EiyL

Siauliai City
Municipality
IB DP Economics students
Lithuanian Economics Newsletter March, 2009 Fifth issue
Eco In Your Life

INDEX
2 Editorial
“Every single day, over the past year, we have been hearing the same headlines about World Economy Crisis...”
3 The Lithuanian economy has failed to avoid the stab of the Red Ox
“Before the Seimas election of 2008 took place in late October all of the parties were trying to convince the voters...”
7 Boom! Fraud?
“Alright, so here goes another article about, HOW DID THE CRISIS HAPPEN!?!? And now, that I have your attention...”
8 The development of South Africa is stuck
“Africa has always been known as the poorest continent in the world. It has a very tough environment and...”
10 UAE - An unbeatable all-time economist?
“And so the crisis hits the world! Even the strongest world economies admit being affected by the economic crisis..”
11 Crisis!? What crisis?
“The much-talked about economic crisis in Lithuania seems to have fast become the omnipresent part of our lives..”
12 Runnin’ with an AK-47
“Effects of the Israel-Gaza conflict on human rights situation in Gaza are clear, but how exactly did the...”
14 Sunk in a dunghill
“In 2004 'economic tiger' was the reputation that Latvia had built, meanwhile now it reminds a newly born blind kitty...”
16 Estonia - a country living on ordinary people’s account?
“Estonia has successfully shifted its economy from the communist command to a free market based...”
18 Barack Obama - the new Roosevelt?
“The 20th of January was the day of inauguration of the new US president Barack Obama. Who knows, perhaps...”
20 Moscow: The insiders
“What is life really like in the most expensive city in the world, Moscow? How did Moscow achieve...”
22 Moscow: a sight from the inside
“When the financial crisis began hardly anyone believed that it can significantly affect Russia's economy...”
24 Victims of redundancy in Baltics
“Lithuania, Latvia and Estonia in the past years could have made a boast of one of the lowest unemployment levels...”
26 Is the Siberian Bear waking from its winter sleep?
“Before six months the price of oil was more than US $140 per barrel. The Russian economy grew at 8% rate..”
29 “Knock knock! Who’s there? A crisis!”
“The US financial crisis has spread all over the continent- not only in North America, but in Latin America...”

Dearreaders...
Every single day, over the past year, we have been hearing the same
headlines about World Economy Crisis and its terrifying effects
around the globe. But have you not grown bored of the same?
Personally, I have recently been struggling to develop a quality, which
women are quite ingenious at – hearing what they want to hear. Now
you might be thinking “Why would you make such a foolish thing?”
Well, there is a simple explanation - to overcome the crisis!
Since it is known that economy goes in cycles, up and down like roller
coasters, we should not be frightened with the recession, which
started in Germany and spread throughout the world, because we
know that after the storm, a bright day will inevitably come and it is
only a matter of time.
Many economists agree that the failure of the system of subprime
mortgages caused the crisis. Nevertheless, I find the problem hidden a
little deeper. Ted Truman, a senior official at the Federal Reserve, thinks
that “It is about easy credit, and financial engineering that went wild,
and people who thought that the good times would never come to an
end and were planning accordingly."
Now we are getting somewhere! Neither of the three – the US
government, FED bank or the subprime system should be blamed.
PEOPLE – here is the issue. If we for once stopped looking at numbers,
stopped blaming authorities and looked towards ourselves we could
finally CHANGE SOMETHING!
But is world economy really so inter-connected? Could we call this
phenomenon everybody is taking about really a WORLDWIDE CRISIS?
Our reporter I.Vaisnoras proves by his article that so far there is no
such thing as crisis in Lithuania and it is more of a conspiracy than the
portrayal of reality. His evidence and facts are undisputable thus I
would strongly advise you to contemplate while reading his article.
What I want you to understand is that it is necessary to be aware of
what is happening around us, but the Media tends to exaggerate
events and phenomena just to catch one's attention. Well, probably
we are also a part of the media, but I have been encouraging my team
substantially to touch the areas that are not being portrayed with
enough depth lately.
With this 5th issue of our Economics in Your Life newsletter we want to
broaden your view globally. We are offering some food for thought
and we hope that you will take it into deep consideration. Our
reporters care what is happening around the globe. They try to tackle
issues, which they are most concerned about with their own
perspective. Nobody is interested what is being written and spoken
constantly, neither are we.
In article “Frauds” by E.Pilipavicius, you have a chance to learn more
about speculative scams where people were offered high returns in
short period of time. Figures like BERNIE LEE MADOFF, who convinced
people that their money were invested in charity or put safely in banks,
while actually NO PRODUCT was created. And this should have led to a
significant return? Oh come on! As we realized later on, Madoff made
millions from people, who lost a total of more than 50 BILLION US
DOLLARS – a substantial input to a downward sloping economy!
2
We considerably care about our little neighbors Latvians, because the
people and governments are quite similar, unfortunately thus the
problems. I have no doubts that you have heard of how former
communist countries were booming couple of years ago, with flourishing
economy and generating enormous GDP's. Well, sad to say but now
Latvia's gross domestic product has decreased from 11% (!) (2007 1st
quarter) to minus 4.3% (2008 3rd quarter) and it is decreasing even
further. Latvia is facing major problems and issues which require a lot of
attention and sudden solutions, which are revealed by B.Klastaitis in his
article “Sunk in a dunghill”, and we hope that the government of Latvia
has learned the lesson and with a help of the European Union will
overcome all obstacles and soon we will be able to say proudly, that we
have an economically strong and stable neighbour!
While talking about stability, people of Lithuania should definitely not be
aiming for medals. On January 16th a protest, which eventually became a
riot, took place near the building of the parliament. We might guess the
reason for the riot was that people finally realized that politicians are after
all not messiahs, as they were portraying themselves in election
campaigns, who can isolate citizens from economical crisis and provide a
happy and long life. Money is a sensitive mean, especially for
unemployed or, in general people who are not well off. Therefore when
they have acknowledged how government started to operate their
money basing their actions on the book they have carelessly written
called “to overcome the crisis!” (sounds propagandist!) where all shoddy
ideas have been put, it is natural that they have become anxious.
I have no intention to insult the government of Lithuania in any way. Just
merely the fact that they have been releasing “new editions” of their
“outstanding” book, every two weeks, shows their lack of capability to
analyze present situation what should be done more than to increase the
taxes for business to encourage entrepreneurs to take incentive to start or
continue business and increase taxes for consumers that they could
contribute more for the resurrection of economy (are you with me?)
R.Girtaviciute tries to analyze this issue with more dept.
Despite the dull colors of the painting of world economy, I hope you will
enjoy the new issue of our economical newsletter and from now on you
will be aware of some phenomena that you were not conscious of before.
On one hand I am truly insisting on not getting depressed, but on the
other hand thriftiness have not made any harm for anyone, especially in a
tough period thus I would like you to consider the quote by Anthony J.
D'Angelo
Can you put yourself within these boundaries? I hope you can.
Yours truly,
CEO of economical newsletter “Eco in your life”
produced by Siauliai Didzdvaris gymnasium
International Baccalaureate Diploma programme students
Simas Simanauskas
“Focus 90% of your time on solutions and
only 10% of your time on problems.”
e c o n o m i c s i n y o u r l i f e

TheLithuanianeconomyhasfailedtoavoidthestaboftheRedOx
By Rasa Girtaviciute
Before the Seimas election of 2008 took place in late October
all of the parties were trying to convince the voters that such
thing as a recession is not present in Lithuania. In a sense it was
the unspeakable word R.
Only when a new coalition was formed, with Kubilius at the
front, indispensable bills needed to cope with the recession
were put at a glance.
Eventually for the first time word “Recession” was said out loud.
Shortly The R word was accompanied by the “Bulldozer”
reforms, a part of government's anti-crisis plan, bringing lower
salaries for parliamentarians and unknown future for the rest.
Though, at first plan was met with enthusiasm, since
independent economists were excluded from the discussions,
the value and the logic of the plan diminished, shared his views
G. Nausëda, the economic counselor of the SEB president.
Nonetheless, the question arises – who needs the “Bulldozer”
reforms more: the parliamentarians who can not cope with
their salary reduction or the people who “all of a sudden” have
to cope with the recession?
Lithuania before the elections
Last year for Lithuania was quite promising. Lithuania's GDP
has grown on average 6% driven by exports and domestic
consumer demand. The unemployment stood at only 4, 8 %.
Though, inflation reached 11.1%, so did the wages which
continued to grow at double digit rates.
This salary growth might have been stimulated by the foreign
investments in Lithuania that have brought additional 34
billion LTL during 2008. Unfortunately, when comparing
foreign investments per capita among the Baltic States,
Lithuania is the last.
The candidates to the parliament in the elections of the fall of
2008 found these numbers very much helpful as they could
suggest various reforms that would not be possible if the
statistics would have not been so promising.
New government, new crisis – new salaries
Before trying to save the Lithuania's economic ship in distress,
the parliamentarians have reduced their salaries.
However before adding the office expenditures to their salary
and taxing it, the eyes of the people earning minimum wages
3
were caught by the fact that they are earning almost thirty times
less than an ordinary parliamentarian. See Figure 1.
Figure 1: Parliamentarians salary in comparison to
minimum wage
This would have probably increased the number of people
participating in the election for the 2012 - 2016 term. It would
actually be a positive outcome as over the past 18 year of
independence the number of people voting has steadily
decreased by over 30% since 1990. As a result in the election of
2008 only a little over 50% of the people have used their right to
vote.
The costs of Black Friday
As soon as the oaths were given parliamentarians started creating
reforms that had caused dissatisfaction among many people. This
was the cause of the riot against the current government.
But where will they take the money from?
As usual it's the tax payers that will be paying no matter whether
they have participated in the riot or not. This brings us to another
question: maybe taxes were raised intentionally, yet illogically
knowing that there will be the need to cover the holes not only in
the budget, but in their windows as well?
„The result of it is now obvious. It is more
than 200 000 litas (57924 EUR) that will be
needed to repair the damage done.“
How many min
wages constitute it.
Poland
Estonia
Greece
Lithuania
Slovenia
Czech Rep.
UK
Latvia
Ireland
Slovakia
Spain
2248
1922
6154
3715
4155
1408
6823
1075
6705
888
3177
12.7
12.1
10.2
28.9
8.8
6.8
6.3
8.9
6.2
6
5.9
Country Salary in EUR

The Income tax
The offer to stop subtracting the tax-exempt minimum
(320LTL) for people earning higher than average salary (2319,
9 LTL) for calculating the income tax has gained sympathy.
Unfortunately, many have failed to notice that this is another
cunning way to lighten the tax burden of the rich by imposing
an even greater part of it on the shoulders of the weakest
social class. This means that the burden of 68% of the people
earning less than 1200 LTL will not ease off.
Before this reform was introduced the natural person's
income-tax was 24%. However, when the subtraction of the
tax-exempt minimum was stopped the income-tax dropped
to 20%.
As an example to illustrate the case we can take the salary of
G.Kirkilas, the leader of the opposition in Seimas.
Officially he is earning 7000 litas. See the calculations in Figure
2.
Figure 2: The impact of Income Tax reform on
disposable income
Before the reform Kirkilas had to pay 1603, 2 LTL and after –he
has to pay 203.2 LTL less. As we can clearly see, the tax burden
for people earning more than the average salary has
decreased during this economically unfavorable period.
The increase in VAT
Despite the fact that the New Year has brought the increase in
VAT and the tax exemptions were suggested to be cut, after
debates some of the exemptions have been left valid.
Among the cancelled ones there has been some that are most
crucial to the lower social class. As an example we can take the
tickets for using the public transport whose price is going
increase significantly.
Now a monthly ticket for using the public transport in Vilnius is
40 LTL, but after the increase in VAT it will cost up till 70 LTL.
This means that the ticket price can increase up to 75%. But
this is not caused only by the increase in VAT, but also by the
excise duty rises. This is going to have a negative effect for
those who are earning minimum wages and are using the
public transport because the share of their income that is
spent on tickets is going to increase.
Exemptions cuts affected price of certain medicines as well. After
equaling the VAT up to 20% some of the essential medicine will
increase in price by 15%.
Unemployment in Lithuania
With every slip that we tear of our calendar not only the days are
getting longer, so are the queues in the labor exchanges and
various jobcentres.
So far this has been one of the thorniest subjects in the
Lithuanian economy as every unemployed person has to receive
the unemployment benefit. It varies accordingly from previous
wage: from 135 LTL to 635 LTL. (39-183 EUR)
During this difficult period projections for the year 2009 state
that there should be increase in the number of unemployed
people by twenty thousand, to whom the unemployment
benefit will have to be paid from the budget.
It is estimated that the unemployment in 2009 will reach 10, 2%.
These economic forecasts have drawn attention of economists
as they realize that the consumer demand is the economic
engine of our economy. But so far state has not been doing
anything to increase the employment.
Profit taxes
After the changes in profit taxes businesses have to bear even
higher tax burden during these hard times because the profit tax
was raised up to 27%. An increase of 12-17% subject to size of
the firm.
This reform doesn't give any joy for the heads of the firms, and
raises a wave of indignation when entrepreneurs found out that
the government and municipal, also the national institutions are
dispensed from this tax.
It is a mile out that this news for the country budget is optimistic
because now the budget of the country is very near the limit of
failure. It means that there might be no money left for essential
social allowance such as pensions.
Tax payment
before the reform
Tax payment
after the reform
Difference
Salary of
Gediminas
Kirkilas
7000 - 320 =
6680 (LTL)
6680 * 0.24 =
1603.2 (LTL)
7000 * 0.2 =
1400 (LTL) 203.2 LTL
Average
Salary
2320 - 320 =
2000 (LTL)
2000 * 0.24 =
480 (LTL)
2320 * 0.2 = 464
(LTL) 16 LTL
4

The excise duty
To compensate the loss of the money flow into the budget, the
government decided to increase the excise duty for the petrol.
However, this caused a decrease in petrol sales. Compared to
the last year's January, this year about 10% less petrol was sold,
which led to a loss of 10 000 000 LTL ( 2896200 EUR).
Due to this, the Social Democrat fraction's monitor Zigmantas
Balèytis has offered to reduce the excise duty for the unleaded
petrol to the minimum value fixed by the EU - 1240 LTL per
1000 Liter. At the present the excise duty is 1500 LTL per 1000
Liter.
Cancellation of holidays
Among the positive reforms taken by the parliamentarians
was the cancellation of the bill that has ordered a transfer of
every holiday that matches weekends to the weekdays,
making even more legal holidays.
This was very joyful for the businesses because every worker
had to be paid for the extra holiday as if they were working a
full day. It helped to increase the business's profit and increase
the money flow to the budget.
The devaluation of Litas
Despite the fact that most of the decisions made by the
politicians have caused a great dissatisfaction among the
citizens, speeches against the devaluation of litas has shown
that even the parliamentarians can pass some very useful
decisions.
Currently 70% of the imported goods are intermediate
products for whom Lithuanian market has no substitutes. In
case their price increases, the cost of Lithuanian goods would
increase as well. Meaning one thing – an even bigger inflation.
However, the devaluation would be very useful for the
exporters', making the goods more competitive in the foreign
market. If during 2008 the exports had reached 55.5 billion LTL
(16 billion EUR), then in case of devaluation the number could
increase even more significantly.
But if the Latvia devaluates Latas before Lithuania does, the
exports are going to decrease. This will be due to the relatively
higher prices of Lithuanian production compared with Latvian. It
is going to cause a significant decrease in exports as Latvia is the
second largest importer of Lithuanian goods.
Lithuania's future
Things are not as bad as we think. Now we can only guess who
will be the ones resting on the laurels in the 2012 for helping the
economy to swing in. And all that will be left to do is admire how
ingeniously the parliamentarians have managed to interfere the
economic cycles. Those are not so scary when you realize that
after every economic slowdown times of economic prosperity
occurs.
But now while the rest of the world is celebrating the optimistic
forecasts for the year of 2009 saying that at the end of the year
the economy should slowly start rising, for people in Lithuania it
is not as joyful.
It seems that the only thing left for Lithuanians to do is to tighten
their belts a little more – this time not on the stomachs, but on
the necks.
And at the moment we have to face another paradox: while the
rest of the world is trying to reduce taxes in order to increase
consuming, Lithuania is doing the opposite – increasing the
taxes. As euro parliamentarian M.Starkevièiûtë said when
commenting on Lithuanian economic reforms: “I have
difficulties understanding why Lithuania wants to appear as
being the worst.”
Reference:
http://www.centropartija.lt
http://www.eurostat.com
http://www.bernardinai.lt
http://www.delfi.lt
http://www.ve.lt
http://www.skrastas.lt
http://verslas.banga.lt
5

Boom!Fraud?
By Edvinas Pilipavicius
Alright, so here goes another article about, HOW DID THE
CRISIS HAPPEN!?!? And now, that I have your attention we can
talk about the Fraud issue, and believe me, this thing is hot!
Not necessarily hot in the direct way of meaning, but STILL
pretty significant talking about today's economy.
I believe you have heard about the recent fraud scam. That's
right, Madoff and his $50 bn fraud's bubble has just popped!
Doesn't that just bring a smile on your face? Someone has just
lost all of their life's savings! Hooray? NAY!
So who is this guy?
I would say was, but you will get to know why later on. Bernie
Lee Madoff, that's his name, even though half of the world is
spelling his name with double “d” and only one “f”. So basically,
he was a reasonable guy, who just wanted to make some
money and started the investment business. During his career,
he had a chance to become the chairman of NASDAQ and
eventually develop a positive reputation among people. I smell
something crackin'!
The devil in disguise!
From whom did Madoff learn?
This takes us way back to 1920 where Charles Ponzi an Italian
immigrant began advertising that he could make a 50% return
for investors in only 45 days. Incredibly, Ponzi began taking in
6
money from all over New England and New Jersey. By July of 1920,
he was making millions as people mortgaged their homes and
invested their life savings. As with all frauds, he was discovered to
have a jail record and was indicted on 86 counts of fraud. Some
tens of millions of dollars were invested in him.
Other fraudsters have made inglorious names for themselves. In
March of 1932, Ivar Kreuger, a Swedish businessman who had
cooked the books of his match manufacturing business and
forged $142 million of bonds, shot himself in the head. It was
reported that he may have burned through $400 million of
investor money by falsifying the accounts of 400 separate
companies.
Despite the history, Madoff seemed to still believe getting into this
kind of business, and out, with clean hands.
So how does the “thing” work?
Wanting to understand the idea of scam, you must come up with
some “scam making” material. And that is the pyramid scheme, or
another version of it - the Ponzi scheme. Maddof's example is to
be understood as a Ponzi scheme.
Come, join my class of fraud-making!
So how does the thing work? Well simply, it is all about getting big
percents of an investment over a short period of time, for the
costumer-investor. Let us say, you get 20 per cent of your
investment a month. Who would not fall on this one? And so
people did. What allow the banks to actually pay people those
percents, are the newcomers. Whenever the flow of “fresh meat”
stops, and since there's no other way to pay those percents, the
whole system comes to the brink of collapse.
Another important point to consider, is that the scheme expands
so much, that it exceeds the number of population, even if all
people of the world decide to invest in such a thing! The pyramid
scheme is sentenced to collapse. The only question is WHEN.
There are 3 main ways revealing the scam – promoter's funds
vanish, the scheme gets exposed, or it collapses by itself.
This joke is old, but why does “it” still work?
But of course! Reinvestment keeps the scheme alive! Well if there
are not enough people in the world to invest in the scheme, there
will be some heroes which will do that many times! Personally, I
would justify them, since they really make good profit out of it, but
the false impression surely led to awful results. In this case, Madoff
was not afraid of the collapsing system, since people kept on

reinvesting. I am sorry to say, but the majority of people get
really anxious, when it comes talking about this topic, since
money IS a pretty sensitive topic, and especially, when the
money is gone.
The ugliness of the scheme, and what Madoff did, was that he
still wrote and declared, that the money invested is still in
banks or charity funds, though they were not.
So finally, how did “it” die?
Actually, this is just another follow up of the Economic Crisis
failing marathon – people wanted their money back, which
means that they asked to withdraw about $ 7bn of
investments from Madoff almost at once. And goes what? Yep,
he did not have the money, nor any “fresh meat” was willing to
invest. Here goes the exposal!
Now the poor man is being carried through a series of trials,
and he faces up to 20 years in prison and a fine of $5 million if
convicted. So that is the reason why I was writing about the
man in past tense – he was. Whether 5 million dollars of
Madoff's money equal to $50 bn owed for people, I will leave
for you to decide.
This card tower is nothing else, but an equivalent for the
pyramid scheme.
Who should have rung the warning bells?
Well, if the people failed in noticing the scam, such institutions
like SEC (Securities and Exchange Commission) should have
spotted it. Nope, they did not! Watching the videos of trials, I
got an idea, that it was mainly government's fault, which gave
a green light for this kind of scam to take place.
Actually, there was one man, Harry Morkopolos, who
presented a 65 page testimony during the “trial” of SEC chiefs,
of how he was trying to warn of the possible fraud. Here is one
of the quotations: “Madoff's "math never made sense" and his
"return stream never resembled any known financial instrument
or strategy<…> his graphs were 45 degree angled, and did not
make any logical sense since they were only going up.” Too bad,
nobody listened.
Summary and some personal advices
The list of Madoff's clients is pretty colorful. Starting with Steven
Spielberg's Wunderkinder Foundation which lost 70 percent of
it's shares, Actors like Kevin Bacom and Kyra Sedgwick which
have lost significant amounts of money as they state themselves.
Ending with such giants as Donald Trump's International Gold's
club, New York's Yeshiva University, J.Ezra Merkin, the chairman
of GMAC Financial Services. The clients speak for themselves of
the real size the fraud actually was.
It would be wrong not to mention, the suicides. Hedge fund
manager Rene Thierry Magon de la Villehuchet was found dead
in his Madison Avenue office in New York City, on the morning of
December 23, 2008. He committed suicide after losing nearly
$1.4 billion in Madoff's Ponzi scheme. Villehuchet was 65 years
old at the time of his death. Though he lost about half of his
money, he could not bare the loss.
The message of the article, is that you should be aware of any of
those Pyramid scheme offers, since proven mathematically, only
12.2 percent of the “players” would win, or at least get out
without a debt. The other 88.8 percent just contributes to the
well being of those remaining 12.2%.
But I would still like to mention some of legal examples, which
are actually working out, in this pyramid type of scheme (or also
called Multi Level Marketing): Tupperware, Amway, Avon, GNLD
products.
I would like to define the biggest “evil” of these kind of scams –
no product. Manipulating with digits and paperwork always
seduced scammers. And scammers keep on sucking money
from us successfully.
Not to mention the fact, of how many others like Madoff there
are still out in the world. Thus this makes this kind of scams big
part of the global economy, at the same time boosting the crisis.
So please people, be aware!
Reference:
http://edition.cnn.com/
http://www.populistamerica.com
http://www.forbes.com
http://headinthegame.newsvine.com
7

ThedevelopmentofSouthAfricaisstuck
By Simonas Makstutis
Africa has always been known as the poorest continent in the
world. It has a very tough environment and poor health
conditions. But there are countries which managed to build up
their economy. One of them is South Africa.
South Africa is rich with mineral resources such as platinum,
gold and coal. In fact, it is the world's largest producer and
exporter of platinum and coal. Exports of mineral resources
make up to 30% of country's GDP while, for example,
agriculture accounts only for 3% of GDP. In year 2000 platinum
became the major foreign currency earner.
However, South Africa faces a lot of economical, geographical
and political problems. It went through serious difficulties in
the recent past. What is more, it faces a lot of new problems, as
financial crisis is now here.
Mummy, I am sick
Although South Africa is a well developed country, it still has
more problems than most of the European countries or the US.
Areas around Cape Town, Port Elizabeth, Durban and
Pretoria/Johannesburg are significantly developed. But
beyond these areas poverty is still obvious.
Poverty, poor living conditions and hot climate give rise to
various health problems. Common diseases such as influenza
are not so dangerous. The most dangerous and widely spread
disease is AIDS / HIV. Most of the pregnant women in South
Africa are found to be HIV infected, which is leading to many
deaths in the country. AIDS is such an infective virus that is
drastically affecting the population of the country.Another
major disease in South Africa is malaria. Although it can be
avoided using drugs, it is crucial to avoid mosquitoes. They are
carriers of the malaria and can spread this disease fast and
wide. Consequently, infected people are unable to work and
need health care.
AIDS, a hideous disease, has a terrible effect on country's
population. About 20% of adults in South Africa are HIV infected.
This can result in lower life expectancy, higher child mortality and
higher death rate. And this, of course, affects country's economy.
Such a huge number of infected people seek for hospital
immediately. Greater pressure on health facilities will impose a
heavier financial burden on the country's public health care sector
and people as well. Although AIDS can not be cured, drugs are still
used to slow down the disease and reduce pain.
Of course, these drugs are extremely expensive and most of
citizens of South Africa can not afford them. Therefore, it is
government's duty to provide medicine for such patients.
Currently, about 60% of patients in hospitals are HIV infected and
have AIDS.
Government's expenses on such patients are extremely huge.
Consequently, money spent on AIDS drugs can not be used to
advance South Africa's health care and stop the spread of AIDS.
Even healthy workers suffer more stress. Decreased amount of
healthy workers increase their workload. Overall work efficiency is
decreasing. This is likely to prompt low staff morale, and large
numbers of health care workers quitting their jobs.
The electricity is gone!
Despite all the health problems, even more serious problems have
appeared. After the Koeberg nuclear power station crash in 2007
South Africa started experiencing the lack of electricity. It is an
open issue and a vital problem in addition to the financial crisis.
Although Eskom, a state-owned electricity supplier, stated that
this was a consequence of the crash in Koeberg nuclear power
station, the problem did not disappear and it resulted in
countrywide rolling blackouts (rolling blackout is an inability to
provide electricity due to technical problems or insufficient
resources). This failure is related with the government of South
Africa.
The government of South Africa felt this coming disaster and
started to work on this issue. They encouraged people to build
private electricity generators. However, these attempts were
unsuccessful and it therefore put the stated-owned electricity
supplier Eskom into invidious situation. The shortage of electricity
can still be felt.
The electricity supplier Eskom is known trying to find ways for
producing more power. The only way to get more sources of
electricity is to invest. Therefore, Eskom is rose their tariffs by 53%
8

already and is planning another tariff rise.
We do not need any employees!
The first signs of global financial crisis in South Africa
appeared in the fourth quarter of year 2008. It was a sign for
everyone to start preparing. Countries started savings and
redistribution of money. More developed countries were able
to support business and many firms were able to live through
the tough time. However, South Africa was unable to support
their business.
With the first signs of the crisis firms started their own
campaigns. At the end of 2008 there were 100,000 people
retrenched. However, these are only the official numbers.
As business, industry and the mining sector cut back, trade
union Solidarity said:
The real risk
Many analysts and economists agree that South Africa will not
see any other consequences. The Reserve Bank Governor and
the Finance Minister, Trevor Manuel, said that South Africa will
remain largely unaffected by the crisis because South African
banks were not exposed to the US sub-prime loan market.
However, skeptics claim that the greatest danger might be
indirect.
Many of the American and European corporations that have
been hit hard by the financial crisis own substantial shares in
the corporations that are listed on South Africa's
Johannesburg Stock Exchange (JSE). Such corporations own
half of all JSE listed shares.
These companies have been withdrawing their money rapidly
from the JSE to move it into safer havens. The massive
outflows of money have caused the value of the South African
currency – Rand - to decrease. With so much money flowing
out of its borders, the country could begin to have trouble
covering the cost of its trade deficit. If this happens the
country could experience a huge problem with its balance of
payments.
The end result of this could be a financial meltdown in South
Africa. Indeed, numerous progressive analysts have warned
that such a dire crisis in South Africa is a very real possibility. It
is the poor that will be forced to bear its costs, although
governments are trying to ease the burden of new taxes for
them.
"We think the figures to be released in the next
labour force survey by Stats SA at the end of
February are going to be shocking."
The destiny of the World Cup 2010
Until now crisis in South Africa increased the level of
unemployment only, but it is believed that crisis might affect the
country even more. Country has enormous future infrastructure
plans which might have to be modified or postponed.
However, nearest plans are not changed or otherwise affected
by the crisis yet. The most popular football competition World
Cup will be held in South Africa in 2010. Although the costs of
preparations have risen by 10 percent, South Africa's
government claims that there will be no changes in the budget
and the World Cup will be held as scheduled.
The farewell
Several top analysts are predicting that the economic growth will
slow to less than 1% this year - its lowest since 1998 - with a
technical recession in the first half of the year looking highly
likely. Falling interest rates, petrol prices and inflation will help
ease the pain for consumers and companies, but will not make
SA immune to the deepening global recession
Although economists and analytics claim that crisis will not hit
South Africa, we can not really be sure. The country is already
suffering unemployment, electricity crisis and higher tariffs. We
can not predict whether the whole South Africa's economy will
'crash'. But we can clearly see that it is already 'stuck'.References:
Reference:
http://www.statssa.gov.za
http://www.mapsofworld.com
http://allafrica.com
http://ipsnews.net
http://www.theage.com.au
http://www.monthlyreview.org
9

UAE-anunbeatableall-timeeconomist?
By Egle Ulinskaite and Vaidas Jarusevicius
And so the crisis hits the world! Even the strongest world economies
admit being affected by the economic crisis. The unemployment rates
are skyrocketing, GDPs are falling. What happened to Iceland or
United Kingdom? What happened to the world!? “They just didn't
have enough oil” reply the United Arab Emirates.
United Arab Emirates was a whole different country in the past from
the economic point of view. Economic resurgence which has taken
part in the United Arab Emirates has been direct result of the judicious
use of oil revenues. The secret is not oil and petroleum as such but the
government strategy of economic diversification, leading to the
creation of new productive sectors.
In the course of time, a foreign direct investment has become a
significant part of UAE's economic revival and since 1970's their
economic growth has been on a striking increase. The main reason for
this is surely the large reserves of petroleum. Oil and gas production is
the main source of revenue. In other words, the foundations of UAE
economy are vast oil and natural gas resources.
UAE vs. The Crisis
The UAE`s economy is solid enough to withstand global economic
crisis, and it is unlikely that UAE will experience the economic slump
which Iceland, US or Latvia did. And this is all because the UAE
economy differs from the economy of the US and other western
countries! So let's play a game called “UAE vs. The crisis”
First of all, the most of firms are family owned and working for utilizing
family capital and have no dependence on the global stock markets.
And, according to the “The Business Times”, there cannot be a crisis in
the small family firms, firstly because the pursuit of wealth in family
firms is balanced with family values, concern for the family's
reputation and the desire to continue the business across
generations. Secondly, family firms usually have powerful leaders.
And finally, family firms can reap the benefit of using the pooled
financial and relational resources of the family to sustain the business
during the crisis. So 1:0 in UAE's favor.
UAE has a flexible infrastructure. Dubai, the biggest city in UAE, is a
commercial, not a production centre. While oil infrastructure and
production facilities of commodities such as aluminum,
petrochemicals, energy and building materials are similar to those of
advanced countries, the UAE entities have accumulated sufficient
reserves that can be used during the crisis. So all in all, 2:0, another
point goes to United Arab Emirates!
Last but not least, financial sector. A report says that UAE`s banks have
managed to make big profits and build up huge reserves while other
countries this century were wasting money a lot. UAE banks rely less
on other financial markets, and that is why global crisis is not
frightening United Arab Emirates! According to a Central Bank
announcement in October, the share of European securities and
medium term bonds in total bank assets does not exceed 9.9 per cent.
The majority of assets of national and foreign banks operating in the
UAE are inside the country, and the capital and reserves of UAE banks
10
make up 11.02 per cent of their assets – a high rate according to Basel II
standards. That leads UAE to win the mach with result 3:0.
Everything still counts down to oil
Even though UAE's economy is becoming less dependent on natural
resources as a source of revenue, the export of oil still plays the biggest
role in the country's economy. They build sky scrapers, they invest in their
tourism, entertainment, and other sectors, they govern superb projects
like Dubailand (expected to be twice the size of the world's largest
recreational resort Disney world), Dubai sports city and others but still...
oil remains the main source of revenue!
The UAE government estimates that at the current rate of utilization, and
not including any new discoveries, there is still going to be enough oil
reserves for about 150 years. Furthermore, the oil prices had fallen from
$147 a barrel in July 2008 to less than $40 today. It is predicted that the
prices will remain at an average of $75 a barrel for the next two or three
years. So as the estimated average is $75, the probability that oil prices
will reach $50 is not very likely. Even in such case, UAE would still earn
profits from oil during that time period so the country's economy will
definitely not encounter an economical failure. On the whole, unless the
entire world suddenly stops using oil and gas, the UAE's economy is in
good shape.
Ways to survive
Even though UAE's economic stability might seem enviable for some
other countries, UAE is still preparing for taming the crisis. Dubai plans to
allocate 42% more on the non-oil sectors like infrastructure, social
services or transportation to keep their economy going. Enormous
construction projects were effective in 2008 and it is very likely that they
will stay effective in the future. The government also estimates that if the
global prices decrease and the local rent costs remain stable, the inflation
rates should decrease therefore increasing the living standards in the
country.
The food crisis also has to be prepared for. Soaring food prices is the main
engine of inflation across the world. Therefore UAE is buying 5 billion
farms in Pakistan! They believe that this action can prevent the impact of
export bans and oscillating food prices. “We believe that if we get
products directly from the farms, it will encourage market competition,”
an official said, adding that similar plans in other countries were also
under study.
On the whole, UAE's economy is one of the strongest in the world. The
world's tallest building, the world's largest shopping mall the largest
artificial islands on earth are the grand projects of this small, but
ambitious and smart country. All things considered, UAE has got many
different ways of surviving the crisis - from tremendous amounts of oil to
breathtaking commercial projects.
The United Arab Emirates indeed seems to be an unbeatable all-time
economist.

Crisis!?Whatcrisis?
By Ignas Vaisnoras
The much-talked about economic crisis in Lithuania seems to have
fast become the omnipresent part of our lives. But some claim that the
so-called world economic slump is not a true crisis and that all of the
financial and economic problems in Lithuania are mere coincidences.
Are they insane or do we not know something about the economic
situation in Lithuania?
The impact of media
To attract larger audiences, media relies on extraordinary information.
Last global economic crisis was more than half a century ago, meaning
that a crisis is not a common phenomenon, which makes it
extraordinary.
“World economic crisis” may provide for an escape from analyzing the
economic situation in Lithuania. It is far easier to blame the economic
slump and say that one or another firm has bankrupted because of the
world economic crisis than analyze other possible reasons for their
bankruptcy - bad leadership, for instance.
First clue – increasing prices?
The price of bread in Lithuania in December increased by 20% and rice
by astonishing 50% compared with prices in December, 2007. Would
this be the first evidence that world crisis truly exists? In fact no, the
prices increased mainly because of people's expectations.
When people started believing in world crisis and that the prices will
become so high that an ordinary worker will not be able to buy the
same amount of products that he could have bought a few months
ago, a trend emerged: buy more today and buy less tomorrow, when
the price is higher. That is why producers increased the price and
quantity of goods produced. This resulted in inflation of 2008 being
higher than in 2007. So inflation is further worsened by people
expecting the prices to rise and therefore spending as if there is no
tomorrow.
Unemployment on increase, wages on decrease
According to the Lithuania's Statistics Department, the number of
unemployed people in the third quarter of 2008 reached 97.2
11
thousands. And it is the highest number of unemployed people in more
than two years. The unemployment is 5.9%. Although this seem to be an
obvious evidence in favor of the fact that economic crisis exists, it is not
really so. When employers yell about the world crisis and say that
employees have to fasten their belts this does not necessary mean that
employer lowers wages because of the economic crisis and because it
have affected their firms.
Employers see a good chance to get even more profit by lowering the
employees' wages. Which they can do, because employees believe in
economic crisis and that decrease in wages is inevitable. Another method
to increase profit is an already tested scheme, which works something like
this: let's say I have a firm and I want to increase the profit, although the
profit even in the time of the crisis has not decreased. So I fire most of the
employees and leave only the most skilled professionals, decreasing their
wages.
They accept the new wages as they are afraid of being fired. Then I employ
the same number of people that I have fired, however employing only
those who are prepared to work for a minimal wage. The skilled workers
will be responsible for training the new workers. Voila - the profit of my
firm has increased! Of course, not to get caught once must fire workers in
small portions, not all at a time. This kind of firms' behavior can really
cause a crisis. Quite paradoxical, isn't it? Crisis caused by a crisis...
Other facts about the economic crisis
Total production of agricultural goods measured in prices of that period
in first three quarters of 2008 increased by 2.36%, total industrial
production (without VAT and excise) - 5.56%, the number of buildings
built – 7.2%, export – by astonishing 10888 million Litas and import
increased by 10771 million Litas compared with first three quarters of
2007.
Economic recovery plan
Now one of the leading parties in Lithuania's parliament is Social
Democrats and it becomes very clear: this economic stimulus packet is as
much stimulating as it makes profit for Social Democrats and their
leaders. Why? Remember the last time when they were the leading party
in the parliament? No? Let me revive your memory. They privatized
“Maþeikiø Nafta” and a lot of other governmental firms, becoming very
unpopular.
Being elected again, they came up with an economic recovery plan which
also outraged the people. And now suddenly they decide to push for a
new plan, which is very similar to the last government's program.
This behavior suggests that either they are afraid to lose their seats in the
parliament or there is simply no crisis and no need for the economic
stimulus package.
2003 IQ
2003IIQ
2003 IIIQ
2003 IVQ
2004 IQ
2004IIQ
2004IIIQ
2004 IVQ
2005 IQ
2005 IIQ
2005 IIIQ
2005 IVQ
2006 IQ
2006IIQ
2006IIIQ
2006 IVQ
2007 IQ
2007 IIQ
2007IIIQ
2007 IVQ
2008 IQ
2008 IIQ
2008IIIQ
0
2
4
6
8
10
12
14
16
Unemployment in Lithuania
Unemployment counted quarterly
Year
Unemployment(%)

Runnin’withanAK-47
By Ernestas Abromavicius
Effects of the Israel-Gaza conflict on human rights situation in
Gaza are clear, but how exactly did the offensive affect the
already unstable Gaza's economy?
The Roadblocks
Unemployment is one of the biggest problems in the world,
especially now. Gaza is no exception. More then 60% of its
citizens are unemployed and living below the poverty line.
Gaza's economy never developed further than agriculture or
small-scale industries. Many people flee Gaza for Israel in hope
of finding a job. Raw materials are of severe shortage in Gaza,
therefore industrial sector's demand for them is not met.
Gaza's exports are therefore extremely limited.
Since Palestine has restrictions on trade from Israeli, products
can not be delivered to Palestine efficiently and promptly. U.N.
notified of 96 roadblocks controlled by Israeli troops. There are
476 unmanned roadblocks in the West Bank, ranging from
earthen embankments and other barricades blocking roads
and exits from villages and towns.
U.N. is aiming to shelter 1200 people, but materials through
Israeli are moving slowly. Palestinians will not receive any
goods soon, unless Israel removes the roadblocks.
Masked militants of the Popular Resistance Committees (PRC)
attend a press conference in Gaza City, Jan. 22, 2009. (Xinhua
Photo)
Foreign aid
Volunteer teachers and doctors, supported by the UN, can
work in Gaza. Indonesia sent another group of medics. The last
group was sent in 2008 December 29. Jordan sent 261 aid
convoys to help injured Gaza's citizens. Obama donated $20.3
mln. EU donated 58 mln euros to Palestinians.
12
Traffic jams is a common sight at the border with Egypt, where
medical and food supplies for the injured and starving are being
delivered into Gaza territory. Incidentally salaries are withheld due
to military actions from Israeli.
Aid jam at Egyptian border
Bombs away!
December 31, 2008 was the day of one of the most strategic Israeli
attacks on Gaza. After five days of bombing, around 80-120
tunnels, vital for Hamas, were destroyed. The strategic importance
of the tunnels for Gaza economy is immense. The tunnels, which
were the main route of arms and foods supply, were under the
border with Egypt. Economist Omar Shaban estimated that
around two-thirds of goods sold in Gaza come through the
tunnels. From diggers, drivers and haulers, the passages
employed around 12,000 Gazans, Shaban said. The destruction of
the tunnels led to the closure of 3900 Gazan factories, leaving the
unemployment rates soaring.
Pharaohs will help
Via the tunnels, Egypt supported Gaza for many years and has
pledged to continue to do that.
The Egyptian president, Hosni Mubarak, stated that Egypt has put
great efforts to support and help the Palestinians since the
beginning of the Israeli attacks on the Gaza Strip, including
proposing ceasefire deal to mediate conflicts, delivering aid into
the strip, accepting wounded Palestinians for treatment in
Egyptian hospitals and facilitating Palestinian reconciliation.
He claimed at the summit in Kuwait that Egypt has so far sent more
than 3,000 tons of aid including food, water and other relief goods
to Gaza.

Banning the supply of arms
On January 18, 2009 a summit hosted by Egypt was held in
Jerusalem. A number of European and Middle-east leaders
agreed that the only way to ensure peace is to ban weapon
shipments to Hamas. Newly elected U.S. president B. Obama
also participated in the discussions on Gaza's future via the
phone. "Now we must extend a hand of opportunity to those
who seek peace, as part of a lasting ceasefire, Gaza's border
crossings should be open to allow the flow of aid and
commerce," Obama said.
(From L to R) French President Nicolas Sarkozy, Egyptian
President Hosni Mubarak, Jordanian King Abdullah II,
Spanish Prime Minister Jose Luis Rodriguez Zapatero.
Rooting out the supply of arms to Hamas is definitely an
extremely challenging task since arms market has deep roots
in Gaza and the only solution, according to the the
International Action Network on Small Arms, is an arm-treaty.
The Arabic summit
A couple of weeks after the bombing of the tunnels in Gaza,
Arabic countries gathered in Kuwait to discuss the issues of
boosting economic growth and integration. Summit's
discussions were expected to be dominated by the talks on
situation in Gaza, with its shaky ceasefire in place.
Since Gaza does not have any natural resources, the only
possible form of help that can be expected from more
developed countries is a short-term loan.
Arrival of food
After Israeli military attacks, a vast number of buildings were
destroyed and thousands were left homeless. Even though the
U.N. WFP (World food programme) has donated food for the
southern Gazan strip, it is a short-term solution, since food
supplies will last only for 2 weeks. To promote long-term
improvements, the U.N should seek to create workplaces and
develop infrastructure, agriculture and industry. The U.N.
should also support export of the Palestinian goods so people
could earn a living instead of relying on a generous hand.
The cost of recovery
What is the price of recovery in Gaza strip? $330 million.
U.N. presented this figure on January 22, 2009 but initial
Palestinian estimates claim the cost of recovery would reach $2
billion. The money in question would be spent on rebuilding
damaged homes, schools, UNRWA (The United Nations Relief
and Works Agency) offices, reviving and reforming
infrastructure.
The sums needed may double or triple.
Back to normal?
After the Israeli offensive ended, Gazans have been re-opening
their stores, but they are facing a shortage of products.
Gazans are also rebuilding their houses from scratch.
Taher al-Noono, the government's spokesman told at a news
conference that his government will pay 4,000 Euros to each
family that had their house completely destroyed and 2,000
Euros to the families that had their houses partially destroyed.
Al-Noono also said that Hamas government will pay 1,000 Euros
for each Palestinian killed during the offensive and 500 Euros will
be paid to each one wounded.
A gloomy future?
Iran Defense Minister, Brigadier General Mostafa Mohammad
Najjar claimed to the reporters that Israeli will attack again in the
months to come.
Gaza remains an extremely vulnerable spot on the world's
geopolitical map.
Reference:
http://news.yahoo.com/
http://news.bbc.co.uk/
http://www.ynetnews.com/
http://www.cafonline.org/
http://www.iran-daily.com/
http://news.bbc.co.uk/2/
“Hamas Housing Ministry had earlier estimated that
4,000 houses were completely destroyed and
20,000 houses were badly or partially destroyed
during the Israeli offensive.”
13

Sunkinadunghill
Benas Klastaitis
In 2004 'economic tiger' was the reputation that Latvia had built,
meanwhile now it reminds a newly born blind kitty. Current financial
crisis acts globally and affects all but what is the explanation of this
extraordinary destructiveness in Latvia's case?
Overview of Latvia's economy
Latvia was at the top when it slipped and has now fallen down badly.
Since the crisis began in 2007 the gross domestic product of Latvia
decreased from 11% (!) to minus 4.3 per cent in (2008 3rd quarter) and
later on even more! According to eubusiness.com the state started
year 2009 in the debt of 7% of GDP. It obviously affected the tax
revenue, and Latvia, that did not have reserves, ended up in a
budgetary gap of a billion lats (1.42 billion euros). An impression
comes that Latvia cannot avoid extremes and it is either flourishing or
declining.
However, now the country is deeply sunk in a dunghill due to many
reasons.
After the property boom exploded in 2007, current house prices fell at
the highest rate it has ever happened in the world, by 24% in three
months. The property market reached its top in 2006-2007, but by
now the prices have decreased by incredible 60 per cent! Try to
imagine two-rooms, totally renovated flat in the centre of Riga for
3300 Eur/m2. Note that local real estate company (Ober House) had
valued prices of flats in the centre of Riga in 2007 to be up to 5 400
eur/m2.
A fireplace for money, bureaucracy mechanism
Furthermore, according to “Eurostat” Latvia is the second most
spending country for its bureaucracy mechanism, only behind Cyprus.
That would be approximately 900 million LVL (1.25 billion euros) per
year.
Nevertheless, it can be seen that Latvia's institutions are failing to do
their job efficiently! Just, like the Financial and Capital Market
Commission (FKTK) failed to intervene apparently reckless lending by
the banks.
However, reacting to the current situation and essential problems
(looming deficit equaling seven percent of GDP and a budgetary gap
of 1.42 billion euros), the ministry planned a list of changes.
Belts-tightening policy
The plan included measures to reorganize the government, get rid of
secretaries for urgent assignments, merge the ministries of
environment and regional development and finally cut the salaries for
state employees by 15%. Eventually, on 12 December 2008 the
government voted in favour of it. "I bow my head before you," thanked
the Prime Minister Ivars Godmanis for making such a difficult decision
which is a notable endeavor of politicians to seek the lifebuoy while
sinking.
On the other hand, Vyacheslav Dombrovsky, an Assistant Professor,
14
Stockholm School of Economics and Baltic International Center for
Economic Policy Studies, reasonably complains that all this could have
been done earlier: “A prudent government would have kept a cap on its
spending and invested into reserves <…>. The Latvian government did
none of it” Note that there was a long time span Latvia's GDP was growing
at 11%.
Not to mention the fact, the government did not stop 'credit orgy' (the
inconsiderate lending by the banks) which led to the current situation.
Finally, just recently Latvia has built one of the most expensive bridges in
the world, which cost over 367 million euros, and is planning to build one
of the most expensive libraries in the world! Even by looking as closely as
possible to this, saving is nowhere to found…
How did it all happen?
In 2004 Latvia joined Europe Union. There was then a great upsurge of
optimistic expectations, which was the last ingredient for an explosion of
long-term borrowing.
Moreover, Ireland and United Kingdom were experiencing their property
market and construction booms, so they opened, borders to join their
labor markets for many emigrants from Eastern Europe, including
Latvians. And so, masses of Latvians started taking loans for 15-30 years,
primarily for housing. The significant increase in demand led to an
increase in both, prices of real estate and wages for construction works.
This growth of prices made people think it is a great idea to speculate with
real estate, which in turn would lead big profits. As a result, other
industries had to raise wages as well. The increase in wages made prices
across the economy raise, because firms had to compensate their
expenditures in labor cost. Inflation, of course, had its toll, which led to
even further increase in both wages and general price level. So people
took loans and foreign banks pumped money for them from abroad.
Yet, the top was reached since nobody can borrow forever. Latvian prices
and wages improved too much in a too short term. As the crisis began
people, firms and banks started struggling.
Is there a way to cushion the situation?
The best way for Latvia to save its crashing economy would probably be a
stable currency, euro. However, now it seems ironical even to imagine
Latvia adopting the euro. The Maastricht Criteria requires inflation rate to
be the average of three lowest inflations in euro zone. Sounds far away
from double-digit (10.5%) number hah? Moreover, the budget deficit
cannot exceed 3% of GDP, meanwhile Latvia faces the whole 7%! Euro
would keep balanced budget with stable inflation rate, unfortunately, it is
impossible for Latvia to join the euro zone at the moment.
Stabilization plan
Politicians have implemented Stabilization plan as a way out of situation.
Yet, it only looks like a life preserver for a country but no one else, as it will
reduce fiscal expenditures and increase tax revenues.
So, it is saving the state at the expense of business. Due to the new taxes
the government is able to get some pennies for paying pensions, salaries
and carrying bureaucracy mechanism. I say pennies, because the most of
the world fights crisis at the expense of fiscal reserves, though Latvia due

to newly implemented taxes will even enforce the burden for
business.
Therefore, businesses are likely to shrink, go bankruptcies and give,
truly, just pennies for VAT and other taxes. Not to mention that as
number of bankruptcies appear unemployment increases and the
state has to pay the same pennies for unemployment reliefs.
The bad thing of Latvia's government strive to live on the expense of
business, which is likely to suffer, is that there is a probability for Latvia
to become banana-country again, as the world sees its incompetence
to conduct the economy, as the IMF has to supervise it.
Take it and spend it wisely, Latvia
Latvia has recently got the loan from international donors and the
IMF of 7.5 billion euros. The European Union provided the biggest
part of it - 3.1 billion; The IMF gave 1.7 and the rest were different
amounts provided by various European countries.
The interesting fact is that even Estonia, which is also considered to
be “unstable”, together with Poland and Czech Republic, provided
500 million euros. The international aid should help Latvia to live on.
The country needed money because the government failed
predicting the tax revenue and, due to economy's sharp nose dive,
ended up in a budget deficit of 1.42 billion euros.
Next, the aid was needed to protect exchange rates when the Bank of
Latvia spent a considerable amount of its foreign exchange reserves.
And, of course, there is the matter of the second largest Latvia's bank
Parex. It was nationalized when depositors withdrew their money
after the rumors circulated that it was close to bankruptcy.
Therefore, the government has now to payback its syndicated loan of
one billion euros for various lenders. Latvia had to perspire a little bit
to get the loan. As it is known now the government could not borrow
or at least borrow at affordable rates from the international financial
markets, due to economic crisis and the lack of lender's confidence.
Moreover, when knocking at the IMF doors Latvia was told to create
the Stabilization plan, which was already mentioned above. And the
assessment of that plan was crucial to the answer of the IMF.
The loan is a vital aid for Latvia's economy that is recently “ill”.
Nevertheless, after the financial crisis which will inevitably end one
day, the loan will be a struggle for further development.
How about devaluation?
The alternative of cushioning the situation instead of Stabilization plan
might have been devaluation. The discussion about pros and cons of it
seems to have no ending, but the main facts can be shown up easily.
First and foremost, it would help in the exports sector, moreover the
demand for locally produced products would increase due to price
changes of the substitutes. On the other hand, devaluation would
increase the price of imported goods. Also, goods produced locally, but
using foreign resources, would be negatively affected.
Due to the fact that recently Latvia's imports greatly overweigh exports,
we could assume devaluation positively. But the most dangerous effect
of it was not mentioned. Devaluation very much exacerbates repaying
loans in foreign currencies. Therefore, the Bank of Latvia has assessed
devaluation negatively, as 70 percent of Latvia's loans are in euros.
Nevertheless, some Latvians think it would be wise to reconsider the
idea of devaluation again, if possible with the help of international
institutions. Ivo Grubanov, who organizes tours for tourists, is one of
those dissatisfied. He complains this high rate of lat makes his business
suffer: "It breaks my heart to bring young lads to a bar and tell them that
a pint of beer costs five or six pounds," He says. "There's no good reason
to have the lat to be so artificially high, and it would be much more
sensible if we could float our own currency." He adds afterwards.
Future predictions
If we take all things, that are currently going on, into account, we may try
to predict the future. That is the thing economists specialize in, though
mostly we hear them saying “you have lost a million euros” just after you
had done it.
So, if Latvia follows the Stabilization plan they are most likely to face a
high increase in unemployment. Businesses, especially real estate,
construction sector, banks, will shrink or even go bankrupt.
Fortunately, no financial crisis last forever and the 'unemployed
entrepreneurs' should pull us all back to market, to see new profit, new
opportunities in the new circumstances. That should happen in a few
following years.
After all, I can say that all this mess has its bright side. Firstly, the country
should learn from it. It is a great experience on how to deal with its
economy.
Next, as we see the current government does not work efficiently, on
January 14th, 2009 Latvians protested and finally ended up in a riot
where 40 people were injured. And the president Valdis Zatlers told
reporters that "Both Parliament and the government have lost touch
with voters," Therefore next time people vote, they will consider the
economy of Latvia during the last few years, standards of living the
government provided and vote for someone that may be more worth
being elected.
And yet, in the very end, we can see Latvia is facing many problems at
the moment, nevertheless, let us be optimistic about its future. And, of
course, let us hope this Latvia economy's fall downwards will be an
example for other countries, especially Lithuania and Estonia, how not
to run their economies and avoid such situation Latvia is currently in.
Reference:
http://news.bbc.co.uk/
http://www.geopolitika.lt/
http://www.politika.lv/
http://www.balticsww.com/
http://www.eubusiness.com/
http://www.baltictimes.com/
15

Estonia-acountrylivingonordinarypeople’saccount!?
By Evelina Gelezinyte
Estonia has successfully shifted its economy from the
communist command to a free market based economy system
after independence in 1991 and since enjoyed economic
growth (except in 1999, during the Russian financial crisis when
Estonia's GDP decreased by 1.1%). However, now Estonia is in
recession because of the world financial crisis and its GDP has
decreased by 4.75%.
Even the European Commissioner Joaquin Almunia who is in
charge of economic and financial affairs stated that “Estonia's
economic activity fell throughout the year 2008 due to
deteriorated external environment and financing conditions.”
Joaquin Almunia
The main purpose of this article is not to astonish readers with
the worsen Estonia's economy but to inform them about
Estonia's government decisions, mostly taxes burden
importance to people.
There are good news about taxes and compensations
To begin with, during the last two months the Estonian
government made some good and, unfortunately, bad
changes in the taxes policy which has a great impact on
ordinary people's incomes. Since there are only a small number
of “good news”, I will begin with them.
First of all, the politicians of Estonia agreed to cut individual
income tax rate from 21 to 20 percent in 2009. This cutting
allows Estonians to overcome crisis easier because their
disposable incomes will be greater.
Second good news is that government has 20bn Estonian
16
kroons(1 euro = 15.6466 Estonian kroon)(1.3bn euro) left in the
state reserve fund and they could use these funds to fill in the
deficit of the budget. The government had already done this in
2008, when it then used 5.2bn Estonian kroons (332 thousands
euro) from its coffers.
Thirdly, the government increased the compensation of using
private car at work. ”As of 1 January 2009, the monthly non-
taxable reimbursement rate for use of private car for business
purposes is increased from EEK 2000 to EEK 4000.”
This means that an employee can use its individual car and get the
compensation. Also, this policy is beneficial to employer too.
There is no need to buy a new car for employee because he/she
already owns one and also uses it for work purposes.
And the unpopular changes…
Nonetheless, these three “good news” to people of the new tax
policy, there are many more unpopular changes and with them the
bigger taxes burden comes on people's incomes.
The most important tax rate, Value Added Tax (VAT) was increased
for medicine, newspapers and magazines from 5 to 9 percent.
It will have a huge impact to people who have lower income rate
and have health problems. The example of such group of people
could be retirees who will not afford to buy medicine that is more
expensive and they will have serious health problems.
Be or not to be the parents in Estonia
It could be said, that the government began non-family policy
because it changed almost all beneficent tax concessions to
family.
The state will stop paying a one time 450 Estonian kroon benefit to
parents of students. This change will hurt the families with lower
incomes for whom the education, even it is state-provided will
become more expensive.
The same was actually done in Lithuania, however the families
with less than 1050 Litas (304 euros) income/month per family
member will get this benefit. So Lithuania's government took the
student benefit from wealthy families only but Estonia's
government made more drastic decision for all families.
However, this change will help to save 80bn Estonian kroons in the
budget but it will have the huge negative effect on children of
poor parents.

The next change which state introduced will not allow the
father of newborn baby to take a ten days paid leave and
receive an average wage. Therefore, the government leaves us
with the understanding that even a father has no right to take
pleasure in the born of child, to spend ten days with him and to
receive an average wage.
Does Estonia need the smaller number of children and greater
number of the elderly? I think they do not.
To sum up, the Estonia is saving its money and filling its budget
in account of family with the lower income. And this tax policy
is unwelcome.
Let's increase SOME fees!
The state did not stop on increasing taxes, it increased many
fees and during the hard times people will spent more money
on an ID card, a residence permit, a visa application or court
fees.
From January 1st the fee of electronic ID card has increased
from EEK 150 to EEK 250. The fee for issuing a residence permit
went up from EEK 750 to EEK 1,000. The fees of reviewing a visa
application and filling the claim in administrative court have
doubled!
And this is not the end of increased fees…People will be
spending much more money for the car's initial registration
fee. The Registration in vehicle registration centre will cost
1,900 Estonian kroons or 900 Estonian kroons more then
before.
Future?!
After these dramatic changes in taxes, compensation and fees
policies, the government expects the overflowing budget and
only a soft decrease in people's incomes but it is impossible to
achieve because of the increased fees an taxes during
economic crisis. Furthermore, the forecasts and reality are not
the most optimistic.
“Estonia's leading analysts expect the average economic
decline to be 4.48% in 2009”, the Baltic Business News
channel/LETA reported. This means that 2009 would be the
worst year for Estonia's economy during the whole period of
its independence.
The European Commissioner Joaquin Almunia expects the
GDP fall by 4.75% because of the weak domestic demand. If
this forecast is to confirm, there is a risk that the budget deficit
will exceed the recommended level of 3% of GDP in 2009.
Furthermore, the leading social democratic party politician,
Eiki Nestor, stated that:
“The tax reform as it is being implemented in
Estonia for several years has not made Estonians
happier nor the economy richer. We should now
agree not to cut taxes further until adopting the
euro.”
To put it another way, there will not be any taxes cutting until the
adoption of the euro because of the unsuccessful tax reform
which was introduced earlier.
Real growth rate of GDP between 2003 and 2008
So we can blame the government and politicians for making
wrong decisions a few years ago which did not make “Estonians
happier” and now people have to pass through the new
decisions which will not make Estonians richer.
The government did not learn from earlier experience in tax
policy which was mentioned in Eiki Nestor words and recently it
has done even more mistakes. The crippling tax burden could
scotch the hopes of working person to get higher incomes.
To sum up, the mistaken decisions which have a huge impact on
people with lower incomes are not allowed in economically hard
times.
Reference:
http://www.balticbusinessnews.com
http://www.baltic-course.com
http://www.stat.ee
http://www.investinestonia.com
http://www.reuters.com
17

BarackObama-thenewRoosevelt?
By Monika Piniauskaite and Lukas Bielskis
The 20th of January was the day of inauguration of the new US
president Barack Obama. Who knows, perhaps this event
opened a new page in history? The whole world listened to B.
Obama's speech filled with promises and plans of changing the
current critical situation in the world. And yet, some people still
concentrate on the elected president's race, while others just
admire and even worship him without any particular reason.
However in the current economic situation such racial or
sensational aspects of B. Obama are quite trivial and
insignificant compared to the economic power that he and his
team have in their hands.
Current problems
During his inauguration Barack Obama conveyed the recent
situation in the USA: “[…] we are in the midst of crisis is now well
understood. Our nation is at war, against a far-reaching
network of violence and hatred. Our economy is badly
weakened, a consequence of greed and irresponsibility on the
part of some, but also our collective failure to make hard
choices and prepare the nation for a new age.” So what should
the people of the US expect from their new hero who accepted
the challenge to make the whole world trust the US again?
Current goals
During his pep talk B. Obama represented certain targets to be
realized: “The state of the economy calls for action, bold and
swift, and we will act — not only to create new jobs, but to lay a
new foundation for growth. We will build the roads and
bridges, the electric grids and digital lines that feed our
commerce and bind us together. We will restore science to its
rightful place, and wield technology's wonders to raise health
care's quality and lower its cost. We will harness the sun and the
winds and the soil to fuel our cars and run our factories. And we
will transform our schools and colleges and universities to
18
meet the demands of a new age. All this we can do. All this we will
do.” B. Obama seeks to create a number of new job vacancies and
develop the infrastructure. Such goals, especially during the
current crisis, when the rate of unemployment under the newest
statistical data has reached 7.4 per cent, might be achieved with
the help of the members of his team. Another economic aspect
which B. Obama will concentrate on is renewable energy sources.
This is a very positive approach as it is known that oil resources are
being depleted. However, revenues from oil form a significant part
of USA's revenues. This issue is of concern to the EU as well, since
USA is one of the major suppliers of oil production. If the USA were
to decrease the level of oil drilling, the impact of such decision
would be global, as the increase in oil prices would cause another
problem, such as the increase in prices of food.
“Together we stand, divided we fall”
B. Obama wants to bring in more unity among the social classes.
Such goal is almost a magnet for criticism. John Peterson, a
famous journalist, reasoned about social equality in one of his
articles: “The idea of "national unity" sounds nice on the surface,
and appeals to millions of people tired of war, racism, sexism,
homophobia and division. But under capitalism, "national unity"
means subordinating the interests of the working class majority to
the interests of a handful of capitalists. We may all be "Americans,"
but we are not all truly "equal."”. Thus, social equality is a pretty
utopian idea which is quite complicated to realize. Even though
Barack Obama is a leader with fabulous aims towards the USA and
the whole world, due to certain issues, such as the damage of the
subprime mortgage crisis, his abilities may not be overestimated.
The long-term impact of B. Obama's policy is hard to predict. Our
current long-term predictions would just simply “make gods
laugh”.

There is no “I” in a Team
The strongest advantage of Barack Obama's presidency lies
not just within the main man, but rather within his team as a
whole. The fanatically-pro-Obama side of the US actually
claims that no stronger presidential team has ever existed in
history. Others, on the other hand, restrain to just plain
worshiping of the President without much attention to the rest
of his group. Sorry folks, but overestimation is the shortest
road to disappointment. Besides Moses, Jesus, Mohammed
and a few others there has never been any ultimate messiah
and thus we should look at Barack Obama with a sane,
objective attitude and pay a look into his team.
In Tim Geithner We Trust
Probably the most economically important member of his
team is Tim Geithner, the Secretary of Treasury. He is a young
snowboarding- skateboarding- introvert workaholic who was
a key person responsible for the $30 billion bailout to one of
the largest investment banks in the world - Bear Stearns Cos.
As well as many other investment banks, Bear Stearns was at
the time suffering from the subprime mortgage crisis. Due to
the bailout and a helping hand from a rival, JP Morgan Chase,
people's investments were saved.
It is hard to say how beneficial this strategy was, but the sharp
mind and the international experience that Tim Geithner has
gathered throughout his career is crucial in fighting the crisis
on a global scale.
Will Successful People Bring Success?
In fact many members of President Obama's advisory team
are economically significant to the US and the rest of the
world.
Such people as Eric Schmidt, the CEO of the god of the internet
“Google”, or Warren Buffet, the wealthiest person in the world,
are probably the most well-known people who collaborate
with Obama in his economic policy. If such people managed to
become successful on their own personal levels, will they be
successful on a national or even a global scale?
The answer is a resounding “maybe”. Predicting the future in this
case would be extremely naïve, especially due to the fact that
today's events resemble the period of 1938-1939. If Barrack
Obama is the reincarnation of Franklin D. Roosevelt, and the
subprime mortgage crisis is the reincarnation of The Great
Depression, what is the reincarnation of WWII going to be?
A Little Bit of Skepticism
The current image of the US President displays a benevolent
leader who wants to represent the middle class, lower the taxes
for the workers, create new jobs etc. However, in this non-Alice-
in-Wonderland type of world it all seems just too good to be
true. In reality there are many aspects that make this whole
idealism quite obscure.
Many people = many interests
Obama's Presidential campaign accumulated approximately
$540 million (FEC) most of which came from private sources. Of
course this is just a minor expense compared to the most
expensive luxury Obama is attempting to afford - change. In
order to “restore science in its rightful place” or create new job
vacancies one firstly needs money.
However, while the US is struggling with a $10 trillion dollar debt
(US Treasury) and 3.8% inflation (BLS), “change” is a very
expensive cure. Last but not least, a significant number of
members in Obama's advisory team represent the wealthy elite
of Wall Street. So, unless the whole team has been magically
blessed with altruism, there is quite enough evidence to believe
that the rich will continue on helping and supporting the rich as
it more or less has been doing for hundreds of years.
An image of a one-man-army is, of course, quite attractive, but it
is just an image behind which there are many people with
different interests. Thus, let's be a little bit more realistic than
optimistic and hope for the best.
It would be hard to object to the fact that both President Obama
and his team are extraordinarily competent and intellectual.
However, there is a very thin line between expectations and
dreams and thus our common sense should not be sacrificed for
an earthly human being such as Barack Obama.
There are many factors that determine the standing of a
president including his team, the economy of the world, natural
disasters, wars and etc. Thus it is about time to climb down from
the clouds and turn our dreams into reason and objectivity.
19

Moscow:Theinsiders
By Tomas Pusnovas
Moscow the Insider article was written in may 2009, before the
financial crisis have escalated around the globe. Our newsletter
provides you a possibility to look how Moscow looked a year ago
and how does it look now you can find out in the following article
Moscow: a sight from the inside.
What is life really like in the most expensive city in the world,
Moscow?
How did Moscow achieve this “status”?
More importantly, what are the trends for 2008-09?
Maria Ponamarenkova and Alexei Petrov are two
representatives of different social classes. Let's hear their views
on business, the political situation and everyday life in Moscow.
The rich and the not so rich
Maria Ponamarenkova, (M.P.), 26, is a chief manager at a
company that focuses on nuclear energy exploitation. Her
disposable income per month amounts to U.S. $3,200. And in
Moscow, earning US$3,200 means belonging to the medium-
upper social class.
Alexei Petrov, (A.P.), 23, is a student-technician at Moscow State
University Physics department. With parents support, his
disposable income per month mounts up to US$900. In
Moscow-terms, Alexei is not poor but does not enter the
medium social class either.
What has contributed most to Russian wealth?
M.P: There are several reasons why Moscow recovered from
the down times of the 1998 Rouble crisis. First, the massive
hikes in Russia's oil and gas prices. Second, Moscow business
environment became more attractive for foreign investors;
therefore, huge capital inflows should be taken in to account.
A.P: The secret of Moscow's wealth is its cheap labor force. The
consumption and construction booms we are experiencing
now would have never appeared if not for the cheap labor force
from less developed countries like Tajikistan, Uzbekistan,
China, and Kazakhstan.
What are the major threats for Moscow's economy?
M.P: Undoubtedly, it is the 2008 global economic slowdown.
Even though many analysts do not predict a major economic
crisis in Russia, the impact of global slowdown is already felt in
the form of capital outflow. Even the government has already
20
cut 2008 estimates for foreign investment inflows from US$40 to
US$25 billion.
A.P: For the past few years economic growth was seen only in
Russia's biggest cities like Moscow and Saint-Petersburg.
However, now other urban areas have started to revive
economically, bringing more competition for Moscow. I expect a
slowdown of Moscow's accelerating development.
Inflation should also be taken into account. In April, 2008, Russia's
annual inflation rate reached 13.7 %; for me as a student this is the
worst nightmare. Besides increasing food prices, I also need to
maintain my car: today a liter of E95 fuel costs 23 Roubles. I simply
cannot afford to drive, but in Moscow a personal car is vital.
What do you expect from President Medvedev?
M.P: The coming four years will definitely bring some new winds.
But whether they will be positive or negative changes is too soon
to say. From his previous speeches, Medvedev promised to
continue Putin's domestic and foreign policies. However, he is also
in favor of liberalization.
A.P: Medvedev is the continuity of the previous government. For
countries like Russia political stability is necessary. However, I
would like to see a decrease in the level of bureaucracy; there are
too many rules and regulations. And it is impossible to follow all of
them.
How far do you agree with this statement?

“In many western countries Russian economic growth is
associated with an increased number of Novij Ruskij.”
M.P: Russia's economic growth affects all Russians either
directly or indirectly. Even though the living standards are
increasing for the majority of population, only the minority
really benefit from economic growth. Of course not all rich
Russians suit the stereotype of Novij Ruskij. It is just the
minority of Russian businessmen who like to demonstrate their
pride and wealth.
A.P: One of the major Russian social problems is the wide gap
among people with low and high incomes. For the last 6-7
years the gap has widened, especially compared to the regions
with metal/oil/gas resources and in agricultural regions which
are still hardly recovering from Soviet Union collapse.
Russia's economic growth serves the minority of population.
Undoubtedly there are not enough measures taken to
decrease the widening income gap.
What are the major merits and demerits of living in
Moscow?
M.P: Firstly, Moscow holds plenty of prospects to make a career.
Besides higher wages, Moscow's entertainment world may
look incredible even for a life-long party lion.
When it comes to disadvantages the over-crowded population
of 18 million takes first place. Secondly, constant traffic jams
and air pollution. Skyscraping real estate prices take a huge
part of everyone's income; for instance, for my two rooms flat
near the 3rd O-Ring I paid US$500,000 in January 2008—that's
US$10,000 per square meter!
Because of the worldwide economic slowdown Russian banks
have already tightened lending loans. I call myself lucky to get
such a loan.
A.P: Moscow is one of leading cities in the high tech industry.
Therefore, especially for my profession, the availability of the
newest technologies is essential. Also, Moscow has plenty of
work opportunities.
However, Moscow has a dark side too. High accommodation
prices and 24/7 traffic jams is nothing compared to the level of
corruption. Nearly everything is based on so called “Friend for
friend” relationships.
Do you see your future with Moscow?
M.P: Moscow is the best place to live in. Even though it costs
more to live here than somewhere else in Russia, with my salary
I even manage to financially support my family from Russia's
poorer regions.
A.P: I have lived in Moscow for four years. However, I am not
21
sure about the future prospective here. This year I am graduating
from MSU and even though there are lots of job offers, to get a
good job with appropriate salary a university diploma is useless.
Meanwhile, contacts and inner support will always take first place.
Moscow in 2008-9
The global economic slowdown is definitely hitting the world
most expensive city's consumers' hip pockets.
In 2008 Moscow is already seeing decreased foreign investment,
increasing food and accommodation and oil/gas prices, plus
hiking inflation.
The question for 2008-09 is: “How far will you go, Moscow?”
References:
Ministry of Finance of the Russian Federation
www.moscowrealestate.com
www.ecoinyourlife.lt

Moscow:Asightfromtheinside
Veronika Pekarskaite and Simas Ciudaras
Crisis in Russia – impossible. Think twice!
When the financial crisis began hardly anyone believed that it can
significantly affect Russia's economy. Head of Ministry of Economic
Development Elvira Nabiullina was sure that it is nothing to be afraid
of; stating that fundamental factors of the development of the
economy are stable enough and there are all conditions for economic
growth to proceed though there is influence of foreign markets. The
impact of global financial crisis in Russia is best seen in Moscow. Once
the most expensive city now evolved into something inexplicable.
Aleksej Petrov and Marija Panamarenkova agreed to share their views
on how has life in Moscow changed during 10 months since our last
interview.
What changes in Moscow have you noticed from our last interview?
M.P.: From the first view it may look that nothing has changed
dramatically, people are rushing everywhere as they have used to.
However, the difference is that now people rush because of increased
tensions due to the unpredictable future. When you look closer and
analyze what is happening around signs of crisis can be seen
everywhere. For instance, one of the largest and oldest film studios in
Europe “Mosfilm” has cancelled or held over filming of more than 20
of 89 pictures. Filming of each fourth film was postponed because of
the problems on the national stock market.
A.P.: Comparing life in Moscow a year ago to life in these days, the
major difference is that the majority of people have stopped spending
and started counting their money. The need to cut expenditure
resulted in the rise of tensions about uncertain future.
How did the economic crisis affect your every day life?
M.P.: Well it really made me feel not as prosperous as I was before. A
year ago I had no idea that crisis can somehow affect partly state-
owned companies. However, my company has already dismissed 200
employees. What is more, even people who have superior
appointment can not feel safe, my friend who worked in the same
company and had same appointment as I, was fired during the first
staff reduction wave. I did not lose my job, but I am neither a chief
manager anymore. My salary was cutback, before the crisis my
disposable income per month was US $3,200, but now it decreased to
US $2,700 per month. Moreover, my company has cancelled all grants.
A.P.: In the past I could manage the problems with petroleum prices for
my car. Now I can barely let myself buy enough food and pay for my
flat. Moreover, the rise of unemployment promoted the rise in pillage.
In fact, most of the robberies occur in the outskirts of Moscow,
because police is rarely seen here. To be honest, when two of my
friends were mugged, I do not feel safe anymore and bought a gun.
What do you expect from President Dmitrij Medvedev?
M.P.: Today when our country is suffering the consequences of global
financial crisis, people want to believe that Dmitrij Medvedev will
22
make an effort to help Russia overcome these unfavorable times in the
nearest future. When Dmitrij Medvedev was inaugurated he received a lot
of criticism, majority of politicians were sure that he will not be able to
become as successful as previous president. It was thought that he had no
“background” in the Kremlin.
However, now we can see that this view was wrong, President Medvedev
is a purposeful person. He already had made some meaningful changes,
had enlarged presidential term (6 years) and made changes in the tax
system. However, in my opinion, Russia should focus more on
cooperation with other countries. Considering that local problems will be
gone only when external problems are gone.
A.P.: At the moment the most important thing is to overcome the financial
crisis. I hope that Dmitrij Medvedev does the best he can to improve
Russia's economy. However, what I miss in government's actions is a direct
support for people in unenviable economic conditions. I know that
government has no odd money, but it still should support students. It
would be enough if they could increase the amount of scholarships or
reduce taxes for students in need.
How did devaluation of ruble affect your every-day life?
M.P.: Fortunately, I was ready for the rubles devaluation. I had noticed the
signs of it some time before. Till the time when ruble started devaluating I
had changed all money that I had to US dollars. Now I could even say that
devaluation of ruble has some benefits.
A.P.: I could hardly survive on my salary that was cut in account of crisis.
But now when ruble is devaluating I do not know what to do. Whole
problem lies in that my salary is in rubles. Few months ago I took a credit
in US dollars and now when devaluation occurred I found it difficult to pay
it of.
Do you see your future in Moscow?
M.P.: I never wanted to live anywhere else. Moscow is a city of huge
opportunities. In spite that, Moscow is one of the most expensive cities in
the world and I can afford myself to live here even now when crisis is
appearing and everything is getting more expensive. Even though I am
sure I will live in Moscow, I cannot tell the same about my job.
A.P.: I am not sure if I have the opportunity to live in Moscow any longer.
Situation forces me to think about the possibility of leaving Moscow.
Before the crisis I had a chance, a hope that somehow I would find a good
job. However, now I have accepted the idea of leaving Moscow and
returning back home, to Tyumen.
Part two: Beyond Moscow
Russia's business environment
Foreign investment in 2008 reached US $40.7 billion. It is more than 50%
less than 2007 figure of $82 billion. Kudrin noted that this is a result of the
world financial crisis and recent “political risks” that have influenced
foreigners' decisions about putting money into or taking money out of

Russia. As for the 2009, the Finance Ministry expects a net capital
inflow of $40 billion. However, as foreign investors continue fleeing
the falling Russian market and foreign firms find it hard to raise
capital in their home countries it is not clear where the inflows would
come from. "There can be various events that may have an impact on
the full-year number.” admits Alexei Kudrin. Whether such estimates
will become true or will be reconsidered in the course of 2009 remain
unknown.
Rough times for the steel industry
Russian steel industry is dependent on foreign markets, domestic
construction and automobile industries, so no wonder that the
financial crisis chose it as a victim.
Crisis in the industry was first publicly reported in the end of
September 2008. “Magnitogorsk”, one of the largest Iron and Steel
Works in the country, layed off 3,000 workers and reduced output by
15%. Another layoff of 1,300 was announced in early November.
“Severstal”, one of the leading companies in steel industry, reduced
domestic production by 25% and its US and Italian production
dropped by 30%. Evraz Group, one of the worlds biggest steel
production corporations, specializing in construction-grade rolled
steel, was inherently in worse position than other Russian steel mills.
Evraz announced that, instead of layoffs, it will decrease workers'
wages by a third. Some of Evraz facilities were converted to a four-day
working week. The company reduced output to an estimated 50-60%
of its capacity.
In short – laid off workers, the decreasing production of the firms and
cut-off wages for the employees – all add up to an increasing
unemployment, and a decreasing Russia's economic performance.
An auto-ride-down
The financial crisis in Russia has also affected automobile industries
and the largest auto-maker companies in Russia. In June 2008 The
Economist described "Russia's booming car market" as a place where
"you just need someone to count the money”. In November the
market slowed to its lowest since January 2007. “ACNielsen”, a global
marketing research firm, linked the market drop to a collapse in auto-
loan programs and general uncertainty among consumers. It
predicted that unless auto-loans recover, the market will slide back
into 1990s. The government supported domestic auto makers by an
increase in tariffs on imports, leading to an expected 7.5–8% price
increase for imported cars.
It is worse than a headache for consumers and car dealers in the US
$30.5 million car import business.
Gaz, Kamaz & Avtoframos – zZzZzz
Two biggest auto-makers in Russia “GAZ” and “KAMAZ” were the first to
declare production cuts in September-October 2008.
GAZ truck production has decreased by 23.4% in September 2008 and
in October the company announced week-long shutdowns of the main
assembly line to meet decrease in demand for its most successful line,
the GAZelle truck.
“KAMAZ”, the target of acquisition by Daimler A.G. since July, has been
reporting financial difficulties since September. In October “KAMAZ”
reduced working hours by a third, from six-day to four-day working
week.
“AvtoFramos”, Moscow-based manufacturer of Renault Logan, has
confirmed that instead of a planned weekly New Year holiday, the plant
will stop for a month (from December 12, 2008 to January 12, 2009).
Trade unions asserted that “AvroFramos” has practiced short-time
stoppages in November; plant administration refuted these
statements. According to the unions, unsold stock reached 8 thousand
cars, a month's output of the plant. Financial problems had affected the
production of auto vehicles, and made some big changes in the
employees' time table. This again shows that the financial instability
which was caused by the worldwide economic crisis made its move on
decreasing economic growth.
When will the economic crisis be overcome?
The financial crisis either directly or indirectly affects the lives of every
person. Ordinary people suffer from rising prices, firms and companies
are on the brink of bankruptcy and the whole economy similarly to
people's mood is going down.
But will it end, and will there be resurrection? Yes. According to the
prime minister of Russia Vladimir Putin, in the “straight line”
conversation, the minister stated that the majority of experts assume
that the lift of the world economy will be designated in the spring of
2010.
Let's just hope that Russia and the world make it through this complex
period soon and that the crisis will be a memory not present.
Reference: http://www.gks.ru/, http://vz.ru/
23
Main Macroeconomic Indicators of Russia
Year 2005 2006 2007 2008 2009*
GDP Purchasing Power
Parity in Trillion U.S. dollars
1,408 1,584 1,746 2,076 2.225
GDP Real Growth Rate
expressed in percent
6.7% 6.4% 6.7% 8.1% 6.0%
Inflation rateexpressed in
percent
11.5% 12.7% 9.8% 11.9% 13.9%
Unemployment rate
expressed in percent
8.3% 7.6% 6.6% 5.9% 6.2%
Foreign investment in
Billion U.S. dollars
1.1 41 82.3 40.7 40
*Estimate

EiyL

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to EiyL

Similar to EiyL (15)

EiyL