Financial crisis to boost prices on food 30 percent up

The current financial crisis will strike a significant blow on Russia, the former vice prime minister of the Russian government, Boris Nemtsov said in an interview with Novy Region news agency. The prices on basic foodstuffs may rise 30 percent, whereas small banks will go bankrupt, and many Russians will thus have to forget about consumer loans.

Photo: Financial crisis to boost prices on food 30 percent up

September has become a black month for Russia, Nemtsov said. The politician advised all Russians should purchase foreign currency, particularly US dollars, to rescue their savings. The crisis may bring only one piece of good news for the country: the prices on residential real estate may drop, he added.

“The current events and the default of 1998 have only one thing in common – they both are financial crises. The current crisis has a completely different nature. In 1998 Russia suffered from a crisis of the budgetary system, whereas the current events will mostly affect the corporate sector – banks, state-run companies and corporations, such as Gazprom, Rosneft and others,” Nemtsov believes.

The former vice prime minister believes that the nation’s entire banking sector may suffer from the crisis, although small and medium-sized banks will be the first to announce bankruptcy.

“Russian banks have been working at the expense of cheap and long-term funds from the West. The funds have run out today, and the banks have found themselves unable to loan up as a result. On the other hand, they have been giving too many consumer and mortgage loans recently. They are long-term loans that will be returned only in many years. That is why, small and medium-sized banks will be filing for bankruptcy now,” the politician believes.

Russia will provide state support only to state-run banks, such as Vneshtorgbank (Foreign Economic Bank), Sberbank and Gazprombank, Nemtsov said. Russia will be providing the support to the utmost, which will inevitably result in the growing inflation rate.

According to Nemtsov, the Russians will witness a considerable growth of prices (by up to 25-30 percent) on food and communal services in the nearest future.

Russia's main stock exchanges remained all but closed Thursday, a day after regulators suspended trading amid a dizzying plummet in share prices.

Government officials were struggling to keep the crisis now battering Russia's economy from turning into a repeat of the 1998 meltdown.

The MICEX and RTS exchanges plummeted to the lowest points in nearly three years Wednesday, prompting regulators to halt trading at midday, the AP reports.

The two failed to open on time Thursday. MICEX resumed limited trading - mainly of so-called "repo" contracts and bond repurchases - at 11 a.m. (0700 GMT).

In a statement, the exchange called the situation in Russian markets on Wednesday "extraordinary."

An RTS official said it was unclear when it would open.

The Kremlin has struggled to restore confidence in the banking system with a wave of emergency loans, fearing a repeat of the 1998 economic crisis - which saw the ruble devalued, default on the country's sovereign debt, and widespread bank foreclosures.