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[FOUNTAIN]Uncertainty kills

Published: 17 Oct. 2003, 21:40

Newsweek magazine ran a cover story, “Moscow on the Rise,” in late 1997. The magazine celebrated Russia’s successful transition to a market economy and the use of its abundant resources. Investors from around the world, including from Korea, flocked to Russia. International credit rating agencies like Moody’s raised Russia’s credit standing in their reports. But a few months later, the Russian economy crashed and its stock index collapsed to one-tenth of its peak value. Russia was on the verge of national bankruptcy, and per-capita gross national income was halved. A U.S. company, Long Term Capital Management, which was led by two Nobel Prize winning economists, lost $533 million on its Russian holdings in a single day. To prevent the company from going bankrupt and the consequent shock wave from causing further damage to Wall Street, the Federal Reserve had no choice but to call on the presidents of major banks to provide a rescue package that ran to billions of dollars.
Six years later, Newsweek reprised the 1997 story in a piece called “Rising Moscow.” The latest economic marks are impressive. Since 1999, Russia has notched an average of 6.2 percent annual growth rate, second-highest in the world after China. The stock market rebounded and has passed its 1998 peak. It is hard to believe that it is the same country that was on the brink of bankruptcy only five years ago. For the first time since 1998, the credit rating agencies upgraded Russia’s sovereign rating to “low expectation of investment risk.” Sales of high-end automobiles are soaring; more Mercedes 600 series cars are sold in Moscow than in the rest of Europe combined.
Newsweek this time addressed the weaknesses of the Russian economy as well. The World Bank is concerned about Russia’s dependence on oil exports, but Newsweek noted political instability as more worrisome. President Vladimir Putin has more power than the government or the law. His unchallenged leadership makes international investors reluctant to put major stakes there. Oligarchs compete for concessions, and Mr. Putin appears to be the mediator. Newsweek concluded that the unpredictable political situation makes the future of the Russian economy murky. Russia’s ups and downs remind us of the eternal truth that the prime enemy of an economy is uncertainty, especially political uncertainty.

by Lee Se-jung

The writer is a deputy business news editor of the JoongAng Ilbo.