks with Sberbank over a loan to fund operations and investment after demand for the metal slumped and customers delayed payments. The company also cut steel output to 700,000 metric tons in October from a monthly average of about one million tons.
“The entire global economy is depressed,” said Maxim Oreshkin, head of research at at Rosbank in Moscow. The World Bank has forecast international trade will contract for the first time in 25 years in 2009.
Russian steelmakers including Magnitogorsk, Severstal and Evraz Group are calling for government support through measures such as imposing duties on Chinese imports. The nation’s six largest producers had aimed to invest more than $26 billion through 2012 before the crisis.
And just as inflation has started to decline from a more than six-year high of 15.1 percent in June, a weaker ruble would push up prices for imports, which Russia’s Agriculture Ministry says account for 40 percent of the food consumed in Russia.
TITLE: RusAl Plans 4% Production Cuts, Job Losses
PUBLISHER: Bloomberg
TEXT: MOSCOW — RusAl, the world’s largest aluminum producer, plans to reduce production by as much as four percent at its Russian smelters and cut five percent of jobs worldwide.
The company may reduce output at six plants by about 180,000 metric tons a year, Chief Executive Officer Alexander Bulygin said in an interview with Interfax on Monday. His comments were confirmed by telephone Monday by spokeswoman Vera Kurochkina.
Producers worldwide have announced plans to cut output by 11 percent after stockpiles rose to 13-year high, Bulygin said. Producers will reduce output by additional five to 10 percent in the next seven months, he said. Global aluminum supply will shrink to 36 million tons next year, with prices stabilizing at about $2,000 a ton by the end of 2009, he said.
Moscow-based RusAl said it plans to halve alumina output at its Italian unit Eurallumina and reduce production by 35 percent at the Windalco refinery in Jamaica.
The company may also cut staff by as much as five percent as it reduces production, Bulygin said. Most of the cuts will be at RusAl’s overseas units. The company will “optimize” spending and delay its Taishet smelter by a year, Bulygin said.
Bulygin said RusAl expects its share of the global aluminum market to increase to 15 percent from 12 percent now.
TITLE: Why S&P Lowered Russia’s Rating
AUTHOR: By Frank Gill
TEXT: Sovereign credit analysts endeavor to “rate through the cycle.” This means taking a long-term view on the creditworthiness of a national economy, regardless of whether total output is growing above or below its potential, or of any temporary decrease or increase in the borrowing needs of a government or the broader economy. This approach works well during ordinary times, but it is not entirely sufficient during extraordinary ones.
Make no mistake: We are living in extraordinary times. The current global economic downturn, which has accelerated during the last two months, is no mere “correction.” We are seeing not only a marked worsening in the outlook for global growth and, hence, a weakening in debtors’ capacity to service debt, but also a deterioration in global creditors’ ability to lend. Demand is not merely weakening on average; it is, in fact, falling nearly everywhere. Of the 16 wealthiest European economies that it rates, Standard & Poor’s expects 12 of them to contract during 2009. The outlook in Asia and the Americas is similarly dire.
Nor is Russia in any way exempt, despite its recent robust record of growth. Indeed, it will be affected severely.
What also makes the current economic downturn more than cyclical is the fact that financial lending is seizing up across the globe. As a result, we are witnessing not only a weakening in debtors’ capacities to service debt but also a deterioration in the ability of global creditors to lend.
The most explicit channel through which a weakening global economy will hit Russia is falling oil prices. That decline alone, if sustained, will almost certainly result in a contraction of dollar-denominated gross domestic product next year.
But the much larger and more upfront negative shock to Russia has occurred through the sharp retrenchment in lending by foreign banks to the country’s debtors. Some $170 billion in foreign debt is scheduled to be refinanced next year. As is the case with other countries with high foreign currency refinancing needs — including Hungary, Turkey, Latvia, Romania, Ukraine and much of the rest of emerging Europe — the appetite for low risk among foreign banks has increased the likelihood that the state could ultimately end up nationalizing some component of corporate and banking-sector liabilities.
The risk of a sudden stop of capital flows into all these countries — in addition to other factors, including the related potential for disorderly exchange rate adjustments — has led Standard & Poor’s to make nine negative ratings actions over the last two months. Among these was last week’s one-notch downgrade of Russia’s investment grade rating to BBB.
Since 2004, banking assets in most of emerging Europe have grown far faster than savings, a process that was accompanied by a lowering of credit standards. Russia participated in this credit boom as enthusiastically as its peers. From 2003 to 2007, domestic credit growth in Russia averaged 45 percent. A sizeable component of the lending was financed by foreign banks, which are no longer willing or able to lend.
It was also rapid credit growth that helped to fuel the brisk increase in imports, which rose by 30 percent in 2007 in volume terms, or at more than four times the pace of import growth. Some of these were capital goods, which helped to improve efficiency in key sectors, such as metal production. But a larger component of the imports was consumption goods that have not contributed towards improving Russia’s capital stock.
Accompanied by generous government spending, the credit boom also fueled inflation, which weighed on the competitiveness of Russia’s noncommodity sector. As wage growth averaged nearly 30 percent over the last two years and the ruble-denominated cost of production rose, domestic manufacturers found it very difficult to compete with cheap high-quality imports. As a consequence, entrepreneurs logically avoided manufacturing and, instead, invested in much more profitable and more import-intensive sectors, such as banking, retail and construction.
The resulting structural imbalances were well camouflaged by the extraordinary growth in energy and other commodity prices. For six straight years, the earnings from Russian oil and commodity exports on world markets have increased much faster than the cost of imports, offsetting the less flattering volume effects. From 2003 through this year, the cumulative difference between export and import price inflation in Russia was a fairly remarkable 74 percent. This put upward pressure on the ruble, encouraging borrowers to take loans in dollars or euros at negative real interest rates, under the assumption that the ruble would appreciate indefinitely. But it also provided an important source of financing.
During the boom years, while the savings rate of the private sector declined precipitously, the government had the foresight to channel a portion of the windfall oil gains into the two state reserve funds, which together are worth 14 percent of the country’s GDP. These buffers are likely to be called upon to recapitalize banks and to fund restructuring in the corporate sector. That is, they will be used to pay down liabilities accumulated by a small subset of the country’s population. Any hope that public savings might have been used to invest in infrastructure needs is fading fairly quickly.
Russia’s other buffer is its high foreign currency reserves, which are currently at $437 billion, or a comfortable 10 months of current account payments. What is a concern, however, is that since the onset of the country’s financial crisis in August, reserve levels have declined nearly 25 percent from their peak of $600 billion.
Much of the decline is a result of the Central Bank’s dollar sales to enable corporations to repay foreign debts or to hedge themselves against further ruble depreciation. But the sales are also financing resident capital flight from the formal banking system. This is a big concern. Instead of reinforcing confidence in the monetary regime, the slow, step-by-step adjustment of the nominal exchange rate may be perpetuating a steady stream of deposit withdrawals and dollar purchases. This showed up in the 5.9 percent contraction in money supply in November.
The challenges to monetary policy are significant and complex, and a recovery of oil prices could very possibly stabilize the situation. Moreover, with a fairly significant chunk of banking assets denominated in foreign currencies, monetary authorities are understandably reluctant to countenance a sharp and sudden devaluation of the currency.
Perhaps even more important, a strong ruble is generally viewed by the population as an important proxy for the competence of the state. Nevertheless, if key export prices remain weak, the relative prices of domestically produced goods to imported ones will need to adjust to improve the competitiveness of the domestic economy and the sustainability of the balance of payments. This is generally achieved via a sizeable exchange rate adjustment, since the possibility of a wage or price adjustment is remote. Over the longer term, as the ruble weakens, the economy ought to rebound as the domestic manufacturing sector regains competitiveness. One key question is what the Russian government intends to do to attract long-term capital flows — in particular, direct investment into the country’s noncommodity sectors.
Russia’s economic potential, in any case, remains enormous. Whether or not the country’s policy-makers embrace more flexible solutions to the crisis will determine how much of that potential will be realized.
Frank Gill is the director of European sovereign ratings at Standard & Poor’s in London.
TITLE: Authoritarians Can’t Fight Crises
AUTHOR: By Alexei Bayer
TEXT: Democracy is useless in national emergencies. In good times, perhaps, societies can afford the horse-trading needed to achieve consensus, but they had better dispense with the democratic niceties when push comes to shove.
Fortunately, over the past few years Russia has built a system tailor-made for handling economic crises like the current one. It has a vigorous prime minister with healthy authoritarian instincts. It also has a rubber-stamp parliament and a docile populace. Whereas the U.S. Congress took its own sweet time in October to pass a $700 billion bank rescue package and balked about saving the big three Detroit automakers, the Kremlin can simply order $36 billion cash infusions for the banking system and $200 billion anti-crisis packages.
Strangely, debates in Congress proved not to be such a waste of time. Faced with an imminent election, lawmakers had to reckon with the fact that paying for Wall Street excesses with public funds was not popular with voters. So Congress put restrictions on the bank rescue package and denied Treasury Secretary Henry Paulson full control over the money and immunity from future lawsuits. More recently, Congress forced Detroit executives to present specific plans on how they were going to make their companies more competitive and forced the companies’ top brass to agree to a pay cut.
In Russia, in contrast, most deals that involve public money are done behind closed doors. Very little information trickles out as to why particular companies get bailed out and on what terms. There is no guarantee that government cronies are not being paid off, leaving everyone else holding the bag. Even if everything is done honestly and with the common good in mind — never a likely scenario when public scrutiny is absent — decision-making is confined to a narrow inner circle. So far, Russia has very little to show for the $150 billion in reserves that have been spent since August.
Suspicion of democracy’s ability to handle urgent problems has ancient roots. This dates to the Peloponnesian War, in which wealthy, democratic Athens lost to a much poorer Sparta, which was a warrior state run on an authoritarian model. The willingness and ability of democratic countries to fight has been often cast into doubt, notably by Hitler. In fact, driven by the same doubts about democracy, Americans surrendered many of their freedoms for the promise of greater security after the terrorist attacks of Sept. 11, 2001.
It is a false tradeoff. Around the globe, open, democratic societies provide far greater security for their citizens than oppressive regimes. Since 2001, tight controls, illegal spying and unlawful imprisonment of foreign suspects added nothing to routine police methods to prevent terrorist attacks. On the contrary, terrorism is on the rise around the world.
The same goes for the economy. Economic freedom and free enterprise not only provide the highest standard of living to the largest number of people but also ensure sustainable economic growth. Government-controlled, planned economies bring stagnation, stifle innovation and result in economic blight.
In the United States, objections have been raised that the quasi-nationalization of banks and automakers, and reliance on government-directed public works in President-elect Barack Obama’s economic plans, could impair the successful U.S. economic model. In Russia, where state-owned banks, notably Vneshekonombank, have provided loans to private companies and taken their shares as collateral, renationalization of some key private companies may be underway.
The global economic crisis may deteriorate sharply in 2009. Regardless of how the situation develops, the Kremlin will likely act decisively and opt for undemocratic, nontransparent statist solutions. This kind of decision-making is likely to result in serious mistakes — at a time when the margin of error keeps diminishing with every passing day.
Alexei Bayer, a native Muscovite, is a New York-based economist.
TITLE: Asada Wins at Figure Skating Grand Prix
PUBLISHER: The Associated Press
TEXT: GOYANG, South Korea — World champion Mao Asada’s skill with the triple axel earned her a victory over longtime rival Kim Yu-na at the Grand Prix of Figure Skating finals on Saturday.
Jeremy Abbott of the United States won after hitting every jump in the free skate.
Asada’s triple axels — two launched at the start of her free skate — proved decisive as she won with a total of 188.55 points, just 2.2 ahead of South Korea’s Kim at the Goyang Ice Arena north of Seoul.
“I am happy that I could land two triple axels in my program and that I was able to win here in Korea,” Asada said. “It is really special.”
It was a particularly satisfying victory for Asada of Japan, who had finished second to Kim at the last two Grand Prix finals.
Abbott breezed past Takahiko Kozuka of Japan for gold in his first Grand Prix final. Abbott earned 237.72 points, while Kozuka had 224.63.
Ice dancing world champions Isabelle Delobel and Olivier Schoenfelder capped off a victorious Grand Prix season with gold, and Pang Qing and Tong Jian of China rallied to win the pairs title.
But it was the showdown between Kim and Asada, rivals since their days as juniors, that took center stage at the sellout event. Even South Korea Prime Minister Han Seung-soo was in the audience.
Kim, the world bronze medalist, had won her last five consecutive Grand Prix series events. Asada, the reigning world champion, won the NHK Trophy but the finals title had eluded her.
Kim admitted to nerves Friday but pulled off a narrow, half-point lead over Asada in the short program. Fans showed their love for “Queen Yu-na” by throwing more than 550 stuffed animals and 500 flowers onto the rink, organizers said.
Asada showed her competitive mettle Saturday by kicking off her free skate with two triple axels, the only woman to perform such a feat. She skated with assurance and elegance but later fell attempting another triple jump, leaving room for Kim to claim the title.
The crowd waited for Kim’s opening jump and erupted with cheers when she landed the triple flip-triple loop combination. But without a triple axel in her repertoire, a fall on a triple salchow guaranteed a close finish.
In the end, Kim scored higher than Asada on artistic points but Asada was nearly four points ahead on technical elements.
Kim said she felt tired and was fighting a cold, along with the pressure of wanting to do well at home after wins at Skate America and the Cup of China.
“It was wonderful to skate at home,” Kim said. “I am a little disappointed about my mistakes, but it’s OK. I will do better next time.”
Reigning European champion Carolina Kostner of Italy skated away with the bronze.
Smooth and relaxed, Cup of China winner Abbott performed with speed and artistry Saturday.
“I was so nervous,” he said. “So to be able to control my nerves and to focus through that and put out the performance that I did was definitely most satisfying.”
Abbott easily topped short program winner Kozuka, who held onto his opening quadruple loop but fell twice as his energy flagged. Still, it was enough for silver overall, giving the Japanese men a fourth straight medal finish at the Grand Prix finals.
Opening with a big combination jump, Johnny Weir came back from an inconsistent short program to place second in the free skate and third overall, putting two Americans on the podium. The 17-year-old Canadian phenom Patrick Chan, the series leader going into the finals, finished last.
Ice dancing world champions Delobel and Schoenfelder, winners at Skate America and Trophee Bompard, capped off a victorious Grand Prix season with gold at the finals. The duo — skating for the 19th season together — moved with speed and flow to moody Pink Floyd.
Oksana Domnina and Maxim Shabalin of Russia took the silver while Meryl Davis and Charlie White of the United States won the bronze in their first Grand Prix finals.
Two ice dancing pairs withdrew from the competition: American pair Tanith Belbin and Benjamin Agosto due to injury, and Jana Khokhlova and Sergei Novitski of Russia due to illness. Delobel also said she spent the afternoon fighting off a stomach ailment.
Chinese competitors topped the podium in the pairs competition, with Pang and Jian winning gold and Zhang Dan and Zhang Hao silver. World champions Aliona Savchenko and Robin Szolkowy of Germany finished third.
TITLE: New Thai PM Inherits Chaotic Political Scene
PUBLISHER: The Associated Press
TEXT: BANGKOK, Thailand — Abhisit Vejjajiva — a patrician 44-year-old with an Oxford education — became Thailand’s prime minister on Monday amid hopes that he can calm the political storms that have battered the country for the past three years.
But untested at the pinnacle of power and said to lack decisiveness, he could face one of the roughest rides in modern Thai history.
Abhisit, who heads the former opposition Democrat Party, defeated a loyalist of exiled but still powerful ex-Prime Minister Thaksin Shinawatra in a parliamentary vote. The parliamentary contest came in the wake of mass protests by anti-Thaksin forces that included a weeklong siege of Bangkok’s airports.
Now, Abhisit must try to neutralize Thaksin’s supporters, who have vowed to take to the streets themselves, grapple with a dramatic economic downturn and keep intact the fragile coalition of small parties that brought him to power.
“Abhisit is untested and that is both good and bad. He has a clean record. He is well-educated, eloquent and principled so the public will likely give him a chance,” says Panithan Wattanayagorn, a political scientist at Bangkok’s Chulalongkorn University.
But Panithan said Abhisit has yet to outline a bold solution to Thailand’s manifold problems.
“That is his weakness and that lack of decisiveness and clear political stance could turn against him very quickly,” he said. “It’s going to be among Thailand’s roughest premierships.”
Abhisit, who entered politics at the age of 27, lost his chance for the job in 2007, when the Democrats failed to win over the rural masses in general elections.
From a wealthy family of Thai-Chinese origin, Abhisit was born in England and educated at Eton and Oxford, where he earned an honors degree in philosophy, politics and economics. His first name means “privilege” in Thai and his friends call him by his foreign nickname, Mark.
He joined the country’s oldest party, the Democrats, in 1992 and became one of the youngest ever members of Parliament. He rose in the party ranks and in popularity, especially among the educated in Bangkok who took to his clean record, polite demeanor, articulate if somewhat bland speeches and movie-star looks.
Abhisit assumed the party’s leadership in 2005 and a year later the Democrats boycotted elections called by Thaksin, accusing the prime minister of calling the vote to divert public attention from scandals and corruption allegations against him.
Thaksin’s party won, but he was toppled in a military coup later that year. However, his allies remained strong and their new People Power Party defeated Abhisit’s Democrats in December 2007 elections.
During the ensuing political turmoil, the Democrat Party voiced support for the main anti-government movement, the People’s Alliance for Democracy, but held back from joining the sometimes-violent street demonstrations.
In recent years, the party has maintained its strongholds in Bangkok and southern Thailand but made little inroads into the populous, poor northeast, where elections are normally won or lost, often through massive vote-buying.
Many Thais, especially in the countryside, favor earthy, charismatic politicians. Abhisit, who counts “Myth of Sisyphus” by French existential novelist Albert Camus among his favorite books, lacks such grit.
Thaksin, by contrast, used to travel through the countryside, speaking the farmers’ language and listening to their hardships.
“It’s very difficult to imagine Abhisit in that same kind of performance with the same kind of results.”
TITLE: Top BBC Honor Goes To Cyclist
PUBLISHER: Reuters
TEXT: LONDON — Triple Olympic track cycling gold medalist Chris Hoy was named the BBC’s Sports Personality of the Year on Sunday to cap a remarkable night and year for the sport.
The Scot finished ahead of Formula One world champion Lewis Hamilton and double Olympic swimming gold medalist Rebecca Adlington in a vote by the British public.
Hoy’s award completed a treble for cycling after the British Olympic team were named Team of the Year and their coach Dave Brailsford won the Coach of the Year honor.
“This is such a shock and after the year I’ve had and the team I’ve had this means so much,” Hoy said at the awards show in Liverpool.
“I’m just overwhelmed. The team has enjoyed one its best years, in my lifetime anyway, and there are so many people to thank.”
The cyclists won 14 medals at the Beijing Games in August, including eight golds, having won nine golds at the track World Championships in Manchester in March.
Hoy became the first Briton to win three gold medals in the same Olympics for 100 years when he triumphed in the sprint, team sprint and keirin.
The Scot’s achievement was all the more impressive for his having to change his preparation after the one kilometer time trial, in which he won gold in Athens in 2004, was taken out of the Beijing program.
“It’s been a tremendous year with success at both the World Championships and the Olympics,” said Hoy, who also won two gold medals at the worlds.
Hamilton, the bookmakers’ favorite, recovered from missing out on the title by one point in his debut season to triumph this year, also by a single point.
At 23, he was the youngest-ever champion and also the first black driver to win it.
Adlington, at 19, won the 400 meters and 800 meters freestyle gold medals, breaking the 19 year-old world record of American Janet Evans in the 800 final.
She was Britain’s first Olympic swimming champion since 1988, the first woman since 1969 and the first British swimmer to win two Olympic golds in a century.
Jamaican Usain Bolt, who won the Olympic 100 meters, 200 meters and 4x100m relay golds, all in world record time, was named Overseas Personality of the Year.
TITLE: Illinois Governor Faces Ax
PUBLISHER: The Associated Press
TEXT: SPRINGFIELD, Illinois — Republicans and Democrats alike are calling for Illinois lawmakers to begin impeachment proceedings against Governor Rod Blagojevich, saying the step is necessary to restore public confidence in state government.
“The General Assembly must move to impeach Rod Blagojevich immediately,” said DuPage County State’s Attorney Joe Birkett, a potential Republican candidate for governor in 2010.
“We should have started yesterday,” agreed Representative Jack Franks, a Democrat.
Legislators were to meet Monday afternoon for the first time since Blagojevich was arrested last week on charges he shook down businesses seeking state deals and tried to profit from his power to choose a replacement for President-elect Barack Obama’s vacant Senate seat.
The session’s focus was supposed to be about considering a special election, but impeachment is likely to be the chief topic of conversation.
Blagojevich spokesman Lucio Guerrero said the governor “has no plans on resigning Monday.”
Guerrero didn’t respond directly to whether the governor could or would do anything to slow down the Legislature’s move toward impeachment.
“The governor has indicated in the past there is more to this story that he’s wanting to tell at an appropriate time,” he said.
The calls for impeachment put the spotlight on House Speaker Michael Madigan, who ultimately will decide the timing of any impeachment effort.
Madigan, a Democrat representing Chicago, hasn’t taken any public position beyond saying Sunday that he planned talk to the House Republican leader about the issue Monday.
David Dring, spokesman for House Minority Leader Tom Cross, said Republicans will step up the pressure on Democrats to remove Blagojevich, perhaps raising the issue on the House floor.
“If they won’t work with us, you’ll probably see some good theater,” Dring said.
The GOP also plans to run television ads pressuring Democrats to approve a special election to replace Obama. Blagojevich still holds the power to appoint a new senator, and if he resigned, that power would go to Democratic Lieutenant Government Patrick Quinn.
Illinois Republican Party chairman Andy McKenna told reporters the ads will “make the point that this is the people’s seat, and the people deserve a special election.”
TITLE: Chelsea Held To 1-1 Home Draw by On-Form West Ham
AUTHOR: By Mitch Phillips
PUBLISHER: Reuters
TEXT: LONDON — Chelsea missed the chance to reclaim top spot in the Premier League when they were held to a 1-1 home draw by West Ham United Sunday, a day after Liverpool, Manchester United and Arsenal also drew.
Craig Bellamy put struggling West Ham ahead but Nicolas Anelka equalised six minutes into the second half.
Liverpool, who were held to a 2-2 home draw by Hull City at Anfield, lead the way on 38 points with Chelsea on 37. Manchester United, goalless at Tottenham Hotspur, are third on 32 but with a game in hand.
Arsenal slipped to fifth on 30 after drawing 1-1 at Middlesbrough, allowing Aston Villa to go fourth on 31 after they beat Bolton Wanderers 4-2.
West Ham manager Gianfranco Zola, once voted Chelsea’s greatest-ever player by the club’s fans, was given a standing ovation before the game at Stamford Bridge but the home supporters were groaning after 33 minutes.
Wales striker Bellamy chested down an awkward ball from Mark Noble and sent a crashing shot emphatically past Petr Cech to give the visitors the lead.
Didier Drogba, who came off the bench to score the winner against CFR Cluj in the Champions League Tuesday, was introduced for the second half in place of Michael Ballack.
In Sunday’s other game Newcastle United collected their first away win of the season when second-half goals from Michael Owen, Obafemi Martins and Danny Guthrie earned them a 3-0 victory at Portsmouth.
TITLE: Shoe Attack Mars Bush Visit to Iraq
PUBLISHER: The Associated Press
TEXT: WASHINGTON – President George W. Bush wrapped up a whirlwind trip to two war zones Monday that in many ways was a victory lap without a clear victory. A signature event occurred when an Iraqi reporter hurled two shoes at Bush, declaring: “This is from the widows, the orphans and those who were killed in Iraq.”
The president visited the Iraqi capital just 37 days before he hands the war off to his successor, Barack Obama, who has pledged to end it. The president wanted to highlight a drop in violence and to celebrate a recent U.S.-Iraq security agreement, which calls for U.S. troops to withdraw from Iraq by the end of 2011.
“The war is not over,” Bush said, but “it is decisively on its way to being won.”
Bush then traveled to Afghanistan where he spoke to U.S. soldiers and Marines at a hangar on the tarmac at Bagram Air Base. The rally for over a thousand military personnel took place in the dark, cold pre-dawn hours. Bush was greeted by loud cheers from the troops.
“Afghanistan is a dramatically different country than it was eight years ago,” he said. “We are making hopeful gains.”
But the president’s message on progress in the region was having trouble competing with the videotaped image of the angry Iraqi who hurled his shoes at Bush in a near-miss, shouting in Arabic, “This is your farewell kiss, you dog!” The reporter was later identified as Muntadar al-Zeidi, a correspondent for Al-Baghdadia television, an Iraqi-owned station based in Cairo, Egypt.
In Iraqi culture, throwing shoes at someone is a sign of contempt. Iraqis whacked a statue of Saddam with their shoes after U.S. marines toppled it to the ground following the 2003 invasion.
Reaction in Iraq was swift but mixed, with some condemning the act and others applauding it. Television news stations throughout Iraq repeatedly showed footage of the incident, and newspapers carried headline stories.
In Baghdad’s Shiite slum of Sadr City, supporters of radical Shiite cleric Muqtada al-Sadr called for protests against President Bush and demanded the release of the reporter, who was jailed after throwing his shoes.
The Iraqi government condemned the act and demanded an on-air apology from Al-Baghdadia television, the Iraqi-owned station that employs Muntadar al-Zeidi. The reporter was taken into custody and reportedly was being held for questioning by Prime Minister Nouri al-Maliki’s guards and is being tested for alcohol and drugs.
“It harmed the reputation of Iraqi journalists and Iraqi journalism in general,” according to a statement released by the government.
After word spread of the shoe attack, Afghan reporters had gathered at the presidential palace in Afghanistan’s capital, Kabul, before a news conference by Bush and Afghan President Hamid Karzai. Some of the reporters — a collegial bunch that sees one another several times a week — egged on one of their colleagues, jokingly trying to pressure the television reporter into taking off his shoe and hurling it once the U.S. president arrived. He did not.
Karzai’s deputy spokesman, Saimak Herwai, told Afghan reporters that they had to address Bush as “His Excellency,” an honorary title not typically used with U.S. presidents. The request was followed by some, not by others.
Bush then took a helicopter ride to Kabul to meet with Karzai.
After their meeting, Bush said he told Karzai: “You can count on the United States. Just like you’ve been able to count on this administration, you’ll be able to count on the next administration as well.”
TITLE: Shoe-Thrower Becomes Talk of Arab Street
PUBLISHER: Reuters
TEXT: BAGHDAD — The Iraqi journalist who threw his shoes at U.S. President George W. Bush in a supreme insult has suddenly become the talk of Iraq.
The little known Shi’ite reporter said to have harbored anger against Bush for the thousands of Iraqis who died after the 2003 U.S.-led invasion, had previously made headlines only once, when he was briefly kidnapped by unknown gunmen in 2007.
TV reporter Muntazer al-Zaidi remained in detention on Monday, accused by the Iraqi government of a “barbaric act.”
His employer, independent al-Baghdadiya television, demanded his release and demonstrators rallied for him in Sadr City in Baghdad, the southern Shi’ite stronghold of Basra and the holy city of Najaf, where some threw shoes at a U.S. convoy.
“Thanks be to God, Muntazer’s act fills Iraqi hearts with pride,” his brother, Udai al-Zaidi, told Reuters Television, demanding that the Iraqi government free him.
“I’m sure many Iraqis want to do what Muntazer did. Muntazer used to say all the orphans whose father were killed are because of Bush.”
Zaidi shouted “this is a goodbye kiss from the Iraqi people, dog,” at Bush in a news conference the U.S. president held with Prime Minister Nuri al-Maliki during an unannounced farewell visit to Baghdad on Sunday.
The journalist then flung one shoe at Bush, forcing him to duck, followed by another, which sailed over Bush’s head and slammed into the wall behind him. Throwing shoes at someone is the worst possible insult in the Arab world.
Zaidi was dragged struggling and screaming from the room by security guards and could be heard shouting outside while the news conference continued after momentary mayhem.
The Iraqi government said Zaidi had carried out “a barbaric and ignominious act” that did not correspond to the role of the media.
“He tried to attack the visiting president,” the media center of the council of ministers said in a statement.
“At the same time that we condemn this ignominious act, we call on the television channel of this reporter to deliver a public apology for this act which sullies the reputation of all Iraqi journalists and the whole media.”
Al-Baghdadiya television demanded Zaidi’s immediate release, “in accordance with the democratic era and the freedom of expression that Iraqis were promised by U.S. authorities.”
It said that any harsh measures taken against the reporter would be reminders of the “dictatorial era” that Washington said its forces invaded Iraq to end.
Zaidi, now in his late 20s, spent more than two days blindfolded, barely eating and drinking, after armed men forced him into a car as he walked to work in November 2007.
He said at the time that the kidnappers had beaten him until he lost consciousness, and used his necktie to blindfold him and bound his hands with his shoelaces.
He never learned the identity of the kidnappers, who questioned him about his work but did not demand a ransom.
Colleagues of Zaidi say he resented President Bush, blaming him for the bloodshed that ravaged Iraq after the invasion. It did not appear that he had lost any close family members during the sectarian killings and insurgency, which in recent months have finally begun to wane.
A small number of supporters of anti-American Shi’ite cleric Moqtada al-Sadr called for his release in Basra, the southern city that controls Iraq’s oil exports.
Larger groups of Sadrists also protested in Baghdad’s Sadr City and in the Shi’ite holy city of Najaf. In Najaf, witnesses said demonstrators threw shoes at a passing American convoy.
TITLE: Greeks Bearing Bricks Offer Warning to Europe
AUTHOR: By Daniel Flynn
PUBLISHER: Reuters
TEXT: ATHENS — The ferocity of rioting by frustrated young Greeks shocked many across Europe but provides a warning to the continent’s leaders as they discuss ways to confront the global economic crisis.
Seven days of protests, which caused hundreds of millions of euros of damage across 10 Greek cities, were triggered by the police shooting of a teenager on Dec. 6 but fed on resentment at high youth unemployment, low salaries and inadequate welfare.
They have sparked sympathy protests from Moscow to Madrid, some quickly organized over the Internet or by SMS message, as many young people feel leaders are ignoring their frustrations.
“It’s time they listened to the people. We’re shouting ‘look at the mess we’re in’” said teacher Stella Nicolakakos, 35.
Economists say EU leaders, putting the final touches to a 200 billion euro stimulus plan in Brussels, should brace for more outcry as Europeans find their jobs jeopardized after a decade of growth which created expectations of prosperity.
“Most of Europe thought they’d be immune to the crisis and they’ve woken up late to the fact that they’re not,” said Vanessa Rossi, economics researcher at Chatham House in London. “The implications for several countries are not good, both in terms of recession and social unrest.”
In Spain, where the EU’s highest unemployment rate is tipped to reach 20 percent as the crisis deepens, youths attacked a bank and a police station in Madrid and Barcelona following protests over the Greek shooting. In Rome and Copenhagen, leftist protestors pelted police and damaged property, while in Moscow youths hurled firebombs at the Greek embassy.
In France, two cars were set alight in front of the Greek consulate in Bordeaux on Thursday. “The Coming Insurrection” and “In support of the Greek fires,” said graffiti near the blaze.
“Look what is going on in Greece!” French President Nicolas Sarkozy told members of his UMP party, rejecting budget proposals that would have cushioned the wealthy from losses.
With memories fresh of weeks of suburban rioting in 2005, Sarkozy expressed concern the anti-government backlash could spread to France: “The French love it when I’m in a carriage with Carla, but at the same time they’ve guillotined a king.”
Many factors behind the Greek riots are unique, including the subculture of anarchists thriving in districts like Athens’ Exarchia, where the trouble began. A history of violent policing also made Greek authorities reluctant to risk a strong response.
But other aspects stem from economic problems facing the whole of the 27-nation bloc, causing concern among investors.
“What’s happening in Greece, I fear will spread to the rest of Europe as unemployment rises,” said leading Portuguese businessman Joao Talone, calling for softer economic policies.
Greece’s headline unemployment rate — which rose to 7.4 percent in September — is actually just below the euro zone average. The key factor, however, is unemployment among youths.
Unemployment for 15-24 year olds in Greece is running at 22 percent, according to the OECD: not far removed from Italy, France and Spain, also countries with a history of mass protest.
“Young Greeks, even those up to the age of 35, make up a silent majority of overworked, underpaid, debt-ridden and insecure citizens,” said Generation 700 Euros, a group defending the 56 percent of Greeks under 30 earning that amount a month.
Generation 700 has its equivalent in Spain’s “mileuristas”, Germany’s “Generation Praktikum” (Generation Intern) and France’s “Generation Precaire.”
Young people, often forced into menial jobs despite university educations, use Internet services like Twitter and SMS messaging to rapidly organise demonstrations, says George Prevelakis, geo-politics professor at Sorbonne University.