Russia attacks 'politically motivated' downgrade to junk rating

27th January 2015, Comments 0 comments

Moscow sought Tuesday to dismiss Standard and Poor's decision to downgrade Russia's credit rating to "junk" as politically motivated, while approving part of a $21 billion anti-crisis plan to shore up its beleaguered economy.

Moscow said S&P's downgrade to 'BB+' was motivated by the West's current standoff with Russia over Ukraine, with one foreign ministry official even claiming the ratings agency was acting on Washington's orders.

The Russian ruble on Tuesday was trading flat at 67.7 to the dollar after losing ground Monday, while the dollar-denominated RTS index opened down by more than 3 percent before recovering slightly in mid-day trading.

But the European Union is looking at piling further pressure on the Russian economy, with the bloc's leaders tasking their foreign ministers to consider a new wave of sanctions in response to an upsurge in fighting in Ukraine blamed on Moscow.

A Russian deputy foreign minister, Vasily Nebenzya said the S&P downgrade was "ordered from Washington" in a "new wave of anti-Russian hysteria".

President Vladimir Putin's spokesman Dmitry Peskov told Russian news agencies it was a "politicised" decision that will not sway "serious companies" because it does not reflect the "real state of affairs."

Finance Minister Anton Siluanov also said the downgrade was based on "too much pessimism" and does not take into account the strengths of Russia's economy such as the size of its reserves.

Nevertheless, analysts said the downgrade would further hurt the economy, as it would make borrowing even more costly.

"There could be some political component in the decision, but... one must recognise that the situation is taking a serious turn for the worse," said Igor Nikolayev, an analyst who heads the FBK Strategic Analysis Institute.

Western sanctions and plunging oil prices have sank Russia's economy into a contraction expected to reach up to 5 percent in 2015.

Moscow last week announced an anti-crisis plan amounting to 18 billion euros, part of which was approved on Tuesday.

As part of the plan, the "volume of (government) spending will be less than planned," Siluanov said, without giving details on the planned spending cuts.

"We will carry out a reasonable budget policy and see our goal as reaching a no-deficit budget by 2017 with oil price predicted at $70 a barrel," he said, according to Russian news agencies reports.

- Jobs cut, prices skyrocket -

Inflation has risen sharply due to the weakening ruble, with authorities saying that checks carried out in supermarkets nationwide show that food prices have soared six-fold since August.

Bell peppers in Samara region are now 654 percent dearer while cucumbers were 544 percent more expensive, the regional prosecutor said on its website.

Inflation is historically one of Russians' biggest fears following the 1990s crisis when the ruble was so volatile that prices were frequently set in dollars.

In another sign of the struggling economy, Russia's biggest carmaker Avtovaz, which makes Lada vehicles, said it will cut one in ten executive jobs.

"We expect to decrease the number of managers by 1,100, Avtovaz spokesman Stanislav Bereziy told AFP in an email. The company has about 10,000 managers on its staff.

Russia's top opposition leader Alexei Navalny on Tuesday put concerns over the economy on the agenda of a new "anti-crisis" protest to be held on March 1, the first such rally focusing on economic demands.

"Time has been lost, money has been eaten up. Yesterday's downgrade of Russia to 'junk' returned the country to the year 2005," he wrote on his blog.

"Put March 1 on your calendars and don't plan anything else. We will be saving Russia from crisis."


© 2015 AFP

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