The CIS’ Harried Harvest Haul
Food prices, which are half the CIS region consumer basket, after an almost 10 percent jump in 2010 on fire and weather-related crop damage are set to rise another 15-20 percent through mid-year due mainly to global factors as authorities look to output gaps and monetary tools to check pass-through inflation. In Russia, Ukraine and Kazakhstan GDP growth trends have been subverted by recession and private credit has barely revived. The Russian central bank has however reversed course to confront cost pressure through incremental rate hikes and currency appreciation, while the Kazakh corridor will be phased out and the Ukrainian exchange rate should further stabilize on extension of the IMF program and international bond market return. Stock exchanges have taken the measures in stride and are all up so far in 2011 on commodity upswings despite lingering political as well as inflationary spectacles. Kazakhstan’s President Nazarbayev, already in office for two decades, abruptly shifted position amid the Middle East’s anti-strongman revolts, and agreed to new elections instead of a referendum to extend his term until 2020. The government had previously reported that over half of voters had endorsed the plebiscite which the US and other Western powers had called “anti-democratic” after Astana hosted the latest gathering of the human-rights monitoring Organization for Security and Cooperation in Europe. The GDP growth forecast was lifted at the same time to 5 percent following an S&P one-notch sovereign upgrade to BBB on “balance sheet resiliency after several bank failures.” With strong hydrocarbon revenue the current account surplus will be 3.5 percent of output this year and medium-term budget balance is foreseen. Oil stabilization fund assets advanced 25 percent to almost $40 billion in 2010 on tax collection and $900 million in investment income aided by early disposal of peripheral-Europe bonds, its management revealed.
Ukraine too has replenished international reserves to mid-2009 levels, with the hyrvnia still below 8 to the dollar as $7 billion in official support is expected in coming months and a $1 billion sale of the state phone company was just completed after numerous past attempts and the controversial disqualification of most bidders in favor of Austria-based Epic allegedly backed by local oligarchs. On the other side of the ledger, Russian bank credit and a Eurobond must be repaid, and continued prosecution of opposition figures including former prime minister Tymoshenko may deter projected FDI into the steel and other sectors. Moscow’s VTB was the commercial loan provider and successfully placed a $3 billion 10 percent privatization stake in the recently resumed campaign after lesser-known IPOs faltered, reaping mixed fruits.
