The financial crisis has also reached Russia, despite the fact that Russia has the three largest monetary reserves in the world and both the current balance of payments and the state finances of the surplus.
It is estimated that as a result of the crisis in the global financial markets, which has spilled over into Russia, many of the thousands of licensed Russian banks will fall or be taken over by others. The problems in the Russian financial market began in August as a result of several events that took place at the same time: the trend in oil prices reversed, signs of a deteriorating business environment appeared, economic growth began to slow down, high inflation persisted, the world political scene rose due to conflict in Georgia, which made the risks associated with developing markets more important, and especially with Russia, in its uncertain market situation.
The crisis is most visible in the Russian stock market. In half of them, the two most important Russian stock exchanges had to be closed for two days, when they fell by more than 20%. At the end of June, the Russian stock market was no more than 60% from its peak in May 2008, trading had to be suspended again due to a decline of 19%.
Graph 1: Rusk stock index RTS, in USD
But it is important for that, always elsewhere stock markets fall so…
The stock markets in the world thus fell, for example the Czech stock exchange lost almost 60% of its value this year, the Czech stock market fell more. Unlike countries such as the Czech Republic or the Czech Republic, Russia is far more dependent on the foreign capital. The Finann crisis has exposed the weakness of Russian oligarchs. Many of them borrowed abroad and, in addition, most loans are a package of corporate events. But as soon as the shares fell, the creditor demanded from the company and the banks gave bills or quickly repaid the debt. Investors began to withdraw their investments from developing markets, which put pressure on the weakening ruble.
Margins began to withdraw over Russia. Unlike the second quarter of this year, in the third quarter Russia recorded a capital outflow of $ 16.7 billion. Domestic banks began to have liquidity problems and the money market, as elsewhere in the world, slowly and surely froze.
Before the summer, President Medvedev declared that Russia would not be a problem, but would be a crisis, and not only that, full of really big. In summer, the credit crunch forced Russia to provide billions of dollars not only to banks but also to state-owned companies, according to the government to prepare an extensive package of aid, including tax cuts, bank reserve requirements and providing liquidity to the financial system.
In addition to unexpected requirements from creditors, there are such regular volumes – repaid or refinanced debt, which has become a stone for banks and companies with a lack of liquidity. This year alone, according to the Central Bank of Russia, it is necessary to repay and refinance from a total of 440 billion between 30 and 40 billion USD. Therefore, at the end of the year, it was decided that the state would provide the development bank with companies and banks $ 50 billion, which should be enough to cover the need for this year. In 2009, however, this is a substantial profit that will need to be refinanced and repaid, namely about 150 billion USD.
Finann’s protective package is even in terms of volume approved in the USA. In the meantime, the state will provide $ 180 billion in loans, levies on taxes and other measures. Monetary reserves reached $ 598 billion in August, which is more than the total debt and about one-third of Russia’s GDP. Of concern is the rate at which reserves have declined in recent weeks. In the previous week, reserves fell to USD 453.5 billion. The main reason is the central bank’s effort to support the ruble, which lost only 5% of its value to the dollar in June, more than 15.6% since its peak in mid-July, when the pig has strengthened by a total of 28% in the last five years. The reason is the new policy of Russia, when the exchange rate of the ruble is based on the currency – where the dollar is 0.55 and the euro 0.45. Therefore, with the sending of the dollar against the euro in recent months, the ruble strengthened against the euro, but weakened against the dollar.
The aim of the central bank of Russia is to protect the competitiveness of exports, with the help of the new central bank, but thus to the inflation policy. Until recently, the market speculated on the revaluation of the ruble in order for Russia to manage to bear inflation, which reached 15% pa, but the central bank was forced to leave the ruble, which will sell as well as other emerging markets such as the South African Rand, the Hungarian forint or Turkish lira, devaluing.
On November 11, the Russian central bank decided to divide the interval by 1%, in which the ruble fluctuates in exchange rates. But due to the pressure on the weakened ruble, the ruble actually weakened by 1%, due to the fact that the Russian central bank thus de facto decided to devalue the ruble. Selling pressure on the ruble is the result of sharply declining monetary reserves and oil prices on world markets. Oekv thus gave the devaluation of the ruble by 1-2krt 1% this year or the arrest of five years.
Graph 2: Exchange rate of the ruble to the US dollar
Dependence on oil and other commodity prices
The first commodities are an important factor in the Russian economy, or they represent 80% of all exports. Oil, fuels and natural gas accounted for 65 percent of Russian exports in 2006. According to industry, metals accounted for 14 percent of exports. First, commodity prices have fallen by more than 50% this year since their peak in July, according to the Reuters / Jefferies index. The price of oil on world markets last week fell below USD 50 per barrel to USD 48 per barrel for the first time since May 2005.
Unfortunately, Russia has not been able to create an alternative in the economy in the last decade of its boom, which is why Russia is still highly dependent on oil revenues. Some other countries, which are so important exporters of oil, have managed to create in the economy of other industries, which are a source of income to the state treasury (for example, the United Arab Emirates – the financial center of the Middle Entrance and important tourist destinations).
GDP growth has slowed, unemployment is rising
The slowdown in the world economy, the problems in the financial sector and the fall in the price of oil will hit Russia uncomfortably. In 2009, the administration of President Medvedev saw a decline in Russia’s economic growth to 3 percent from an average growth of less than 7% in the previous six years. Industrial production, which contributed about 40 percent to economic growth, grew by only 0.6 percent in June, the lowest rate since 2003. The sharp slowdown in the economy and the decline in commodity prices pushed prices down. Consumer inflation was at its peak, in the interim 15%, and in June it fell slightly to 14.2%. In the first year in a row, in line with the decline in economic activity, it will fall to an average of 8.5 percent. Since last year, the government has been fulfilling the number of people in unemployment, when it is estimated that in 2009 it will lose its jobs and 350 thousand people. The employment rate reached a ten-year low of 5.3%, in June it rose to 6.1% and it is expected that it will increase in the next months.
Graph 2: GDP growth as a percentage
Data source: Bloomberg.com