Tuesday, May 31, 2016

Alexei Lossan — Why is Russia borrowing money on the foreign markets?

But according to Deputy Finance Minister Sergei Storchak, the issuance of Eurobonds is not aimed directly at financing the budget deficit. In his words, the main objective for Russia is to "show its flag," to show that it is present on the international capital market.
That was my initial impression. Russia didn't really need to go to the bond market to get euro. Rather, it was prove that Russia can create and operate it's own financial markets independently of the West. It was a signal to the US that that not only are sanctions not working, but that Russia is self-sufficient,  not isolated, and not just a "gas station" either.

According to MMT, borrowing in a foreign currency is a constraint, but for Russia this was a geopolitical and geostrategic move as much as an economic one.

Russia Beyond the Headlines
Why is Russia borrowing money on the foreign markets?
Alexei Lossan, Rbth

3 comments:

Andrew Anderson said...

Alexander Hamilton thought interest paying sovereign debt a means to bribe the rich into supporting the fledgling US government.

Perhaps Russia plans to bribe the rich in the West in a similar way but with Euros?

Might be a cheap way to buy peace? But also a way to hobble the Eurozone since the rich will have an incentive to keep the Euro strong even if it hurts the Eurozone? Rich bond buyers as fifth column?

Michael Norman said...

I hear what you are saying, Tom, but it doesn't jibe with the neoliberal finance establishment within Russia. The central bank, oligarchs, fiscal policy, etc. They believe they "need" the money. Even if it's a statement, it's a hindrance.

Tom Hickey said...

I think there is a lot of that, too, Mike.

But I suspect that it would have been simpler to just get some USD from China, who has a surplus of them, either by selling gold, which China is stocking, or borrowing from the PBOC.

Central banks overwhelmingly hold USD as reserves and most foreign debt is dollar denominated. I don't think that Russia has many obligation in euro, especially since sanctions.

The Russian eurobonds are another swipe at the dollar and proof that Russia can gat along fine without USD by borrowing in euro if need be, which the US doesn't control.