MOSCOW: Buoyed by vast oil wealth, Russia is shrugging off its worst market meltdown in a decade, emerging with its booming economy almost intact, analysts say.

The Russian stock market last week saw its sharpest falls since the catastrophic economic collapse of 1998 after suffering the toxic combination of global financial turmoil, falling commodity prices and a local credit crunch.

But with oil prices still almost ten times higher than a decade ago, economists see Russia emerging with a relatively mild hangover.

The collapse was a “reality check, not a derailment, because the government had the money to fix it”, said Chris Weafer, chief strategist at Moscow investment bank Uralsib. “The Kremlin’s confidence has not been shaken.” The government suspended trading on Wednesday after sharp drops of over 10 per cent that left the benchmark RTS down 57 per cent from an all-time high achieved in May.

After a series of ineffectual appeals for calm, the Kremlin put its money on the table, pledging over $60 billion to prop up prices.

When the RTS reopened on Friday, shares surged over 22 per cent, recovering the week’s losses.

The crash has exposed flaws in the financial system, analysts said, but oil wealth has allowed the Kremlin to smooth over the cracks and avoid a repeat of the 1998 financial crisis, when a sovereign debt default caused a collapse of the ruble, all but wiping out the country’s middle class.

This time around, with oil prices around $100 a barrel around 10 times higher than in 1998 – Russia’s prospects could not look more different, said Ronald Smith, chief strategist at Moscow’s Alfa-Bank.“If you compare it to 1998, the outlook for the economy is fundamentally good,” he said. “We will come out of this with growth that is maybe slower than we had... but relatively high.” Moscow-based skyscraper builder Mirax Group said on Wednesday it had halted all new projects in light of the market turmoil, one of the first signs that the real economy could suffer.

But Smith said a slowdown of the overheating construction sector could be a blessing in disguise, freeing up resources for a wave of much-needed infrastructure development.

Observers say the market’s stunning fall was in part the result of a series of unforeseen steps by the Kremlin that have unnerved investors in recent months.

In July, Prime Minister Vladimir Putin effectively knocked an estimated $6 billion off the value of mining giant Mechel in a singe day by threatening a criminal investigation for price fixing, raising fears of a repeat of the state-orchestrated destruction of oil giant Yukos.

Putin is also widely seen as behind the decision to send tanks into Georgia to repel Georgian forces in the Moscow-backed province of South Ossetia last month.

President Dmitry Medvedev, though defending the military push, has admitted it was responsible for up to a quarter of the stock market’s losses.

Both events punctured investors hopes that the arrival in the presidency of Medvedev, a soft-spoken former professor with a background in corporate law, would push forward more liberal economic reforms, said Uralsib’s Weafer.

Ultimately however the crisis may have strengthened the economic liberals by demonstrating the need to spend time “fixing the infrastructure, pushing reforms and creating a much more stable platform for growth”, said Weafer.

“The reform side of the government now seems to be taking more of a lead.... We are more optimistic than we were during the summer,” he said.

International observers, including US Under Secretary William Burns, a former ambassador to Moscow, have said the role of the war in Georgia in sparking the financial crisis may make Moscow think twice about new military action.

But the suggestion the crisis might humble the Kremlin has been met with skepticism in Moscow.

“The only element in the Russian economy that would influence the government is the price of oil, and that is still high,” said Yulia Latynina, a leading liberal commentator.

“So long as the oil price is high, the government knows it can do something like start a war with Georgia without a thought for the economic consequences,” she said. —AFP