2008 isn’t 1998

Russia’s reserves fell by $16.4 billion last week.

Data released by Russia’s central bank showed a drop in foreign currency reserves of just over $16.4bn in the week beginning August 8. This was one of the largest absolute weekly drops in 10 years, according to Ivan Tchakarov at Lehman Brothers.

Some of that reflects the fall in the dollar value of Russia’s existing rubles, but Russia’s central bank still likely sold close to $10 billion of foreign exchange to limit the rubles slide.

No one though is that worried that Russia is going to default -- or run out of cash. It still has well over $550 billion left in the bank. And with oil trading between $115 and $120 a barrel, Russia should be able to replenish its coffers quickly.

To be sure, capital outflows have put some pressure on Russia’s domestic market, and domestic borrowing costs are up. That may constrain the Kremlin a bit. Charles Clover of the FT writes:

global market sentiment ... could end up being an important check on Kremlin decision-making. “The million-headed hydra of the bourgeoisie has sent a signal: ‘change your course, comrades!’” wrote the popular internet columnist Dmitry Oreshkin on www.ej.ru in a joking reference to the communist background of Russia’s leadership.

But it isn’t anything like 1998.

At the end of June 1998, Russia only had around $11 billion in the bank -- almost all borrowed from the IMF. The United States decision not to support the disbursement of a $5 billion installment on Russia’s IMF loan was enough to leave Russia effectively bust, and to force a default.

Today Russia doesn’t need US or European financial support. Indeed, right now, it is the US that needs financial support from other governments. At least for the Agency market. And a few US financial institutions seem rather keen on getting financing from the world’s development banks.