Credit Chill Spreads to Russia

Georgian war spooked foreign investment, destabilized economy
By Nick McMaster,  Newser Staff
Posted Oct 8, 2008 4:31 PM CDT
A Russian soldier stands at a checkpoint at the village of Karaleti, 7 km (4 miles) northwest of Gori, Georgia, Tuesday, Sept. 9, 2008.   (AP Photo)
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(Newser) – The credit crisis has officially reached Russia, revealing just how fragile the Russian economy is, BusinessWeek reports. Stocks fell so much this week that the government today suspended both exchanges to stem further loss. But the country's reliance on foreign cash—disappearing as investors flee—is bound to affect more than stock prices. "The flight of capital has exposed the complete dearth of domestic investment," says a Russian telecom company's director of investor relations.

Foreigners worried that Putin’s Russia is turning into a “rogue state” have largely abandoned Russian equities. International direct investment in Russian companies has fallen sharply as well—a problem because almost all long-term business debt comes from foreign banks. Both small businesses and huge firms such as construction giant Mirax are largely unable to secure loans, even at 25% interest. Mirax recently declared it wouldn’t start any new projects for a least a year due to lack of available credit.