The Missing R

Yesterday, the New York Times had an interesting story about the vigorous bounce-back of so-called developing markets, focusing exclusively on the BRIC countries. Industrial production has picked back up in China, car sales are on the rise in India, and Brazil’s stock market shot up by 41% in the last three months.

The notable blank in the piece was, of course, the R. Russia slipped past almost without mention.

So to fill in the gap, I’ll draw on a recent investors’ note sent out by the Eurasia Group, whose Russia analyst has just returned from a research trip. As has been widely reported, the economic situation in Russia has calmed significantly since the calamity that was fall and winter. This, however, is due largely to the rally of commodity prices — namely oil — in the last few months. Given that, Russia could have made it into the Times. But there are significant risks of further destabilization. Apparently, Russian banks are sitting on a huge pile of non-performing loans, and no one knows just how many of them they have:

Current official statistics of 3-5% understate real conditions, and while state banks forecast 10% by the end of the year, private bank analysts in Moscow say the real level could reach 30%, forcing the state to undertake a massive recapitalization.

Then there’s the fact that there is a struggle brewing between liberals and the “strong men” over now in-play assets, consumer prices have sky-rocketed, unemployment is still high, and that the Kremlin’s economic team, even with some very competent technocrats in charge, seems content to simply bob back up on rising oil prices without undertaking real, structural reforms.

Perhaps this is why the Times didn’t mention Russia in its things-are-looking-up panorama, though including one slightly more shaky example would have made for a more believable, well-calibrated piece.

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