02
Economy
RUSSIA NOW
BOOKMARKS www.weforum.org World Economic Forum in Davos
SECTION SPONSORED BY ROSSIYSKAYA GAZETA, RUSSIA
www.minfin.ru/en Russian Ministry of Finance
http://en.rian.ru/business RIA Novosti newsware - business
WWW.RBTH.RU
www.usrbc.org U.S. - Russia Business Council
Point of View
Davos Economic Forum Putin’s speech was an effort to encourage and assuage
Riding the Ruble in
foreign investors and promise proactive, but not interventionist, steps at home
these Trying Times
ALEXEI MOISSEEV Solutions and Ideas,
RENAISSANCE CAPITAL
Not the Blame Game
Since the ruble began its dramatic slide in value
in August, I have been bombarded with the same
question from nervous investors and confused
journalists: What is happening? I told them that Many expected Putin Putin’s Recovery Tips
the devaluation of the ruble is the natural result of
to give another Mu-
the new realities of the world economy and the
sharply lower price of oil. We’re in a global reces-
nich-style address,
sion and the prices of commodities, Russia’s big
but it never came. It is
Dos:
---
Write off bad debts and
exports, have nose-dived. That, along with the time for everybody to toxic assets;
machinations of currency speculators who are
cool down and work ---
Get rid of virtual money,
betting on its decline, is causing the ruble to lose
value relative to other currencies.
together
bogus reports and dubious
ratings;
Then I quickly launched into a critique of the
---
Set up a system of several
Central Bank’s approach of step-by-step devalu- reserve currencies;
ation of the ruble, which has cost the country
---
Build a new framework of
$100 billion in reserves, raising the total reserve global regulators.
loss to $210 billion. What is needed, other econ-
omists I and insisted somewhat self-righteously,
is for the Central Bank to step aside and allow a Don’ts:

dramatic one-off devaluation. I proposed knock-
---
Retreat into isolationism and
ing perhaps an additional 20 percent off the unrestrained national egoism;
value of the ruble, which, by the time the Central
---
Step up government inter-
Bank began its policy of gradually letting the vention in the economy.
ruble slide, had already lost 15 percent versus
the dollar on the back of the euro’s tumble.
Almost two weeks ago, Central Bank chief Ser-
gei Ignatyev gave in and called an end to the ness and government have been
gradual devaluation policy. He set the bank’s dazed by the economic down-
new basket band at 26 to 41, which at that time turn, and have not gone be-
represented an additional depreciation allow- yond treating apparent symp-
ance of 10 percent. It meant that the bank was toms. Now the ruble needs to
“drawing a line in the snow," as one analyst find its ‘floor,’ which will pro-
put it, and committing to not allowing the ruble- vide the economy with a clear
dollar exchange rate to fall below 36.20 at the ALEXEY DRUZHININ_RIA-NOVOSTI benchmark.
then-prevailing euro-dollar rate. Ignatyev made Nevertheless, this inability of
the important argument at that time: The current the high and mighty to pro-
exchange rate balances the country’s current CONTINUED FROM PAGE 1 but only those who have a fo- of Sberbank, Russia’s biggest mental (and not uniquely Rus- pose a remedy for the global
account. cused action plan to address state bank, responded that it sian) problems in the economy. collapse reflected poorly on the
Today we have to admit that the Central Bank's All of Putin’s remarks in Davos the crisis,” stressed Igor would be better not to "stoke It is absolutely clear that insti- Forum. The island of stability
gradual devaluation policy has largely been came down to one point: En- Shuvalov. fears" and "scare the public." tutional reforms in Russia are is not apparent on the horizon.
vindicated. Yes, it has been costly in terms of courage Western investors to "If the exchange rate is as much incomplete. In fact, both busi- Not yet.
-
reserves, but it looks to have succeeded in insu- do business in Russia. Liberal noises as thirty-five or thirty-six, or
lating the population from the kind of economic For instance, when asked The new trend probably ex- even more, rubles per dollar,
shock they have experienced more than once about Russia’s investment at- plains the liberal tone of Putin’s then this reflects the real situ-
in Russia's modern history. The fact that people tractiveness, Ernst & Young speech in Davos: Government ation.... Anyway, people no lon-
MVF forecast, $ billions
have not been changing out of rubles aggres- CEO James Terly said that, in should not intervene in the ger expect a deep devaluation.
sively is proof that it has worked. spite of bureaucratic hurdles, economy. Until now quite the In any case, I see nothing
Although that is basically true, it is key to remem- “there are many more positive opposite has been the case. The alarming in what has hap-
ber that Russian companies have significant things about doing business prime minister’s message has pened."
foreign debts coming due this year, and they will in Russia." so far failed to impress the Rus- All things considered, Rus-
clearly not be refinanced across the board. The Ironically, the economic sian markets, accustomed as sia’s place in the world depends
$130 billion net capital outflow from Russia over downturn may even enhance they are to injections of public solely on how well it fares in
the fourth quarter of 2008 stands. The ruble’s 11 Russia’s appeal to investors, cash. the aftermath of the global eco-
percent devaluation against the dollar in the simply because government nomic crisis. Admittedly, there
fourth quarter did not stop speculative capital intervention is in fact dimin- No stoking fears or are few reasons for optimism.
outflows from Russia, but it did reduce import ishing. scaring the public There are still gold and curren-
growth. We expect further devaluation in 2009. “We now interface with com- Likewise, we are hearing reas- cy reserves, but are they ade-
Therefore, the Central Bank will still have to sell panies on a daily basis. These suring statements from the Rus- quate to match the magnitude
reserves to cover foreign exchange purchases conversations may have made sian government about the ru- of ‘the perfect storm’?
by corporations repaying their external debt. some managers think that the ble’s stability. Almost as soon as
As we look ahead, the financial system looks like government is going to bail Putin left the stage in Davos, The Island of Stability is
it will remain short rubles for now, and I expect it them out anyway. But we have the ruble took a nosedive. nowhere to be seen
to push the new upper limit of the Central Bank’s no such plans. We can help, German Gref, the Chairman The crisis has exposed funda- SOURCE: ROSSTAT
band in a matter of days. Thereafter, the Central
Bank will be forced to conduct moderate-sized
interventions, as the capacity for banks and
investors to short more rubles remains limited.
There is also likely to be some additional short
Crisis Times Russia’s Finance Minister talks about the extent of economic difficulties
covering, as the Central Bank will likely continue
to take occasional punitive action and holding
short positions will be too risky and expensive for
some investors.
Kudrin: We Have Serious Work to Do
This situation, I believe, can be sustained for
two or three months, assuming that there isn’t
a significant dip in the oil price. For a variety of Russia’s deputy premier and fore essentially protected. Over market. On the brink of crisis We’re preparing a package of
reasons we can say with confidence that the oil finance minister Alexey the next two to three years of in 1929, the U.S. economy was aid to the banks, but on condi-
price in the medium term will return to roughly Kudrin has been in London for this crisis it will be difficult, but growing the same way Russia tion that the money goes into
$70 a barrel. The problem is that it is much hard- a Russian-British financial we’ll comfortably be able to did before the current situa- the real economy.
er to predict with any certainty what the oil price forum at the Guildhall. While meet our basic obligations in tion. People were saying that
will do in the short term. If it dipped close to $30, he was there, he spoke about
ARKADY KOLYBALOV_RG
the social sphere. the market hadn’t coped, that Rescuing the ruble
the Central Bank would be forced to abandon its how the current crisis is capitalism hadn’t coped, and We’ve already been flexible in
defense of the ruble. If, however, the oil price re- affecting the Russian market. Economic growth yet after that the United our reaction. We’ve allowed the
covery takes longer, or worse, a free float of the Last year’s results were very fa- States managed to create the ruble to lose 40 percent of its
ruble will become hard to postpone. Inflation vorable for Russia. The econom- best free market system. value.
Gradual devaluation has also given people, For the time being we’re keep- ic growth rate was 6 percent. We all need to work out For the foreseeable future
banks and corporations time to prepare for new ing to our forecast of 13 per- This year, of course, we’re ex- where the state’s share should we’re not intending to bring in
economic realities. Most of the reserves spent cent inflation. The second half pecting this rate to drop to al- be smaller and where it should restrictions on currency opera-
went into the pockets of ordinary Russians or of the year is expected to be most nothing. We have varying be greater. tions.
dollar accounts of those better off. They also more successful. Over the next scenarios, some more optimis-
went to Russian corporate treasuries and banks. 18 months we’re expecting to tic, some more pessimistic, be- The Fitch agency’s Shortcomings in the
Contrary to popular opinion, only a small share see a rise in inflation due to de- cause the forecasts are still un- rating for Russia Russian economy
left the country in the hands of Western specula- valuation, but then once we get Finance Minister Alexey Kudrin certain, including those for the There won’t be any surprises. The economy’s high degree of
tors. This is the first crisis in Russia that hasn’t through this period and get the world economy. We don’t expect any conse- dependence on oil. Lack of
been accompanied by a run on banks, a col- monetary factor under control, quences from the rating reduc- competition.
lapse of the banking system or the bankruptcy of we’ll achieve a reduction in in- The state and business tion. The state’s high share in the
large corporations. True, we still haven’t reached flation. kets and the country’s budget I often hear today that the mar- economy. Insufficient flexibil-
the bottom of the crisis, but barring a prolonged deficit can be covered from our ket hasn’t coped, that the State support ity in financial institutions. All
and deep recession that keeps commodity pric- External loans own reserves. We were prepared model is changing, but this is for banks this is a big challenge for us.
es low, it looks as if Ignatyev’s cool hand may Russia has not yet taken a de- for low demand for Russian ex- a platitude. All we need to do Supporting the banking system We’ve got some serious work
succeed. cision to borrow on foreign mar- ports. Our budget is now there- is learn how to regulate the remains a priority for Russia. to do.
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