Articles

Russians unload currency fearing economic chaos

Falling oil prices, Western sanctions, market panic send ruble to record lows

MOSCOW — Despite extraordinary efforts by the Russian central bank to defend the currency, the ruble’s value continued to slide on Tuesday, presenting President Vladimir Putin with an acute new set of political and economic challenges.

Scenes that Russians hoped had receded into the past reappeared on the streets. Currency exchange signs blinked ever-changing digits. Russians rushed to appliance stores to buy washing machines or televisions to unload rubles. Unsure of prices, car dealerships like AB Volvo halted business, while Apple Inc. stopped online sales in the country.

After a dramatic middle-of-the night interest rate hike, a sense of economic chaos settled over the Russian capital. The ruble was in free fall, dropping under 80 rubles to the dollar, after opening the day at 64 to the dollar.

“We are seeing an economic crisis,” Natalia Akindinova, a professor at the Higher School of Economics, said in a telephone interview. “We are seeing a sharp devaluation of the ruble at a time when the central bank doesn’t have the reserves to influence the market, as it did in the past crises.”

The bulk of the Russian government’s revenues come from oil. Now the economy is being battered by the painful combination of low oil prices and Western sanctions. The country is expected to fall into a recession next year.

The White House said Tuesday that President Obama will sign legislation imposing new economic sanctions on Russia as a protest against Russia’s aggression in Ukraine.

The measure sponsored by Rep. Marcy Kaptur (D., Ohio), also provides military and financial assistance to the government of Ukraine. It cleared Congress late Saturday.

White House officials acknowledged there were no guarantees Russia’s economic woes and another round of sanctions would compel Mr. Putin to curtail aggressive actions in Ukraine.

Global investors are increasingly concerned that tumult in Russia might not be isolated. Many emerging markets like Venezuela and Nigeria are dependent on Russia’s energy exports, which are being hurt by the deep and sustained decline in oil prices. Oil is now trading at about $55 a barrel, compared with more than $100 a barrel this summer.

In Russia, investors are growing increasingly worried that the Kremlin has in effect decided to print money to address a growing debt problem. Traders are also raising concerns that the cronyism and opaque insider dealings that have plagued business here have now spread to monetary policy.

According to analysts, the ruble’s fall on Monday was sparked by word of an opaque deal involving the central bank and the state-controlled oil company, Rosneft. The well-connected business executive running the company, Igor Sechin, a longtime associate of Mr. Putin, had apparently persuaded the central bank to effectively issue billions of new rubles to his company to help cover debts.

The governor of the central bank, Elvira Nabiullina, speaking on Russian television, said the interest rate decision had been made to stanch the fall of the ruble. In its moves, the Russian central bank also increased allotments of dollars to the Russian banking system, to finance the purchase of rubles as part of the effort to stabilize the currency.

A continued fall in the value of the ruble could present Mr. Putin with difficult choices and could make it more difficult to sustain the political support he has enjoyed at home even as his relations with the West have frayed.

He faces a delicate dance with Russian companies, which are under significant financing strains. Russian corporations and banks are scheduled to repay $30 billion in foreign loans this month.

And next year, about $130 billion will be due. There is no obvious source for these hard currency payments other than the central bank, whose credibility is now being called into question.

By Sue Sturgis on December 16, 2014
 

The British House of Commons debated legislation today addressing human rights abuses in UK-based companies' supply chains, and North Carolina's tobacco fields came up as as an example of a workplace where modern-day slavery is a real risk.

Member of Parliament Ian Lavery spoke about the conditions he and fellow Labor Party MP James Sheridan witnessed during a July fact-finding mission to eastern North Carolina tobacco farms, which supply the British cigarette industry. Joined by U.S. Rep. Marcy Kaptur (D-Ohio), who wrote about the experience for The Nation, they were hosted by the Farm Labor Organizing Committee, an Ohio-based union that represents migrant workers in North Carolina and the Midwest.

The British lawmakers reported the findings of their mission last month in "A Smokescreen for Slavery: Human Rights Abuses in UK Supply Chains," which detailed problems on North Carolina tobacco farms, including human trafficking, squalid living conditions, a lack of drinking water in the fields, pesticide poisoning, and fear of retaliation for speaking up about poor conditions. The report was released by the Trade Union Group of MPs, for which Lavery serves as chair and Sheridan as vice chair. The visit, they said, left them wondering "how human beings could endure under these conditions without crushing the human spirit."

During today's debate Lavery described some of what they saw:

[T]he working conditions that we saw were absolutely atrocious, with unbelievably long hours of manual labour in unbearable heat; squalid living conditions, which mean workers have a lower quality of life than inmates in UK prisons; and employers showing a total disregard for basic health and safety regulations … which meant that many of them develop green tobacco sickness, an affliction with symptoms including nausea, intense headaches, vomiting and insomnia.

Parliament is considering the Modern Slavery Bill, which would require UK companies to monitor for slavery risks in their supply chains. London-based British American Tobacco (BAT) is a major customer and largest owner at 42 percent of Reynolds American Inc., a politically powerful North Carolina-based tobacco products company that contracts with growers in the state.

Lavery said BAT expressed sympathy with tobacco farmworkers in an October meeting with MPs but refused to proactively address concerns about human rights abuses. Lavery also said BAT has refused to use its influence over Reynolds American to encourage the company to sign an agreement with FLOC guaranteeing workers on its contract farms basic human rights, including freedom of association in order to take collective action to improve conditions.

"I welcome the support of these MPs who want to make BAT accountable for the conditions on the farms in their supply chains," FLOC President Baldemar Velasquez said.