Russian Economy General News: #7

higurashihougi wrote:May anybody rebunk Western's propaganda about "Russian reserve fund is running out of cash ?" I know the forum has talked about similar topic before but I still do not fully gaps the essence of the issue.

http://money.cnn.com/2016/09/16/news/economy/russia-cash-reserves-depleted/

Odin of Ossetia wrote:


Russia Could Run Out of Money in 2017.


http://www.msn.com/en-ca/news/world/russia-could-run-out-of-cash-reserves-in-2017/ar-BBwhUe9?li=AAggv0m&ocid=SKY2DHP


http://www.cnbc.com/2016/09/09/vladimir-putin-is-not-strong-when-it-comes-to-russias-economy.html

by Robert Wenzel • September 17, 2016

Russia’s central banker,  Elvira Nabiullina, continues to be the most impressive central banker in the world. It appears she has completely rejected Keynesian money pumping orthodoxy and its strange new view that a little price inflation is good. She holds the heroic view that it is investment and increasing efficiencies that boost growth in an economy.

Reports Bloomberg: Nabiullina has a message for Russian businesses that may be finding it difficult to adapt to positive real interest rates: get used to it.

The Bank of Russia will continue its “moderately tight” monetary policy, with the inflation rate now below its benchmark for the past eight months, Nabiullina told a banking conference in the Black Sea resort city of Sochi today. Keeping real interest rates stable in positive territory is an “important condition for healthy economic growth,” she said.

The main drivers of growth should be “fixed investment, structural changes in the economy and efficiency increases,” Nabiullina said. “It’s necessary to safeguard household deposits against inflationary depreciation to support a high level of savings and to create the conditions to transform them into investment.”

“We see the stability of rates — their predictable and gradual decrease as far as inflation slows — as an important factor in stabilizing the economy,” she said. It’s also “one of the conditions for a shift to growth, based in particular on higher labor productivity and efficiency.”

Austin wrote:Guess The Last Country Which Still Has Positive Real Interest Rates——Russia!

by Robert Wenzel • September 17, 2016

http://davidstockmanscontracorner.com/guess-the-last-country-which-still-has-positive-real-interest-rates-russia/

Russia’s central banker,  Elvira Nabiullina, continues to be the most impressive central banker in the world. It appears she has completely rejected Keynesian money pumping orthodoxy and its strange new view that a little price inflation is good. She holds the heroic view that it is investment and increasing efficiencies that boost growth in an economy.

Reports Bloomberg: Nabiullina has a message for Russian businesses that may be finding it difficult to adapt to positive real interest rates: get used to it.

The Bank of Russia will continue its “moderately tight” monetary policy, with the inflation rate now below its benchmark for the past eight months, Nabiullina told a banking conference in the Black Sea resort city of Sochi today. Keeping real interest rates stable in positive territory is an “important condition for healthy economic growth,” she said.

The main drivers of growth should be “fixed investment, structural changes in the economy and efficiency increases,” Nabiullina said. “It’s necessary to safeguard household deposits against inflationary depreciation to support a high level of savings and to create the conditions to transform them into investment.”

“We see the stability of rates — their predictable and gradual decrease as far as inflation slows — as an important factor in stabilizing the economy,” she said. It’s also “one of the conditions for a shift to growth, based in particular on higher labor productivity and efficiency.”

DISCUSSING RUSSIA’S ECONOMY

The adviser to Russian President Putin proposes an alternative to the current monetary-and-credit policy of the Russian Central Bank.

The Central Bank (CB) must guarantee a stable exchange rate of the rouble against the dollar; reduce the margin of the banks and the interest rate to the level of the average yield in the real sector of the economy. This proposal is the foundation for a conceptual project for an alternative monetary-and-credit policy of Academic, Sergey Glazev, Adviser to Russian President, Vladimir Putin.

The monetary-and-credit-policy (MCP) is the founding document of the CB, defining its working policy. Glazev is convinced that this strategy is now vague and pursues goals which contradict the interests of society. It is necessary to create “internal sources for financing economic growth” under the conditions of sanctions and external shocks. These sources must not depend on the price of energy on the foreign markets as they do now.

Apart from that, in the conditions of economic crisis, the CB should not only focus on measures reducing the inflation rate (to 4% by 2017); it must stimulate economic growth by expanding production. “The regulator must not limit itself to fighting inflation without linking it to equally-important economic and financial indicators of development in the country,” Glazev pointed out in his 34-page project and highlighted that the return of the economy to growth is possible if several conditions are met.

The rouble is undervalued, just like in 1998.

The first point in Glazev’s proposal is to guarantee a steady exchange rate of the rouble. At the moment, it is extremely necessary to maintain stability in the currency market. Russia does not need a weak rouble. The weak rouble “increases the resources profile of the economy, increases the mistrust of the national currency, stimulates the leak of capital and accelerates inflation.”

According to the Constitution of the Russian Federation, “the major function of the CB is to protect and guarantee the stability of the rouble.” Stability can be improved if we learn how to form financial flows on the basis of internal sources “in other words, the monetary base of the rouble must be formed on internal factors and it must not depend on external economic conjuncture and the dynamics of prices of energy.” The rate of the rouble must respond to the level of competitiveness of the Russian economy. To achieve this, it is necessary to get out of the regime of ”a free-flowing rate of exchange of the rouble.”

Glazev pointed out that out of the 20 countries where the share of petrol export takes more than 70%, apart from Russia, there is only a regime of a free-flowing rate of exchange in Norway. The other countries apply a regime of a fixed or regulated exchange rate. Apart from that, to limit the possibilities of increased speculative deals, the regulator is obliged to use a broad set of tools. Related to the banks, the volume of currency speculation could be limited with tools, such as a lower currency position, lower norms of reserves in rouble operations and the introduction of turnover tax on the currency operations proposed by Tobin mostly in the Moscow Stock Exchange (Nobel laureate James Tobin – (1918-2002) proposed taxation on cash currency exchange.)

Even at a minimum of 1%, the introduction of such taxation will bring to the budget about a trillion roubles per quarter and could become an alternative for the privatisation of state companies.

The weak rouble made the Russian economy export-orientated and the export became super-efficient. “This disbalance is in the foundation of the dollarisation of the Russian economy, making the purchase of the rouble and rouble actives by the holders of dollars super-effective. In fact, we have come back to the parameter of undervaluing the rouble to the purchasing power parity (PPP) level, which was observed during the crisis in 1998.”

Today, Russia is distancing itself not only from developed countries but also from many developing ones because of the collapse of the rouble in 2014-2015, which led to the parameter ”exchange rate-PPP ratio.” This puts Russia in an unequal position of exchange on the world market (including in the purchase of modern technologies). According to estimates of the OECD and the World Bank, the exchange rate of the rouble against the dollar in terms of PPP was 19-23 roubles per dollar in 2014-2015, or even before the collapse at the end of 2014, the exchange rate of the rouble had been undervalued in comparison with the PPP rate. During January/February 2016, the average rate was 77 rubles per dollar, in other words, the rouble weakened 3.3 times compared with the PPP rate.

The printing machine as a growth factor.

The second point in the proposal is in the same spirit: “The size of the monetary mass, together with the use of a multi-channel emission target mechanism for refinancing commercial banks and institutes for development, under conditions compulsory for the state.” Money must be directed “to priority sectors at lower rates and in binding control over the appropriate spending of these funds.”

Target-orientated means to priority sectors must provide growth of activity in similar sectors so that together, they contribute to higher rates of economic growth, diversification, improvement of technical levels and competitiveness and to lower inflation.

Do not be afraid of a budget deficit.

In the third point, Sergei Glazev appeals to the CB, the Ministry of Economic Development and the Ministry of Finance to work closely together, to strictly coordinate their activities and not to be afraid of a “moderate amount of budget deficit in order to stimulate economic growth.” Glazev calls the budget deficit “an important tool for economic growth,” especially during times of economic instability. The increase of the budget deficit could finance research and development activities and stimulate innovative activities of business.

“This will lead to a moderate shift of external debt with internal debt. Such an approach will stimulate economic growth, promote and enhance the role of internal factors of economic growth, by neutralising the effects of adverse economic conditions,” argues Glazev. He considers any arguments against increasing the budget deficit as irrelevant, because the moderate deficit which is controlled in the direction of expenditure, is a lever for securing economic growth. “Any future growth must be based on investment costs, which make such growth possible (today spending and investment, tomorrow their results),” Glazev said.

To ensure economic growth, it is necessary to activate the mechanism of the state (budget financing) and the available mechanisms of the CB, the sources of financial resources and the emission centre. According to Glazev, the CB can buy government bonds issued by the Ministry of Finance and, at the same time, to realise a targeted emission which the government must use to finance the budget deficit, formed as a result of increased government spending for economic development.

Thus, the CB will be able to secure long-term credit for the state and enterprises; the economy can receive a considerable investment impulse, which will multiply by including the “long-term” private sector projects. Moreover, the target emissions will allow financial resources to focus on priority objectives (mortgages, small businesses and others), which will saturate these areas with resources and reduce interest rates. On this subject, Glazev concurs with his counterpart from Stalipinski Club, Boris Titov. Currently, Titov is preparing one of the options for the programme to stimulate economic growth for the President. In an interview with Gazeta.ru, he said that the Russian economy will need two trillion roubles in 2017, on the base of returns.

The fourth proposal

Stabilising the exchange rate of the rouble also results in “reducing the base rate to the level of the average yield in the real economy.” Lowering the interest rates can be tied to limiting bank margins in the event that the Bank participates in targeted lending to manufacturing companies. For such participation, authorised banks will receive incentives to refinance debts and norms for reserving the means.

Finally, Glazev blames the CB for a lack of consistent and transparent policy. The market needs a “clear definition” of the rates preferred by the regulator.

Growth without delusions.

In summary, Glazev pointed out that the process to internal monetary mechanism for growth, the increased level of the monetisation of the Russian economy, stabilising the currency market, renouncing inflation targeting and the free-floating of the rouble will stimulate the transition to more favourable macroeconomic indicators. In other words, “it will allow for a tangible compensation for the decline in oil prices, and the Russian economy will achieve sufficiently high rates of growth.”

According to Glazev’s calculations, the use of multi-currency issue, the refusal of the regime to freely-float the rouble and an inflation rate of not higher than 8%, will allow the Russian economy to achieve annual GDP growth of 6.5% to 7%.

Glazev is a member of the National Financial Council (NFC). This is a collegial body formed on a quota principle by representatives of the President, government and both Houses of Parliament. The NFC is a supervisory body, its powers are enormous – from controlling how the Russian Bank performs an assessment of the costs, to annual reports to determine the unified state monetary and credit policies.

Glazev systematically gives negative assessments for the course of the politics of the CB, but for the first time, he offers an alternative PAC. Some time ago, he criticised the report for the sources of economic growth, prepared by the Centre for Strategic Studies under the leadership of Alexei Kudrin. In a letter to Kudrin, Glazev characterised the programme as a document “built on widespread misconceptions,” firstly regarding inflation and its impact on economic growth.

https://southfront.org/discussing-russias-economy/

Austin wrote:MOSCOW BLOG: Unveiling the KGB school of economic management

http://www.intellinews.com/moscow-blog-unveiling-the-kgb-school-of-economic-management-106489/

MOSCOW (Sputnik) — Russia will prioritize economic openness and continue creating free-trade zones with foreign countries despite geopolitical difficulties, Russian Prime Minister Dmitry Medvedev said.

"Despite geopolitical difficulties, Russia will maintain course on economic openness, will continue creating free-trade zones with some countries and blocs as well as signing preferential trade agreements," Dmitry Medvedev wrote in his article for a Russian journal

"Voprosy Ekonomiki" (Economy Questions) published on Thursday. Medvedev also stressed that Russia will focus on strengthening ties with other members of the Eurasian Economic Union, which also includes Kyrgyzstan, Armenia, Belarus, Kazakhstan. "It is unacceptable in the current situation to propose introduction of rigid economy planning and return to the Soviet planning model. The rigidity of the Soviet model led to its demise in a postindustrial society," Medvedev wrote.


The prime minister also ruled out a number of potentially dangerous measures, such as nationalization of large companies, economic mobilization, selling government property or "printing money" policy. 

"We will not switch on the 'printing press' or unbalance the economy, as people usually end up paying for this kind of measures," Medvedev wrote. Medvedev stressed that in planning anti-crisis reforms the government should avoid populist tactics, which might lead to the reforms carried out at the expense of people.

Medvedev also noted that the sustainable economic growth in Russia depends on political stability, which the newly elected parliament must ensure. "Political stability in the country is key to achieving this goal [the growth of Russians' personal wealth]," Russian Prime Minister Dmitry Medvedev wrote in his article for a Russian journal "Voprosy Ekonomiki" (Economy Questions) published on Thursday. Medvedev stressed that the parliament is responsible for providing the proper legal base for economy reforms.

The prime minister also ruled out a number of potentially dangerous measures, such as nationalization of large companies, economic mobilization, selling government property or "printing money" policy.

Austin wrote:kvs what do you think ?

The prime minister also ruled out a number of potentially dangerous measures, such as nationalization of large companies, economic mobilization, selling government property or "printing money" policy.

Hmmmm if he is not going to do any of these , then how will he generate revenue and growth , jobs .....surely austerity wont do any of these  ?

He is against printing money aka QE but I see Russian Public Debt is 14 % of GDP (http://www.interfax.ru/business/513734)

If he prints says 10 % of GDP ( 79 Trillion rouble ) thats roughly 8 Trillion rouble , That would still increase State Debt to 26 % of GDP which is not bad still low compared to BRICS country and certainly low compared to Europe or US.

They can use the 8 trillion rouble into building/reparing Infrastructure or invest into Economy that generates Growth and Jobs.

Whats the point of have low debt if that does not help the economy and when foreign borrowing is not possible for companies ?

I dont see any think wrong with QE as long as they dont end up what US did investing into Stock Market to inflate prices and generate bubble , which defeated purpose of QE

Austin wrote:kvs what do you think ?

The prime minister also ruled out a number of potentially dangerous measures, such as nationalization of large companies, economic mobilization, selling government property or "printing money" policy.

Hmmmm if he is not going to do any of these , then how will he generate revenue and growth , jobs .....surely austerity wont do any of these  ?

He is against printing money aka QE but I see Russian Public Debt is 14 % of GDP (http://www.interfax.ru/business/513734)

If he prints says 10 % of GDP ( 79 Trillion rouble ) thats roughly 8 Trillion rouble , That would still increase State Debt to 26 % of GDP which is not bad still low compared to BRICS country and certainly low compared to Europe or US.

They can use the 8 trillion rouble into building/reparing Infrastructure or invest into Economy that generates Growth and Jobs.

Whats the point of have low debt if that does not help the economy and when foreign borrowing is not possible for companies ?

I dont see any think wrong with QE as long as they dont end up what US did investing into Stock Market to inflate prices and generate bubble , which defeated purpose of QE

"Today we have a major debate about the ways the countries would pay their debt. The United States is near the critical point in the issue of debt, Europe is also near the critical point. It is one significant challenge," Kudrin, who is the head of Russia's Center for Strategic Research (CSR), said at the Moscow Financial Forum.

The United States has the world’s largest national debt which surpassed $19 trillion this year. The cause has been attributed to excessive government spending, mandatory entitlement programs as well as a steep decline in tax revenue following the 2008 financial crisis. The European Union has been significantly affected by growing debts of its member states. The most prominent example of such inability to cope with its financial obligation is Greece, whose debt is estimated by 176.9 percent of country's GDP, according to Eurostat figures.

kvs wrote:

Austin wrote:kvs what do you think ?

The prime minister also ruled out a number of potentially dangerous measures, such as nationalization of large companies, economic mobilization, selling government property or "printing money" policy.

Hmmmm if he is not going to do any of these , then how will he generate revenue and growth , jobs .....surely austerity wont do any of these  ?

He is against printing money aka QE but I see Russian Public Debt is 14 % of GDP (http://www.interfax.ru/business/513734)

If he prints says 10 % of GDP ( 79 Trillion rouble ) thats roughly 8 Trillion rouble , That would still increase State Debt to 26 % of GDP which is not bad still low compared to BRICS country and certainly low compared to Europe or US.

They can use the 8 trillion rouble into building/reparing Infrastructure or invest into Economy that generates Growth and Jobs.

Whats the point of have low debt if that does not help the economy and when foreign borrowing is not possible for companies ?

I dont see any think wrong with QE as long as they dont end up what US did investing into Stock Market to inflate prices and generate bubble , which defeated purpose of QE

As the minister said no QE and he is right. The government needs to cover its deficit by borrowing on the domestic market. It needs
to first shoot the directors of the CBR. These directors are criminals who impose a loan shark prime rate on Russia's economy.

I am hoping that the government actually tries to borrow money domestically. That will force the use of an enema on the sh*t currently
plugging the whole Russian financial system.

Austin wrote:Interesting because Kudrin says this  


European, US Debt Levels Almost Reached Critical Point

Read more: https://sputniknews.com/europe/20160923/1045626593/europe-us-debt-critical.html

"Today we have a major debate about the ways the countries would pay their debt. The United States is near the critical point in the issue of debt, Europe is also near the critical point. It is one significant challenge," Kudrin, who is the head of Russia's Center for Strategic Research (CSR), said at the Moscow Financial Forum.

The United States has the world’s largest national debt which surpassed $19 trillion this year. The cause has been attributed to excessive government spending, mandatory entitlement programs as well as a steep decline in tax revenue following the 2008 financial crisis. The European Union has been significantly affected by growing debts of its member states. The most prominent example of such inability to cope with its financial obligation is Greece, whose debt is estimated by 176.9 percent of country's GDP, according to Eurostat figures.

Austin wrote:The debt is not just a political problem but also an economic one. The government has to keep servicing the debt which means revenue ends up paying interest and as debt grows the interest payment grows , the government borrows more and it gets cyclic.

As some point this has to burst and there are other problems too ,  To quote my friend where we have discussion on economic issue
https://forums.bharat-rakshak.com/posting.php?mode=quote&f=2&p=2043624

The Bond yield curve is flat.
The credit curve is going up exponentially.
The Swap curve is inverting.

Each tell a story which is opposite to the others if we look at historical data.

Singular_trafo wrote:

Austin wrote:The debt is not just a political problem but also an economic one. The government has to keep servicing the debt which means revenue ends up paying interest and as debt grows the interest payment grows , the government borrows more and it gets cyclic.

As some point this has to burst and there are other problems too ,  To quote my friend where we have discussion on economic issue
https://forums.bharat-rakshak.com/posting.php?mode=quote&f=2&p=2043624

The Bond yield curve is flat.
The credit curve is going up exponentially.
The Swap curve is inverting.

Each tell a story which is opposite to the others if we look at historical data.

Simple sequence of observed events doesn't mean correlation or causality .

The goverment with the parliament has all rigth to change the monetary system, the rules of it that govern it , or anything else that it wish.

Example the goverment can pay 22% interest, but if it wish it can tax it by 99%.It is a simple decision, nothing else.


So, the goverment paid intrest rate , debt level and so on  in its own currency  cant be compared to the other economical actors paramters, these are defining the  system, and not affected by the system.

The goverment is the base of the coordinate system, and everything else can be analysed in the context of the goverment in a given monetary system.

Austin wrote:

Singular_trafo wrote:

Austin wrote:The debt is not just a political problem but also an economic one. The government has to keep servicing the debt which means revenue ends up paying interest and as debt grows the interest payment grows , the government borrows more and it gets cyclic.

As some point this has to burst and there are other problems too ,  To quote my friend where we have discussion on economic issue
https://forums.bharat-rakshak.com/posting.php?mode=quote&f=2&p=2043624

The Bond yield curve is flat.
The credit curve is going up exponentially.
The Swap curve is inverting.

Each tell a story which is opposite to the others if we look at historical data.

Simple sequence of observed events doesn't mean correlation or causality .

The goverment with the parliament has all rigth to change the monetary system, the rules of it that govern it , or anything else that it wish.

Example the goverment can pay 22% interest, but if it wish it can tax it by 99%.It is a simple decision, nothing else.


So, the goverment paid intrest rate , debt level and so on  in its own currency  cant be compared to the other economical actors paramters, these are defining the  system, and not affected by the system.

The goverment is the base of the coordinate system, and everything else can be analysed in the context of the goverment in a given monetary system.

22 % interest and 99 % tax

Sure it would be a very simple thing to do when all that Fed managed to do in 8 years is to increase interest rate by 0.5 from near zero

US authorities have attributed a new crisis with the support that Russia has the Syrian government.


"We did not remove from consideration the prospect of additional financial sanctions." - Josh Ernest said.


According to the US president's press secretary, limit established as "an effective tool to support our (US - Ed.) Interests around the world." He noted that the United States will coordinate their action on the issue of sanctions with their partners.


Commenting on the words of Ernest, a spokesman for the Russian president, Dmitry Peskov, later said that Washington's position is misunderstanding. According to the representative of the Kremlin, "obsession with the sanctions policy of no good to anyone not brought."

The Bank of Russia in the baseline scenario expects stabilization of international reserves at around $ 400 billion from 2018 In the optimistic scenario the regulator does not preclude their growth to $ 500 billion through the purchase of foreign currency to the draft Guidelines for the monetary policy of Russia in the years 2017-2019 .

International reserves, according to the Central Bank for 2016 are expected to grow from $ 360 billion on January 1, 2017 amount to $ 379 billion. It is assumed that they were in the baseline scenario with the price of oil at $ 40 / barrel. on January 1, 2018 will be $ 394 billion, on January 1, 2019 - $ 399 billion on January 1, 2020 - $ 405 ppb According to the risk prediction, comprising the oil price of about $ 25/barr., international reserves will be reduced and on January 1, 2018 will be $ 369 billion, on January 1, 2019 - $ 362 billion on January 1, 2020 - $ 361 billion.

"The figures [base case scenario] laid some growth of foreign exchange reserves due to the reduction of debt to credit institutions to the Bank of Russia in repo transactions currency refinancing", - said the first deputy chairman Dmitry Tulin at a briefing on Wednesday. According to him, the increase in reserves in this scenario is due to the operations of buying gold.

The Bank of Russia will consider the possibility of resumption of purchases of foreign currency to replenish international reserves to $ 500 billion in the implementation of the optimistic scenario, that is, with an increase in oil prices to $ 55 / bbl. in 2019. However, the regulator does not set specific deadlines to achieve this value, as the current level of reserves is already "quite comfortable".

The Central Bank regularly replenish international reserves by acquiring gold in the domestic market. The resumption of purchases of foreign currency to replenish reserves will be considered only if the conduct of these operations will not conflict with the implementation of the goal of price and financial stability, it emphasizes the regulator.

The volume of international reserves of $ 500 billion over the adequacy calculated according to standard criteria. However, according to the Bank of Russia, it is a higher level of reserves is desirable for stable functioning of the Russian economy in an unfavorable external economic environment and the actions of the international trade and financial sanctions.

Austin wrote:
CB awaits stabilization of international reserves in 2018

Interfax

The Bank of Russia in the baseline scenario expects stabilization of international reserves at around $ 400 billion from 2018 In the optimistic scenario the regulator does not preclude their growth to $ 500 billion through the purchase of foreign currency to the draft Guidelines for the monetary policy of Russia in the years 2017-2019 .

International reserves, according to the Central Bank for 2016 are expected to grow from $ 360 billion on January 1, 2017 amount to $ 379 billion. It is assumed that they were in the baseline scenario with the price of oil at $ 40 / barrel. on January 1, 2018 will be $ 394 billion, on January 1, 2019 - $ 399 billion on January 1, 2020 - $ 405 ppb According to the risk prediction, comprising the oil price of about $ 25/barr., international reserves will be reduced and on January 1, 2018 will be $ 369 billion, on January 1, 2019 - $ 362 billion on January 1, 2020 - $ 361 billion.

"The figures [base case scenario] laid some growth of foreign exchange reserves due to the reduction of debt to credit institutions to the Bank of Russia in repo transactions currency refinancing", - said the first deputy chairman Dmitry Tulin at a briefing on Wednesday. According to him, the increase in reserves in this scenario is due to the operations of buying gold.

The Bank of Russia will consider the possibility of resumption of purchases of foreign currency to replenish international reserves to $ 500 billion in the implementation of the optimistic scenario, that is, with an increase in oil prices to $ 55 / bbl. in 2019. However, the regulator does not set specific deadlines to achieve this value, as the current level of reserves is already "quite comfortable".

The Central Bank regularly replenish international reserves by acquiring gold in the domestic market. The resumption of purchases of foreign currency to replenish reserves will be considered only if the conduct of these operations will not conflict with the implementation of the goal of price and financial stability, it emphasizes the regulator.

The volume of international reserves of $ 500 billion over the adequacy calculated according to standard criteria. However, according to the Bank of Russia, it is a higher level of reserves is desirable for stable functioning of the Russian economy in an unfavorable external economic environment and the actions of the international trade and financial sanctions.