In the last year, few currencies have depreciated as much as the Russian ruble. Last September, a American dollar I bought a little more than 60 rubles. Currently, you can buy almost 100. The drop is both a symbolic blow to the ordinary russianswho equate a strong currency with a strong country, as the cause of the tensions in it Russian state. It has blown up the consensus that existed among Russian policymakers last year, when the central bank and the Treasury They worked side by side. Now, with the increase in inflation and the slowdown of growth, the two institutions are turning against each other. At stake is the country’s ability to wage war effectively.
During the early phases of the conflict, Russian officials had a simple task: prevent the economy from collapsing. Immediately after the start of invasion, this meant preventing people from taking money out of the financial system, applying capital controls and doubling the official interest rate. He ruble reached 135 per dollar, before recovering. The economy plummeted and then got better. Thanks to the juicy income from the sale of Petroleum and gashe Treasury kept the show splurging on defending and welfare.
The strong exports of Petroleum and gas They also caused the ruble appreciationwhich reduced the prices of import and, in turn, the inflation. This allowed the central bank accommodate the fiscal expansioncutting the interest rates below where they were on the eve of the invasion. Throughout 2022, the consumer prices rose 14% and real GDP fell 2%, a weak result, but much better than analysts had predicted. Last week, Vladimir Putin He noted that “the recovery phase of the Russian economy is over.”
The new one stage of the economic war It poses difficult decisions for the authorities. With an eye on the presidential election of March, the Ministry of Finance wants to support the economy. The news service Bloomberg has reported that Russia plans to increase spending on defending from 3.9% to 6% of GDP. He Ministry of Finance He also wants to increase spending on social security. Putin wants the economy go from strength to strength. He recently boasted about the lowest unemployment rate in Russiacalling it “one of the most important indicators of the effectiveness of our entire economic policy” (conscription and emigration certainly helped).
Putin wants to square the circle and defend the ruble no new rate hikes. For this reason, he has asked his political leaders to find creative solutions. Two main ideas are being explored: managing the currency and boosting energy exports. Neither of them seems like it’s going to work.
First of all, the currency. He Government He wants to force exporters to hand over more cash and make it difficult for them to leave the country. In August, officials began preparing “guidelines” that would “recommend” companies to return not only sales proceeds but also payment payments. dividends and loans abroad. The 20 of September, Alexei Moiseev, Deputy Minister of Financehinted that the possibility of imposing capital controls to stop departures to all countries, even those considered “friends.”
These measures are imperfect at best. Russian export industries form powerful pressure groups. The experience of the last 18 months is that the companies that dominate the energy, agriculture and mining sectors are experts at finding loopholes in the currency controlsit states Vladimir MilovVice Minister of Energy in the early days of the reign of Putin. Exemptions abound. At the end of July, Putin issued a decree allowing exporters operating under intergovernmental agreements, which cover a large part of the trade with China, Türkiye and other countries, keep income abroad.
He Kremlin also wants to create artificial demand for the ruble by forcing other countries to pay the Russian exports in that currency. The central bankers They seem to think this plan is pretty stupid. “Contrary to popular belief,” as noted Nabiullina In a speech on September 15, the monetary composition of export payments has “no notable impact” on exchange rates. The only thing that changes is the moment of conversion. Either an exporter paying in dollars uses them to buy rubles, or the customer buys the rubles himself. What could help the most Russia would be to pay a greater part of their imports in national currency to save foreign currency, and that foreign sellers they will stay with those rubles. But there is little indication that this will happen.
Russia You might consider using your foreign exchange reserves to intervene in currency markets. However, more than half of its $576 billion Bookingsdeposited in West, They are frozen. Using the rest is difficult because most Russian institutions are subject to sanctions that limit your ability to perform transactionsit states Sofia Donetsformer official of the russian central bank. And the reservations available of the country, which have been reduced by 20% since before the war, could only defend the ruble for a time.
In the absence of raising rates, the only viable way to sustain the ruble is to promote the energy exports. In theory, two factors work in favor of Russia. One is the rise in the price of oil. Since July, production cuts Saudi Arabia and the retreat of fear of a global recession have contributed to increasing the price of Brent crude oil by almost a third, to $97 a barrel. The other factor is the reduction of the difference between the price of Uralsthe star quality of Russiaand the Brentwhich has gone from $30 in January to $15 today (see graph 3). This difference is likely to continue to narrow. Since December, members of the G7 have banned their carriers and insurers to help transport the fuel to countries that still buy it, unless it is sold below $60 a barrel. The response of Russia has been to build a “shadow” fleet of oil tankers, owned by oil brokers. Asia and the Gulfand use state funds to secure shipments.
However, Russian revenues from oil export do not increase more. Higher prices may depress consumption in USA; Recovery of China since zero covariance seems to be over. Reid l’Ansonfrom the data company Kplercalculate that America, Brazil and Guyana together they could increase their production by 670,000 barrels a day next year, which would offset two-thirds of the current cuts in Saudi Arabia. Futures markets suggest prices will fall through much of 2024. Although Russia could export more oil to compensate, doing so would accelerate the decline.
The other bad news for Russia is that it must now earn more from oil simply to keep its total export earnings flat, due to the decline in gas sales after the closure of its main gas pipeline to Europe. In the fifteen days up to September 19, these amounted to a paltry 73 million euros ($77 million), compared to 290 million last year. In the EU There is talk of stopping imports of Russian liquefied natural gas. European nuclear power generators are also reducing their dependence on Russian uranium.
All this means that, as inflationary problems persist, Russia, the struggle between the government and the central bank will only intensify. The temptation to splurge before presidential election next year will fuel tensions, forcing the central bank to raise rates to debilitating levels or give up the fight, with a consequent inflationary spiral. Alternatively, Putin he could cut military spending, but his plans for 2024 show he has little interest in doing so. The longer his war goes on, the more battles he will have to fight at home.
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