MOSCOW—By any measure, Russia's stock markets have been on a sickening ride.
On Thursday, authorities cautiously reopened trading on Russia's main exchange, the Micex, where action was halted yet again Wednesday after shares fell 14 percent in just the opening hour. As trading resumed, the Micex, buoyed by the coordinated rate cut by western central banks, recovered much of the previous day's loss. But that hardly begins to repair this year's financial carnage, which has panicked investors and undermined Russia's oil-fueled economic resurgence.
Moscow's two main stock markets, the Micex and the RTS Index, have been closed repeatedly in recent weeks to stem their dives. By early October, both had fallen about 70 percent from a May high, and Monday was the worst day of trading in Micex's history. In response to the financial sector's woes, the Russian government has announced a rescue package of about $200 billion.
On the political front, Russia's leaders have seemed happy recently to chart a lone course in international relations. They batted aside western criticism when they ordered the invasion of Georgia and, later, unilaterally recognized the breakaway Georgian republics of Abkhazia and South Ossetia.
But when it comes to the economy, Russia is in the same boat as much of the rest of the world—a boat being swamped by the tide of financial problems.
For Russia, the effects of the global credit crunch are compounded by domestic factors, particularly a lack of confidence on the part of foreign investors in Russia.
The impact of the crisis on most Russians has so far been minimal, partly because the crisis has received little attention in the largely state-linked mainstream media. And it has not done much damage to the image of the country's popular but increasingly authoritarian government.
Some of Russia's powerful oligarchs, though, are facing tough times. And their firms could be wrested from them as the state proceeds with a bailout. "The ones that are in crisis are those that have been borrowing," says Alexander Lebedev, part-owner of the national airline, Aeroflot. "The biggest, those that are in raw materials, metals, telecommunications...they might or might not lose their controling stake to the market or to Prime Minister (Vladimir) Putin," says Lebedev, who is ranked by Forbes magazine as No. 358 among the world's billionaires, worth $3.1 billion. (Lebedev denies that the value of his own holdings has sunk about 60 percent, as he was reported to have said at a recent Moscow party—he says it was a joke that was misinterpreted.)
The precipitous decline of Russian stocks began in May, fueled by fears about the U.S. economy and a conflict between the British and Russian shareholders of oil company TNK-BP that seemed an ominous sign for foreign investment in Russia.
In late July, investors' jitters increased after Putin publicly criticized giant mining and metals company Mechel for selling raw materials cheaper abroad than at home. In response, Mechel's shares fell 38 percent, losing $6 billion in value.
The case seemed to reinforce the perception, stemming from the jailing of oil tycoon Mikhail Khodorkovsky and the dismantling of his company, that companies operating in Russia depend on government goodwill for their survival.
More foreign investors pulled out after the Georgian war. Russian Finance Minister Alexei Kudrin announced in mid-August that $7 billion of hard currency left the country during the conflict.
Many Russians have adopted a wait-and-see attitude toward the crisis. But it comes as an eye-opener for Russia's nouveau riche. "If things start turning sour in banks and companies, in retail, we might see a slowdown in clients," says Alexei Gorichev, who runs Velvet Club, a firm that uses executive jets for scheduled flights between Moscow and destinations in Europe and the Middle East. A one-way executive-jet ticket to London costs 4,000 euros ($6,800). "The hedge-fund managers who were making $5 to $10 million a year will not be flying to London for the weekend if they lose their shirts," Gorichev says.
At the other end of the economic spectrum, Tatyana, a well-educated Moscow pensioner who didn't want to give her surname because she is ashamed of her circumstances, says that she's immune from the crisis because she has no investments. "I didn't have anything and I don't have anything, so I haven't lost anything," she says. At any rate, her 6,475 ruble ($250) monthly pension buys less and less because of Russia's galloping inflation rate, which the IMF predicts could rise to about 14 percent this year.
Russia's nascent middle class of about 30 million people is particularly vulnerable, says Tatyana Maleva of the Institute of Social and Economic Studies of Population in Moscow. If the crisis spreads from the financial sector and affects the rest of the economy, their savings, investments, and pension plans could be affected.
Some analysts are drawing comparisons with Russia's 1998 financial crisis, when falling oil prices and shockwaves from the Asian financial crash caused the ruble to collapse. The trauma is still remembered vividly here.
Still, there's reason for optimism, says David Aserkoff, chief strategist at Renaissance Capital, a Moscow investment bank. "In 1998, oil was $10 per barrel; now it's $80," he says. "Then Russia was running a significant current account deficit, and it has a current account surplus now."
Russia has over a half-trillion dollars of currency reserves to cushion its financial system. Indeed, it is Russia, not European nations or the United States, that is in negotiations to provide Iceland with a $5.4 billion loan to shore up its ailing economy.
The crisis has some pondering whether Russia's financial system, which came into being through rapid liberalization and deregulation after the 1991 Soviet collapse, is in need of a dramatic overhaul.
Asks Maleva: "Do we build the Russian economy on the basis of a system that has been shown not to work, that has led to a crash in the West? Or should we choose a different model?"