Russian Economy General News: #7

kvs wrote:

Kimppis wrote:http://theduran.com/russias-inflation-better-central-bank-target/

Alexander Mercouris: Russia’s inflation fall exceeds Central Bank target

Russian inflation rate plunges to 4.5%, opening the way to cuts in interest rates and higher growth this year.

Rosstat, Russia’s state statistical agency, is reporting that the annualised inflation rate in Russia has now fallen to 4.5%, with Russia recording increasingly frequently weeks of zero inflation during the winter months.

This is most unusual.  Normally the inflation rate rises in Russia in the winter and falls in the summer.  The fact that Russia is now regularly recording weeks of zero inflation even in winter shows that inflation in Russia is falling faster than anyone (myself included) expected.

Suffice to say that less than a year ago the Russian Central Bank was predicting that inflation in Russia would not fall to 5% before April and would finally hit the 4% target at the end of the year.  Inflation has instead fallen to 4.5% less than midway through March, with some forecasts now predicting it will hit the 4% target by mid-year.  Indeed there is now a serious possibility that inflation for the whole year could significantly over-shoot the Central Bank’s target and fall significantly below 4%.

This plunge in inflation is crucial for the economy’s future.  As I have repeatedly pointed out, it is the sky high interest rates (currently 10%) the Central Bank has been imposing to achieve the 4% inflation target which caused Russian economic growth to slow from mid 2012.  Far more than low oil prices it is these high interest rates which are continuing to hold the economy back.  There is a direct historic correlation between the rise of Russian interest rates since the Central Bank began serious inflation targeting in 2012, the decline in inflation in Russia, and the fall in Russia’s GDP growth rate, even if most commentators are blind to it and even if the Central Bank itself downplays it.  I have discussed all this in detail previously here.

What this means is that the sooner and faster inflation falls, the sooner the Central Bank will start to cut interest rates, and the more Russia’s GDP growth rate will increase.

If inflation really does fall to an annualised rate of 4% by mid-year then even the inflation hawks in the Central Bank will most probably finally come to accept that a Central Bank lending rate of 10% is too high, in which case interest rates will start to come down faster, and Russia’s economy will start to grow more quickly, than even the most optimistic forecasts have been predicting.

I like Mercouris but here he is just spouting nonsense.  Faking an inflation rate by brutal credit contraction such as what the CBR has been doing is
BAD for the economy.   Since it is not a natural, quasi-equilibrium decline, there will be the inevitable overshoot and it will rebound.  So I fully
expect the inflation rate to start climbing fast as soon as the CBR reduces its rates to let's say 5% (a dream).   Theses f*cks at the CBR are the sole
source of both the inevitable inflation disaster and the criminal policy of maintaining the prime lending rate at 10.5% even when the inflation was below
8% for two years.   The prime lending rate should have been 6% during this time.  

Putin has failed big in dealing with the economic sabotage at the CBR.  He should have organized a regime change at the CBR.  People always talk about
checks and balances.   Well, the CBR has none.   It has been taken over by monetarist loons who are proving that they are also 5th columnists.

Project Canada wrote:

If forumers like us can see how the CBR is sabotaging Russian economy, im pretty sure Putin and his advisers would notice it too, But why are they not doing anything?

Singular_Transform wrote:

Kimppis wrote:http://theduran.com/russias-inflation-better-central-bank-target/

Alexander Mercouris: Russia’s inflation fall exceeds Central Bank target

...

If inflation really does fall to an annualised rate of 4% by mid-year then even the inflation hawks in the Central Bank will most probably finally come to accept that a Central Bank lending rate of 10% is too high, in which case interest rates will start to come down faster, and Russia’s economy will start to grow more quickly, than even the most optimistic forecasts have been predicting.

What was the target of the CB/govrment?

Redistribution of wealth from the workers to the businesses?

Kill credit addicted businesses?

TASS answers questions about key points of “Stolypin” programme
1   What is the main purpose of the document?

The development strategy sets the following KPI (key performance parameters) that can be called goals: economic growth to 6% by 2020, 35 million highly productive jobs by 2035, and the average life expectancy of 83 years to the same time.

2  The plan includes five main areas:

   “Comfortable country”. This item involves the creation of a modern high-performance workplaces, to increase the efficiency of health and education by increasing funding and competition between government and private business, as well as stimulate consumption.

   “Diversified (i.e. versatile), sustainable and competitive economy”. A sense of direction — finding independence from oil prices, the development of sources of state revenue in those sectors of the economy that are not associated with fuel exports, development of small and medium enterprises (SMEs), the legalization of self-employed people, use of advanced technologies to improve labor efficiency.

   “Modern infrastructure”. Active construction of roads, improvement of cities, the existing infrastructure — all of which should lead to the fact that in different regions of the country will live with equal comfort. The mass construction of housing, including rental. Bandwidth improvement of intercity transport for mobility.

   “The transition to innovation economy”. The introduction of technology to upgrade industry and the development of the Russian scientific centers. Active investments in different field of science. The use of “electronic money”, installation in factories samebecause robots, the development of genetic engineering.

   “Russia is a key link between Europe and Asia”. The final point involves the use of the geographical position of the country, the attraction of European and Asian capital, technology and talents. You need to become the infrastructure and financial center, to Orient foreign policy to achieve economic development goals.


3  What you need to do to achieve these results? What industry?

For the start of the Stolypin club is run for about 100 projects-“locomotives” and invest in them. For example, industrial parks for the production of goods of daily consumption around the major cities. As well as agricultural cooperation for food production, storage centers and implementation in Metropolitan areas. Or clusters to create medical equipment and pharmaceuticals, systems for the collection and processing of associated gas and production of electricity in Western and Eastern Siberia, IT and tourist complexes. At the same time to start the changes in the banking segment.

4  How to change the banking system?

Here the authors of the “Strategy growth” suggest several directions at once. First, they want to reduce the key rate of the Central Bank to 7-8% (now 10%). This should lead to lower interest rates on loans, and thus to the increase in demand from both businesses and ordinary consumers. In the future, the key rate should stay at the level of “inflation + 2%”.

It is impossible to prevent a strong ruble, that is, its rise in price against the dollar. This will provide an opportunity to strengthen import-substituting and export-oriented industries. Here is an example: in the “expensive” dollar, Russian buyers prefer to buy a car assembled in our country, not a foreign car, because the latter is expensive. In turn, the foreign buyer the price of the car “made in Russia” will also be low. The exchange rate should be stable. With the development of economy and growth of competitiveness of Russian companies the ruble can be and strengthen.

The loans must “climb” the state, it is necessary to set a limit on the level of the budget deficit to 3% of GDP (this year, according to forecasts, the deficit will amount to 2%), and the maximum level of public debt at the level of 30-35% of GDP (now about 13%, and by the end of the year, according to Finance Ministry forecasts, will amount to 14.7% of GDP).

In addition, the Central Bank, according to representatives of the Stolypin club, shall cease to revoke the licenses of financial institutions and to a policy of warnings. By analogy with the deposits of natural persons need to insure Bank deposits of legal entities in the amount of 1.5 million rubles.

A large company the strategy proposes to support, starting the market of corporate bonds (i.e. debt securities, the holder of which is entitled some time to get their money back with a profit). This same profit is not taxed and fees.

Finally, you must implement a special program of the Central Bank of the Russian Federation and the government of the Russian Federation for support of economic growth for a period of 5 years and a total amount of about 1.5 trillion rubles a year. The money is necessary to invest to the existing development institutions (industrial development Fund, Vnesheconombank, the development Corporation small and medium enterprises, the Fund of development of monotowns and others) and create new ones, to restructure the debts of industrial enterprises are SMEs, and to refinance the leasing company.

5  Where to get so much money?

The money is there, sure the creators of the strategy. Rather, they appear due to the economic growth. Each percent of GDP — is not less than 300 billion rubles of the consolidated budget. In addition, the authors of the plan propose to use the assets of the state banks and the Central Bank to implement projects in the field of public-private partnerships (PPPs) to privatize the assets of the country and to borrow from the public and financial investors using bonds. In total, the restart of the economy will need 7.7 trillion rubles.

6   Will this not lead to inflation?

Result. But experts of the Stolypin club, I assure you that in all the countries at the stage of “explosive” development of the economy, it abruptly flew up to a double digit number. And fear is not necessary, because the rise in prices of goods and services will be temporary. All this has not led to the ruin of the population and business, the strategy proposes to fix the tariffs of infrastructure monopolies and fee for technological connection to 2018-2019 at the level of 2017, to give a function for establishing network tariffs for transmission of electricity from the regional level to the Federal and equalize the electricity tariffs for enterprises and population. And they are expected to decline by 27.8% due to networking.

7  The industry will develop. Who will buy all these goods?

We are with you. “Growth strategy” involves a program of stimulating consumption. Will build housing — it is necessary to reduce the rate on mortgages to 5%. Will begin to produce products and medicines — it is necessary to provide subsidies for socially unprotected citizens (up to 170 billion a year) on their purchase. The plan involves the continuation of programs to encourage the purchase of vehicles, machinery and other industrial goods of a domestic production. Finally, the first step is to run programs create export oriented industries in the field of military industry, agriculture, IT, deep processing of raw materials (gas, grain, diamonds, wood, fish), second — go to export high-tech equipment, aircraft and spacecraft, machines.

8  What to do with the taxes?

Team “Stolypina” insists on reducing the burden for entrepreneurs: to start to introduce a “vacation” for 5 years for the new and fastest growing industries. A key objective is the reduction in the average level of fiscal “pressure” for business up to 35% of commercial profit. Moreover, the decrease in fees is necessary not only for Russian business, but for foreigners they need to set the rate of income tax and the property tax level offshore.

9 The concept refers to “the alignment of the regions”. But as small areas to compare with Moscow?

The project assumes that the measures of state support needs to a small town with a population of 250-500 thousand people (and for regions with low concentration of population 100-250 thousand). To concentrate on measures of state support. These cities will become markets for surrounding rural areas and smaller municipalities. Around the need to form industrial clusters. Their centers have become the company of major state-owned companies, natural monopolies and commodity around which it is possible to create chains of related industrial small and medium enterprises. The state’s participation in funding can vary from 75% to cover the cost of partial guarantees on loans. The most attractive funding scheme large-scale projects, PPPs and project Finance.

10  What other suggestions are contained in the “growth Strategy”?

   It is necessary to carry out judicial reform, to expand the powers of the Supreme court on cancellation of entered into force decisions and to increase the number of world and arbitration judges in Metropolitan areas.

   It is necessary to adopt legislation regulating the turnover of cryptocurrency, and to equate their status to foreign money, and also to allow banks to open accounts in these units and exchange them for rubles.

   It is impossible to raise the retirement age, while life expectancy in Russia reaches 75 years, and lower rates of insurance payments in the Pension Fund and health insurance Fund.

Austin wrote:^^ What does member think about Stolypin club proposal for Long Term Economic Development of Russia ?

Alexei Kudrin is also working on his own proposal and will be submitted by May , Some how I dont trust Alexei , I think he want to make Russia an appendage of West

Austin wrote:That long term solution of +2 % markup is for the Saving Class , If the interest rate is less than the inflation then the Saving class would be burning their money.

It will force them to put their money from Banks to more riskier Stock Market to earn money in order to make it inflation proof.

I think the Russian Government is keen to preserve the wealth of Savers who might want to invest in Safer Government Securties without risking their life saving to the mood of stocks

Prime Minister Dmitry Medvedev has instructed the Ministry of Finance and Ministry of Economic Development with the participation of JSC "Russian export hub" (REC) to develop proposals to ensure competitive conditions of crediting of foreign buyers of goods and services produced in Russia, including the use of foreign currency government financial assets.

For Russian banks providing export financing (Eximbank, VEB), there is no cheap funding sources, which means that they provide expensive resources and competitive.


At the same time the Ministry of Finance reserves placed on Libor rates and even lower in the US and European debt securities. Source "Gazety.Ru" notes that part of these funds could be redirected to the funding of domestic credit institutions that support exports.

At the end of December 2016 Russia held US treasury bonds for $ 86.1 billion. In comparison with December 2015, this portfolio decreased by $ 6 billion, or 6.5%, according to the RNS news.

At the same time Russia in terms of investments in US government securities lags behind Japan and China, which by the end of December last year belonged to the bonds by $ 1.09 trillion and $ 1.06 trillion respectively.

The policy of keeping money in US debt regularly criticized the "left" economists, such as presidential adviser Sergei Glazyev. They believe that the way Russia is financing the development of American, not Russian economy.

Now the government aims to increase the share of non-commodity exports. Prime Minister Dmitry Medvedev even said recently about the "export expansion."

"Our industry needs to be competitive, the goods produced by our industry should demand both in the domestic and foreign market. We must create all conditions for the so-called export expansion. To do this, the product must be of high quality and affordable - both domestic prices and export markets ", - said the Prime Minister.


Russia actively uses the mechanism for providing loans to foreign buyers of domestic goods and services. For example, many nuclear power plants are being built in the Russian loans.

India provided a loan of $ 3.4 billion for the construction of NPP "Kudankulam". Egypt for 13 years will be given $ 25 billion for the construction of the first nuclear power plant in the country, Bangladesh approved a credit line of $ 11.38 billion.

Iran last year agreed to provide a loan of $ 2.5 billion for the electrification of the railway line Garmsar - Ince-breaker and construction of thermal power plant in Bandar Abbas. These works will lead the Russian company.

The amounts are large, and the opportunities for expansion of such operations a little. Free money to increase the volumes of export credits in the federal budget is not, in the next three years it will be typeset with a deficit. This year is expected to exceed budget deficit will amount to about 3% of GDP.

Redirecting part of the resources of the American securities on the funding of our institutions in a foreign currency loans, on the one hand, solves the problem, on the other - does not violate the principles of macro-economic, the source says "Gazety.Ru".

It is unknown to what extent the funds that can be withdrawn from the US Treasury bonds in question. Ministry of Finance, Ministry of Economic Development and the RECs should submit their proposals by April 5 this year.

Austin wrote:$86 billion in US Tressury is huge money

What if they says reduce that to half and buy $40 billion worth of  Chinese & BRICS country bond ,  whats the harm these are government securities and as good quality paper as any one can get

Regular wrote:Number of dollar billionaires up 11% in Russia last year, at the same time, the number of billionaires in Europe declined by four percent

Kimppis wrote:Well, they just changed their "methodology" and GDP growth rates for the last few years improved quite a bit. For 2015 -2.8% vs. the older estimate of -3.7% and for 2016 -0.2% vs. -0.6%. So if they keep the same adjustments into the future, this years should also be considerably better than their forecasts. Previously they were talking about a growth of around 1.5% (lately they have been talking about 2%), so it's possible the growth could reach something like 2.5% this year. But we'll see...

kvs wrote:

Kimppis wrote:Well, they just changed their "methodology" and GDP growth rates for the last few years improved quite a bit. For 2015 -2.8% vs. the older estimate of -3.7% and for 2016 -0.2% vs. -0.6%. So if they keep the same adjustments into the future, this years should also be considerably better than their forecasts. Previously they were talking about a growth of around 1.5% (lately they have been talking about 2%), so it's possible the growth could reach something like 2.5% this year. But we'll see...

Those are not changes in methodology, they are minor adjustments. The -0.2% or -0.6% GDP growth estimate for 2016 is simply not credible. Millionaires and billionaires
don't increase by 10% if the economy is contracting.

Singular_Transform wrote:

kvs wrote:

Kimppis wrote:Well, they just changed their "methodology" and GDP growth rates for the last few years improved quite a bit. For 2015 -2.8% vs. the older estimate of -3.7% and for 2016 -0.2% vs. -0.6%. So if they keep the same adjustments into the future, this years should also be considerably better than their forecasts. Previously they were talking about a growth of around 1.5% (lately they have been talking about 2%), so it's possible the growth could reach something like 2.5% this year. But we'll see...

Those are not changes in methodology, they are minor adjustments.   The -0.2% or -0.6% GDP growth estimate for 2016 is simply not credible.  Millionaires and billionaires
don't increase by 10% if the economy is contracting.

It makes sense, the middle / poor people getting poorer, the wealthier receiving more money and more wealth.

It is wealth distribution, take away from the poor and give it to the rich.

Past three years was about it, check the portion of wages/salaries from the GDP.

Kimppis wrote:Exactly, they made methodological adjustments, the same thing...

Yes, Russia's GINI index is quite normal by global standards. Worse than in Western Europe, but pretty much exactly the same as the US. Although there are a lot of billionaires in Russia vs. the overall number of millionaires.

HOWEVER, isn't the number of (dollar!) millionaires highly related to the exchange rate? So the number of millionaires probably fell by quite a bit in 2015 and now it's simply recovering, especially when the ruble strengthened.

kvs wrote:

But there is no evidence of such a change in the income curve.   The bitching about it in the anti-Russian media was over the last
15 years related to the relative increase of the rich vs. the lower income brackets.  All segments of the population were
getting wealthier.   And your "makes sense" actually doesn't since it would be a pure catabolic process where the "1%" was
reducing the wealth of the "99%".  This would accelerate GDP contraction.

And just what sort of catabolic processes do you propose to explain this alleged inequality spreading?  

http://www.tradingeconomics.com/russia/wage-growth

There was no contraction in real wages in 2016 and they actually started to grow over the last
six months.  So there is no catabolic income redistribution.