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Russia's financial crisis brings cuts to foreign loans
Source: Stratfor , Author: Posted by BI-ME staff
Posted: Fri February 26, 2016 12:22 pm

INTERNATIONAL. Russia's limited financial resources continue to hurt the Kremlin's ability to operate as it has over the past decade. High oil prices were largely responsible for skyrocketing economic growth since Russian President Vladimir Putin's government took over in 2000.

Prosperity enabled Moscow to spend liberally on its military, its economic development and, more subtly, its loans to countries in exchange for influence. But oil prices have fallen, domestic industry has slowed and the West has placed sanctions on the country that have soured investor sentiment, creating an economic crisis for Russia. The Kremlin must now make painful decisions to keep its economy afloat, and everything is open to cuts, including foreign loans.

Over the past decade, Russia has used foreign loans to press its agenda with and in other countries. In recent years, these loans were often not investments at all but incentives to induce the countries to make foreign policy decisions in line with Russia's needs. In addition, the Kremlin often either wrote off the loans, or the terms of the agreement were skewed to become more like a bailout than a loan.

But Russia's increasingly restricted cash supply will curb its previous strategy of throwing money at countries to compel their cooperation. Since mid-2015, Russia has slowed doling out smaller loans to foreign countries and has pledged only a few large loans.

For the Kremlin, one way to help mitigate the cost of these large loans could be to give them out in smaller and longer-term tranches instead of lump sums. Though Moscow will continue its policy of making smaller loans to its key allies, it is unclear if the Kremlin's tradition of writing off many of these loans in gestures of goodwill can continue. That said, Russia can always restructure the debts of the loans already issued instead of writing them off completely.

If Russia neglects its allies it risks a breakdown in relations or another country replacing its influence. However, years of wild spending have forced the Kremlin to pick and choose the countries it assists — and how much it can spend — without breaking its finances.

This article is republished with the permission of STRATFOR

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Founded in 1996 by author George Friedman, Stratfor brings customers an incisive new approach to examining world affairs. Stratfor taps into a worldwide network of contacts and mines vast amounts of open-source information. Analysts then interpret the information by looking through the objective lens of geopolitics to determine how developments affect different regions, industries and markets.

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