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Russia Has Its Own Financial Crisis

LINDA WERTHEIMER, host:

It's Morning Edition from NPR News. I'm Linda Wertheimer in Washington.

STEVE INSKEEP, host:

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And I'm Steve Inskeep in New York. This city may be the center of the financial crisis, but it's not the only place expecting help from a federal bailout. In fact, foreign firms are demanding their share, and foreign markets are still recovering.

WERTHEIMER: Russia's stock markets shut down for two days last week. The crisis in the U.S. was only the latest in a string of events that shook the Russian markets. But some in Russia see the turmoil as evidence of a foreign conspiracy intended to harm the country's economy. NPR's Moscow correspondent Gregory Feifer reports.

GREGORY FEIFER: Well-dressed shoppers pass rows of gleaming luxury cars parked outside one of central Moscow's most exclusive shopping centers. As other countries worried about a global recession this year, high oil prices fueled an extended spending spree among a growing number of Russian rich. But last week's crisis put an end to any notion Russia's economy is isolated from the rest of the world's. Stocks here plunged so fast, markets were forced to close for two days until government emergency measures sent prices back up on Friday. Inside the shopping center, many say they're not concerned about the stock market's volatility. Businessman Giorgi Ivano(ph) says last week's decline doesn't reflect weakness in Russia's economy.

Mr. GIORGI IVANO (Russian Businessman): (Russian spoken)

FEIFER: It's the effect of the deliberate policies of the U.S. government, he says. That's a common view among Russians. Some newspapers last week claimed foreign investors were seeking to weaken Russia's economy by withdrawing their money. Some commentators revived communist-era warnings about the evils of Western capitalism and advocated Russia protect itself from the world's financial turmoil with such measures as increased state control over the economy. Speaking at a forum of investors on Friday, Prime Minister Vladimir Putin appeared to give credence to such views while pledging to maintain what he called Russia's economic openness and freedom.

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Prime Minister VLADIMIR PUTIN (Russia): (Through Translator) We will treat any attempt to return us to the times of the Cold War as a direct threat to our modernization plans. Russia will take no politically motivated decision to disrupt its economic relations.

FEIFER: But it was the government's own actions that caused the first sharp drop in the stock market last month. When Putin accused a major mining company of tax fraud, the firm lost $6 billion overnight, sending the stock market down five percent. Some analysts said Putin's attack was meant to show he's still in charge of running the country. Days later, Russia's invasion of Georgia further shook foreign investors' confidence. Some analysts estimate they've pulled more than $35 billion out of Russia since last month. Former Economy Minister Andrei Nechayev says hardliners in the government are now using foreign investors' reactions as an excuse to call for greater Russian isolation from the west.

Former Minister ANDREI NECHAYEV (Russia, Ministry of the Economy): (Through Translator) The strengthening of hardliners in the Russian government is part of an ongoing battle for control inside Russia's ruling elite. The global economic crisis is simply a backdrop for them.

FEIFER: Russia's stock markets continued to rise today, but they've lost half their value since hitting record highs last May. Falling oil prices have also hurt the economy. But as investors here wait to see how government intervention in the U.S. and Russian economies plays out this week, Roland Nash of Renaissance Capital Investment Bank says the recent rally is only a temporary improvement.

Mr. ROLAND NASH (Managing Director, Renaissance Capital Investment Bank): It's really sort of out of Russia's hands. For it to remain permanent, we need to see the situation in the U.S. cleared up and the oil price to at least find some kind of stability.

FEIFER: Whatever happens, former economy minister Nechayev says last week's market volatility has finally burst the myth that Russia was ever a safe haven for foreign investment. That was more a wish, he says, than reality. Gregory Feifer, NPR News, Moscow. Transcript provided by NPR, Copyright NPR.

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