Titanics of US economy are sinking

Pillars of the US economy that have been the symbol of America’s power for many years are currently collapsing like houses of cards. WorldCom, an American telecommunication company with assets of over $100 billion, officially announced its bankruptcy on Sunday. This is the largest bankruptcy in the history of the USA. The Titanics are going down, which, at the same time, results in the decline of the dollar and the hopes of investors for a revival of the US economy.

Regarding the amount of WorldCom assets, the company is twice as large than Enron, whose bankruptcy resulted in the US’s largest corporate scandal and negatively influenced the dynamics of American financial and exchange markets. A month ago, WorldCom confirmed the fact that a $4 billion error had been actually made in its accounts; after that, the shares abruptly went down.

The debt of the company makes up $32 billion. WorldCom is the US’s second largest company in the sphere of telephone and computer services and also the largest Internet service provider. The company has about 60,000 employees in 65 countries of the world. The largest American banks with offices in Wall Street were WorldCom creditors. J.P.Morgan is one of the largest bond holders of the company.

On the whole, the information about WorldCom bankruptcy was not a surprise for bankers. Even in anticipating the information, WorldCom creditors filed an action against the company in July, charging it with fraud. WorldCom took out a loan of $2.5 billion in May, right before the information about the errors in the accountability. Large-scale banks Deutsche Bank and ABM Amro are among those 25 banks that filed the action. Henceforth, the list of plaintiffs is likely to grow.

It became clear long ago that WorldCom's bankruptcy would negatively influence the American economy. Moreover, the effect is likely to be considerable not only for the USA. There are currently grounds to forecast the further fall in the main indices of stock exchanges not only in the USA but in other countries of the world as well. Likewise, the dollar's decline will continue. Because of this, the majority of Russians, who prefer to keep savings in dollars, are very nervous about the dollar's fall.

Another fact that is unfavorable for Russia’s economy is that investments in Russia are unlikely to increase in the nearest future. Washington, and likewise American business, does not care about the problems of the Russian economy, because its own problems are currently much more important. The above-mentioned facts mainly refer to high-tech spheres of economy. The Russian leadership, President Vladimir Putin including, stand up for the development of this very sphere on the grounds of its promising future. Director of Rosbank conjuncture and analytics department Valery Petrov says that Russia’s need in services similar to those provided by WorldCom is not completely covered. The sphere demands more investments, and only foreign investors are believed to provide investments of many billions. Now, foreign investors are sure to be especially captious, asking for additional guarantees and strengthening control systems. There is also little optimism in the fact that Russia’s market of high-tech companies, Rostelecom for example, is inevitably going down.

At the same time, resource-mining companies should not worry about the reduction of investment volume, because the demand for oil is still very high. Events in other economic spheres have so far no effect on the investment volume.

Valery Petrov thinks that it is not right to say the WorldCom bankruptcy will have grave consequences for Russia’s economy. In other words, hesitation about further investing in Russian enterprises is gaining force, and not in Russia’s favor by the way. Unfortunately, little depends on Russia in this case. Oleg Artyukov PRAVDA.Ru

Translated by Maria Gousseva

Read the original in Russian: http://www.pravda.ru/main/2002/07/22/44489.html

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