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Russian economy, tycoons hit in crisis

MOSCOW — Russia's most powerful businessmen waited more than an hour on Thursday to speak with President Vladimir Putin, whose decision to annex Crimea had cost their companies hundreds of millions of dollars in market value.

When Putin finally showed up — for five minutes — he gave no reassurances that they or their companies might get any respite from the uncertainty created by the takeover of a piece of land of little value to them beyond national pride.

Russia's economy is getting pinched by the crisis over Crimea — even before the new sanctions the U.S. and Europe announced Thursday. The stock market has tanked 10 percent this month, wiping out billions in market capitalization. Economists have slashed growth forecasts to zero this year, and foreign investors are pulling money out of Russian banks. Ratings agency Standard & Poor's on Thursday cited all these issues when it cut its outlook for the country.

Because U.S. and European leaders have said they are willing to impose ever stiffer sanctions, ratcheting up the pressure on Russia step by step, the concern is how severe the penalties might get.

"The main risk is in the sanctions that have not been announced," says Nataliya Orlova, chief economist at Alfa Bank in Moscow. "It's hard to estimate the effect right now because we don't know what they will be."

Russia's economy was already weak going into the crisis, expanding only 1.3 percent last year. For this year, forecasts for growth of about 2 percent have been written off altogether, with Putin's adviser, Alexei Kudrin, expecting no growth at all.

The ruble has lost 9 percent against the dollar in less than three months. That will make imports more expensive for average Russians. In a bid to support the currency, the central bank raised its main interest rate sharply last week from 5.5 to 7 percent, but that will hurt the economy, too, by making loans more expensive.

Investors took $35 billion out of Russia in January and February — about half as much as in the entire preceding year. The outflows could soar to $50 billion per quarter if sanctions get tougher, Kudrin has warned.

At the business group meeting chaired by Putin on Thursday, Alexei Mordashov, worth around $13 billion, and Dmitry Pumpyansky, worth $2 billion, did not utter a word of concern or complaint — even though their companies have been getting slammed in stock markets.

Shares in Mordashov's Severstal, Russia's largest steel company, dropped 13 percent this month, cutting the company's capitalization by about $900 million. Stocks in Pumpyansky's pipe producer TMK lost 19 percent this month, with the company losing more than $500 million of its market value.

The tycoons' silence stems from a deal they struck with Putin more than a decade ago to give up any political ambitions in exchange for a free hand in their business affairs. Since the arrest and imprisonment of Mikhail Khodorkovsky in 2003, no billionaire has questioned Putin's policies.

Russian economy, tycoons hit in crisis 03/20/14 [Last modified: Thursday, March 20, 2014 11:37pm]
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