The Russian government's $100bn-plus financial rescue plan has won a better reception from investors than Washington's $700bn proposal. Inter-bank lending rates have dropped sharply from last week's crisis levels and the rouble has recovered some lost ground. But, as Tuesday's Moscow stock market decline shows, the mood remains nervous with investors worried about financial stability in both Russia and the US.
The authorities on Tuesday confirmed the first rescue of a commercial bank (the small Svyaz Bank). The move followed a decision by Renaissance Capital, the big local investment bank, to sell a 50 per cent stake to a friendly oligarch at a knock-down price.
Clearly the shake-out in Russian finance has barely begun. Equally clearly, the oil-rich state's pockets are deep enough to pay the bills, with large fiscal and trade surpluses and over $550bn in foreign exchange reserves, despite recent crisis-induced capital outflows.
The liquidity injections that account for the bulk of the support are welcome, so is the delay in quarterly value added tax bills, which will ease an awkward payments spike. The authorities must ensure the aid is not limited to big state-controlled banks and reaches deep into the market.
The $20bn plan to buy shares in state-run companies is less appealing. With the state already playing a dominant role in the economy, Russia does not need an extension of public ownership. Better use the funds for recapitalising a bank or two, should this prove necessary.
More generally, prime minister Vladimir Putin must recognise that the turmoil has been exacerbated by his war with Georgia and growing concern about the nationalist and statist drift in his policies. Mr Putin should now resist the temptation to respond to the financial upheaval with a further turn of the authoritarian screw. Nor, in the inevitable hunt for scapegoats, should he even consider blaming Alexei Kudrin, the liberal finance minister who has kept macro-economic policy in good order.
Russia's priority should be to restore investors' faith by keeping in place trusted economic policymakers and sticking with sound policies. Without this, Mr Putin cannot hope to achieve further economic growth, tame inflation or secure the capital needed to modernise Russia. For the past eight years, his plans have been supported by rising oil prices and a strong global economy. From now on, conditions will be more difficult. More than ever before, Mr Putin will need sound domestic financial markets.
