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Medvedev orders govt to support economy

Latest update : 2008-09-12

Russian President Dmitry Medvedev asked the government and the Central Bank to do everything possible to help the nation's ailing economy, further threatened by global crisis and the Georgia conflict.

Russian President Dmitry Medvedev on Thursday ordered the government and central bank to boost funds flowing into financial markets to curb a four-month slump that has seen stock prices fall by nearly half.

"The government and the central bank must do everything they can to ensure that new financial resources enter the market," Medvedev told a televised government meeting.

"It is absolutely clear and this must be done."

Turbulence on the stock market, which has seen the benchmark RTS fall 46 percent since May, is "a temporary phenomenon which does not reflect the state of the economy," Medvedev said.

"The Russian stock market remains very promising for investments and serious investors understand that," he added.

But Medvedev's calming words, the second such statement in two days, failed to stem the fall on the markets.

The dollar-denominated RTS fell another 2.7 percent on the day while the ruble-denominated Micex lost 3.7 percent.

Investors in Russian stocks have been selling on a combination of factors, including falling commodity prices, turmoil in international markets and unpredictable actions by the government, analysts said.

Increasing tensions with the West, stoked further by Moscow's military intervention in Georgia last month, have also hit the market -- the RTS falling 27 percent since the conflict began.

Medvedev's comments were his second public show of support for stocks in a week that has seen almost 14 percent knocked from the value of the RTS.

On Wednesday, he said the problems were not "long-term" and that the uncertainty reflected turmoil on international markets more than the underlying value of Russian companies.

Despite the slow-motion collapse of the financial markets, Russian growth has so far largely kept pace, with the economy growing 7.5 percent in the second quarter after 8.5 percent in the previous three months, official figures showed Monday.

Russia has been transformed by a five-year boom that has brought tens of millions of people into the middle class and supported a newly confident foreign policy.

But the market's problems have revived uncomfortable memories, coming on the 10th anniversary of the August 1998 financial crisis which cut short an earlier boom.

The biggest risk now, is uncontrolled flows of capital out of the country, Medvedev said.

Without intervention, unbalanced capital flows could "create problems for bank liquidity, increase the risk of inflation, or cause excessive overheating of the economy," Medvedev said Thursday.

Foreign investors have repatriated billions of dollars since the start of August, pushing down the value of the ruble and leaving Russian companies struggling to raise finance, analysts said.

"Businesses are having more liquidity problems. We have recently seen several cases of insolvency," analyst Alexander Petrov from Univer investment group said in a note.

But with oil prices hovering around 100 dollars per barrel, most analysts say stocks are now undervalued, especially given the prospect of government support.

"It seems right to buy this market and the main reason is the high probability of state intervention," said Chris Weafer, an analyst with Moscow-based investment bank Uralsib.

Date created : 2008-09-11