KEY POINTS:
The global financial chaos as well as the fallout from the Kremlin's war in the Caucasus have combined to plunge Russia's markets into turmoil.
Russia's supposed immunity to the global financial downturn was definitively over yesterday as trading was suspended on Russian stock exchanges for a second day
running amid record falls.
Analysts attributed the plummet in share prices to the international economic situation but said that the Russian war in Georgia last month had affected confidence in the country among Western investors.
The Government announced an increased lending package to the country's three biggest banks, with the hope of inducing stability. The Finance Ministry will allow Sberbank, VTB Group and Gazprombank to borrow US$44 billion ($66 billion) for three months.
The rouble-denominated Micex stock exchange had its biggest ever single-day fall since Russia's 1998 crisis on Wednesday, falling 17 per cent in a single day, and the dollar stock exchange hit a two-year low and continued falling.
Yesterday the exchange suspended trading indefinitely after its index plunged as much as 10 per cent within an hour.
Some analysts downplayed the severity of the crisis and said it was not likely to affect ordinary Russians in the way that the credit crunch is being felt in Western countries.
"I still expect overall GDP growth of 6-7 per cent this year, and no full-fledged credit crunch," said Yaroslav Lissovolik, chief economist at Deutsche Bank in Moscow. "This is very different from 1998, because Russia has built up substantial fiscal and monetary reserves over the past eight years."
In 1998, the Russian economy defaulted, plunging the country into economic crisis and sending foreign investors fleeing. But during the reign of Putin, soaring global oil prices meant that Russia was able to amass a vast "stabilisation fund" of reserves to protect the economy from fluctuating commodity prices.
In July, Prime Minister Vladimir Putin criticised mining firm Mechel for selling coal cheaper abroad than on the domestic market.
Referring to the company's CEO, who had been taken ill, Putin advised him to get better soon, "or we will have to send him a doctor and clean up all the problems".
"Putin's comments on Mechel made the initial impact, then after Georgia everyone started pulling out of the stock markets," said a British lawyer working in Moscow.
"If Putin knew how to behave, the crisis would be a lot less serious."
- INDEPENDENT