Putin May Boost Russia’s Power as Iceland Seeks Loan (Update3)

Rusia busca como expandir su poder económico ayudando a miebros de la OTAN. EEUUy Europa ya no pueden mas!

Para la traduccion al español, presiona aqui.

Despues que el Banco de Finlandia, buscase ayuda con sus aliados y le fuese negada, ahora Rusia evalua si ayuda o no a este miembro de la OTAN.

By Henry Meyer

Oct. 8 (Bloomberg) — For Russian Prime Minister Vladimir Putin, the financial crisis that is costing his government $200 billion may also provide an unexpected opportunity to expand his country’s influence.

Rejected by its Western allies, Iceland yesterday said it was in talks to borrow 4 billion euros ($5.4 billion) from Russia to shore up its financial system. It would be the first time Russia has extended financial assistance to a NATO country.

“This is a case of using foreign aid to pursue geopolitical objectives,” said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. “This is good economics because it shows Russia’s in a strong financial position: it can afford to lend 4 billion euros to someone else.”

Even with the ruble near an 18-month low and the stock market suffering its worst rout since the 1998 default, Russia has weathered the global credit crunch with $563 billion in currency reserves, the world’s third-largest amount. That financial muscle is giving Putin a weapon to challenge the U.S., which is grappling with its worst financial crisis since the Great Depression.

Iceland sought the loan after taking control of two of the country’s largest banks and lending 500 million euros to a third. The request comes as the country’s financial system is near collapse.

`Very Big Help’

“If it goes through, this will be a very, very big help for us,” said central bank chief David Oddsson, who complained that other European nations had failed to rescue Iceland.

“We haven’t got so much help from our very good friends in the Western hemisphere; this decision by the Russian government to take up negotiations is very much welcome,” Oddsson told Bloomberg Television. Russian Finance Minister Alexei Kudrin said Russia’s reaction to the request was “positive.”

Ordinary Icelanders, whose country for decades hosted a U.S. airbase, seemed grateful, too.

“Iceland is turning into the little Cuba of the north,” said Ragnar Hannes Gudmundsson, 38, a former bank employee who is now a teacher. “The Soviet Union supported Cuba decades ago and now they are saving us.”

Russia’s ability to dip into its reserves — it has pledged almost $200 billion to boost liquidity and reduce borrowing costs — is in stark contrast to the situation it faced nine years ago: Reserves then stood at just $12.5 billion.

Default and Devaluation

When Putin took over as president on Dec. 31, 1999, he inherited a government that had defaulted on $40 billion of debt and devalued the ruble in August 1998, wiping out millions of people’s savings and pushing Russia to the edge of bankruptcy.

Since then, the economy has grown almost 7 percent a year on average, fueled by high oil prices. Now, the prospects for Russia are clouding as crude prices fall on concern of a global economic slowdown. Oil futures have declined about 40 percent from the record $147.27 reached July 11. Russia depends on oil and gas for more than two-thirds of its export earnings.

Russia halted trading today on its stock markets after the ruble-denominated Micex Index slumped 14 percent in the first 35 minutes of trading and the dollar-denominated RTS Index plunged 11 percent in the first half hour. The RTS has dropped two-thirds this year, the sixth-worst among 88 national equity indexes tracked by Bloomberg, a sell-off exacerbated by the five-day war in Georgia in August. Russian President Dmitry Medvedev yesterday announced $36 billion of loans for banks on top of a $150 billion support package pledged in September for companies and lenders.

Demonstrating Influence

If Russia can support its stock market and preserve growth, the current financial crisis represents a chance to demonstrate “influence in the world economy and the diminishing influence of the U.S,” said Sergei Markov, an adviser to the Kremlin who is a lawmaker in the ruling United Russia party.

Both Putin, 56, and Medvedev, 43, have criticized the U.S. for spreading financial contagion around the world.

U.S. “irresponsibility” led to the global credit squeeze, which may reduce Russian growth to as little as 5.7 percent this year, according to the finance ministry, Putin told a cabinet meeting Oct. 1.

A day later, Medvedev said at a forum in St. Petersburg that the financial crisis showed that the time when one economy and one currency dominated the world economy was “over.”

Former U.S. Treasury Secretary Larry Summers said the talks on a loan between Iceland and Russia highlighted a weakening role for the U.S.

“I have to say that the news on today’s Bloomberg that Iceland was negotiating a $5.4 billion stabilization loan with Russia did not fill me with a sense of comfort about the political implications and the ways in which the world is moving,” Summers said yesterday at a seminar in Buenos Aires.

Medvedev Speech

Medvedev today repeated calls for talks on the global financial crisis to include major developing nations.

“It’s obvious that economic egoism is the consequence of a unipolar world” led by the U.S., Medvedev told an international conference hosted by French President Nicolas Sarkozy in Evian, France.

Russia, which belongs to the Group of Eight club of industrialized countries, has argued for the body to expand. Russia hosted a summit of the so-called BRIC countries, along with Brazil, India and China, in May as part of an effort to develop them as an economic and political counterweight to the U.S. and Western Europe.

“The world is changing to Russia’s benefit,” said Markov, who heads the Institute of Political Studies in Moscow. He added that by lending to Iceland, Russian leaders also wanted to counter the damage to their country’s reputation in the West from the conflict with U.S.-allied Georgia.

To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net

Last Updated: October 8, 2008 08:03 EDT

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