The Kremlin has been quick to blame the West, and primarily the United States, for the country’s troubles. Prime Minister Vladimir Putin blamed Western “speculators” who pulled out their investments en masse at the first sign of trouble. He also denied that Russia’s aggression toward Georgia played any role in the market’s fall. Putin suggested that the crisis is connected “not with the problems of the Russian economy, but with problems of the West’s economy.” In recent comments, he even referred to it as the “American contagion.”
President Dmitry Medvedev concurred, saying, “The United States caused the whole crisis with its own financial market. … Regarding the factors that were responsible for the drops in the Russian stock market, I would estimate it as follows: 75 percent of the fall in the stock market is connected with consequences of the global financial crisis and 25 percent due to our internal problem, including consequences of the war in the Caucasus.”
How accurate are these assessments?
After May 19, stock markets in almost every country of the world started to decline, and Russia followed this downward trend. Therefore, in the first stage of the global crisis, the financial problems were by no means specific to Russia. This global decline continued for almost two months. During this period, the U.S. stock market fell by 11.5 percent, the global market by 12.9 percent and the Russian market by 13.1 percent. Because the Russian market’s decline was slower in comparison to emerging markets, which fell by 17.5 percent overall, this may have confirmed for many observers what Finance Minister Alexei Kudrin claimed in January — that Russia had become an “island of stability.”
But all of that changed on July 18, when the RTS fell by 4.5 percent, while there was little or no change in the markets in the United States, Europe or in emerging markets. What happened on that day? The Federal Migration Service granted TNK-BP chief Robert Dudley a “temporary visa” — valid for 10 days only. This was followed by a prolonged harassment campaign aimed at Dudley and other top managers from the British side of the joint venture. It became clear that the government was favoring the Russian shareholders in the conflict. In 2003, when TNK-BP was formed, the company had been touted as the crown jewel of successful joint ventures between Russian shareholders and a venerable foreign multinational corporation. It had the support at the highest level of both countries, including then‐British Prime Minister Tony Blair and Putin. Thus, when this much‐celebrated joint venture deteriorated into a nasty, underhanded shareholder battle, many investors drew their own conclusions about the unstable, unpredictable and arbitrary investment climate in the country. They started to pull their money out of Russia.