Transcript The economic crisis in Russia

The economic crisis in
Russia: Fragility and
Robustness of Globalisation
Satoshi Mizobata
KIER, Kyoto University
Workshop in Vietnam,
September 2009
Introduction
• Transition economies and the global crisis: Is
transition over?
• The economic growth and the crisis: The crisis
spread to the success market. Dual surpluses
are the base of the growth, but they become
weak points.
• Is the Russian market normal or abnormal?
1.Reconsidered economic
growth in the 2000s
High economic growth by energy and resources: an increase
of reserve and export revenue
Heavily dependent on the mineral resources: fragility and
sensitivity of the Russian economy to the global market
The state budgets depend on the global markets.
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Figure 1 GDP change (1990=100)
120
100
80
60
GDPchange
40
20
0
Macroeconomic indicator
1993
1994
1995
1996
1997
1998
2003
2004
2005
2006
2007
GDPannual
growth rate
-8.7
-12.6
-4.0
-5.0
0.4
-4.9
7.3
7.2
6.4
6.7
8.1
Consumer price
growth rate
840
215
131
21.8
11.0
56.4
12.0
11.7
10.9
9.0
12.2
Investment
increase
rate
-12
-26
-13
-18
-6
-5.1
12.5
13.7
10.9
13.7
21.1
-0.4
-2.8
-2.6
-3.8
4.1
-2.9
6.7
10.2
11.4
9.9
Federal budget,
deficit and
surplus
-10.4
-9.8
-5.2
-7.9
-7.0
-3.0
1.3
4.5
8.1
8.4
6.0
Oil production
(t, million)
345
310
298
293
297
294
408
453
462
491
491
Consumption
increase
rate
Export of petroleum and gas in Russia:
changing into Middle East
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
114
118
116
144
165
190
228
260
253
248
259
243
13.4
8.8
12.9
25.3
25.0
29.1
39.7
59.0
83.4
102.3
121.5
161.1
60.2
57.5
53.9
62.6
63.3
75.5
77.7
82.4
97.1
103.5
112.3
118
7.0
3.9
5.1
10.9
9.4
11.3
14.1
19.3
33.8
44.7
52.2
79.9
Natural gas
Cubic meter
billion
$ billion
121
125
131
194
181
186
189
200
209
203
192
195
10.7
11.1
11.6
16.6
17.8
15.9
20.0
21.9
31.7
43.8
44.8
69.1
Total
$ billion
31.1
23.8
29.6
52.5
52.2
56.3
73.8
100.2
148.9
190.8
218.5
310.1
Share of export
(%)
34.9
31.8
39.1
50.0
51.2
52.5
54.3
54.7
61.1
62.9
61.7
65.8
Crude Oil export
price
$/barrel
23.9
20.8
21.0
23.8
31.0
45.2
56.3
64.3
90.7
Gas export price
$/ m3 thousand
85.8
98.3
85.7
105.5
109.1
151.4
216.0
233.7
353.7
Crude oil
tonnes million
$ billion
Oil products
tonnes million
$ billion
Share of export in the main
products
products
Share (%, 2005-2007)
Crude oil
54-58
Petroleum products
46-48
Natural gas
28-32
Coal
49-53
Mineral fertilizer
75-85
Cellulose
80-84
Newspaper
60-65
Rolled iron
45-48
Nickel
90-95
Cobalt
90-95
Aluminum
80-85
Titan
70-75
zinc
30-40
7
Integrated government finance
1995
1998
2000
2004
2007
Financial deficit
and surplus
-11.2(5.2)
-22.6(-3.0) 12.6(1.9)
14.0(4.5)
23.1(6.0)
Tax on the
corporate
profits
26.9
14.5
19.0
16.0
8.2
VAT
21.9
24.8
21.8
19.7
29.1
Tariffs on the
natural
2.8
resources use
3.3
3.7
10.7
14.9
Customs and
others
5.0
10.9
15.8
31.0
5.7
Foreign trade in Russia ($ billion)
220
200
180
160
140
120
100
80
60
40
20
0
export
import
2008Q1
Q2
Q3
Q4
2009Q1
Q2
Oil export price ($/barrel)
10
Export of energy ($ billion)
11
Foreign trade changes
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
Change 2000-2008
export
78.2
105.0
101.9
107.3
135.9
183.2
243.8
303.6
354.4
469.0
347%
import
46.7
44.9
53.8
61.0
76.1
97.4
125.4
164.3
223.5
292.5
551%
balance
31.5
60.1
48.1
46.3
59.8
85.8
118.4
139.3
130.9
176.5
-
Domestic market heavily depends on
import.
• Russian market expanded, and now it is No.1
in Europe.
• Low technology and quality of consumption
goods like automobile
• Imported food and medicine, automobile (like
Toyota and Nissan)
• Russians cannot live without the global
market.
Russia became a Bubble economy
• Skyrocket of asset price like stock and real
estate (housing): The stock bubble supported
another bubble, residential bubble. (in big
cities) The regional gaps are large. Partial
bubble economy
• Continuous inflation
• mismanagement of the government and inflow
of cheap money
Balance of payments
year
Current
account
Trade
balance
services
Capital and
financial
account
Changes in
reserve
assets
Errors and
omissions
1992
-0.1
3.7
-3.1
2.4
-1.9
-0.4
1993
9.0
12.6
-2.1
-4.4
-3.9
-0.7
1994
7.8
16.9
-7.0
-10.2
1.9
0.5
1995
7.0
19.8
-9.6
12.1
-10.4
-8.7
1996
10.8
21.6
-5.4
-6.4
2.8
-7.3
1997
-0.1
14.9
-5.9
10.8
-1.9
-8.8
1998
0.2
16.4
-4.1
3.8
5.3
-9.4
1999
24.6
36.0
-4.3
-14.4
-1.8
-8.5
2000
46.8
60.2
-6.7
-21.5
-16.0
-9.3
2001
33.9
48.1
-9.1
-16.2
-8.2
-9.6
2002
29.1
46.3
-9.9
-11.7
-11.4
-6.1
2003
35.4
59.9
-10.9
0.1
-26.4
-9.2
2004
59.5
85.8
-12.7
-8.4
-45.2
-5.9
2005
84.6
118.4
-13.8
-15.2
-61.5
-7.9
2006
94.9
139.3
-13.6
3.3
-107.5
9.5
2007
77.0
130.9
-19.6
84.8
-148.9
-12.9
2008
102.4
179.7
-25.1
-135.2
45.3
-12.6
2009 Q1
9.1
19.1
-4.1
-31.8
31.1
-8.3
Balance of payments and external debts
(end of year, $10 billion)
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Current balance
-0.08
0.2
24.6
46.8
33.9
29.1
35.4
59.5
84.4
94.3
77.0
102.4
Trade balance
14.9
16.4
36.0
60.2
48.1
46.3
59.9
85.8
118.4
139.3
130.9
179.7
Export
86.9
74.4
75.6
105.0
101.9
107.3
135.9
183.2
243.8
303.6
354.4
471.6
Import
72.0
58.0
39.5
44.9
53.8
61.0
76.1
97.4
125.4
164.3
223.5
291.9
Foreign direct
investment
4.9
2.8
3.3
2.7
2.7
3.5
8.0
15.5
12.9
29.7
54.3
58.7
External debts (to the
state)
149.9
158.4
148.9
128.6
111.1
104.3
106.0
97.4
71.4
48.6
46.4
32.8
Ex-USSR
95.1
98.2
96.8
65.8
61.0
55.9
58.3
56.1
34.5
9.4
7.1
4.6
External debts (to the
private)
33.0
30.0
29.2
31.4
35.2
48.0
80.0
108.9
176.2
261.9
419.2
450.7
External debts per
GDP (%)
44.4
67.8
93.3
65.1
50.5
43.8
39.4
33.5
30.9
31.4
36.0
28.8
External debts of enterprises
($ billion)
1993 1994 1995 1996 1997 1998
2
4
8
14
33
30
2003 2004 2005 2006
80
108 175 262
2007
417
2008
488
17
Net international investment
position ($ billion)
2003
2004
2005
2006
2007
Nonfinancial -56
companies
-117
-202
-307
-513
Russia, total
-11
-32
-36
-127
+4
Net capital flows to the private
sector ($ billions)
2004
2005
2006
Q1
Q2
Q3
Q4
-8.9
0.1
41.4
-5.6
20.6
12.4
14.4
Banking sector
3.5
5.9
27.5
-3.0
9.9
8.8
11.9
others
-12.4
-5.8
13.9
-2.7
10.6
3.6
2.4
2007
Q1
Q2
Q3
Q4
2008
Q1
Q2
Q3
Q4
2009
Q1
82.4
13.9
54.5
-7.0
21.7
-132.7
-23.6
40.7
-19.2
-130.6
-38.8
45.8
0.1
36.9
-3.5
12.3
-57.6
-9.9
22.1
-13.5
-56.3
-5.8
36.6
13.8
17.4
-3.7
9.1
-75.1
-13.7
18.6
-5.7
-74.3
-32.9
Net, total
19
Capital flight and external loans ($ 10bn)
100
80
＄ bn
60
40
capital
flight
20
loans to
private
sector
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-20
-40
-60
Russian economy drastically
changed in the 2000s.
• Economic growth maintained a twin surplus.
• The economic structure becomes a fragile and
sensitive to the global market.
• Russia has been integrated into the global
economy, and in this point, the transition is
over.
2.The global crisis hit
The economic crisis hit the Russian
economy, and the Russian gets mired
down in the crisis.
Crisis under transition
Transition economy and economic crisis
• Contagion to transition economies
Financial crisis and economic crisis (real sector crisis)
• Difference of CIS countries and Central Eastern
Europe: high debts and critical case of external debts
in Kazakh, Ukraine, Belarus, Moldova, Tajikistan.
• Contagion to non-open economy (Kyrgyz)
 Global crisis is strained in transition economies.
Dependence on the European markets. Hungary,
Latvia, Serbia…But
 From financial crisis to economic crisis
When Russian crisis?
• 2008 September: a drop down of stock price
• 2008 July: limited growth of money supply and the
increased interest rates
• 2007 November: a decline of M&A transaction
• 2007 August: weakening liquidity (V.Senchagov)
A sudden drop of trading volumes in
stock exchanges MICEX
Объем торгов акциями, млрд руб.
Объем торгов облигациями, млрд руб.
2000
400
1500
300
1000
200
500
100
0
0
янв мар
2007
май
июл
сен
ноя
янв мар
2008
май июл
сен
янв мар
2007
Объем размещений облигаций, млрд руб.
май
июл
сен
ноя
янв
2008
мар
май
июл
сен
май июл
сен
Объем РЕПО, млрд руб.
100
4000
75
3000
50
2000
25
1000
0
0
янв мар
2007
май
июл
сен
ноя
янв
2008
мар
май
июл
сен
янв мар
2007
май
июл
сен
ноя
янв мар
2008
Asset price dropped suddenly after
September 2008-Lehman shock
• Stock price declined in MICEX and RTS.
• A decline of real estate price
negative chain functioned and…
a collapse of bubble economy
from financial sector to real sector
A violent change of housing price
($/m2)
Average price change of cottage in
Q3 2008-Q3 2009 (%)
Financing: stock market and Repo market
Billion Ruble
70000
60000
50000
currency
market
40000
bond
market
30000
Repo
market
20000
10000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
30
Financing: stock market and Repo market
Billion Ruble
1400000
1200000
1000000
currency
market
800000
600000
bond
market
400000
Repo
market
200000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
31
Share of Repo Transaction in MICEX
2005
2006
2008
2007
Q1
Q2
Stocks
18.3
25.6
50.5
58.0
62.4
Corporate bonds
28.0
50.9
71.2
77.9
77.9
Regional bonds
28.0
60.0
79.9
83.8
86.1
Municipal bonds
31.5
42.1
66.5
72.2
74.6
Enlargement of Repo market
• Similar to GKO-OFZ in 1998
• Failure of Repo:7.1 billion Ruble of “KIT
Finance”
Margin calls：Firms with nonperforming loans in November 2008
34
Crisis Phenomena
•
•
•
•
•
•
•
•
•
Stock prices
Foreign borrowing
Margin calls
Bankrupt of banks
Financial crisis as SvyazInvest
Consumer loans crisis: automobile and construction
The sharp decline in petroleum price, aluminum and metals
Construction, development, and retail
External repayment: repayment $ 160 billion till the end of
2009
• Labour market
• Regional gaps
Industrial sectors in Crisis
(1) Big shock sectors: banks, developer, retail
with high leverage ratio
(2) Export and resource sectors: metallurgy, nonferrous, oil and gas, diamond, paper
(3) Import substitute sectors: automobile, cement
Some Company cities faced difficulty.
Decline of consumption and investment
Production was diminished by
three waves.
1) Reduction of speculation and expensive
credit: developers---a decline in employment
and income-a chain of reduction
2) Reduction of export profits
3) A decline in the state budget
Changes of export prices in Russia
($ per ton)
1000
800
600
average real export price
average world oil 'Urals' price
400
200
Se
p.
Ju
ly
y
Ma
r.
Ma
No
v.
200
9J
an.
Ma
r.
Ma
y
200
8.J
a
n
0
Export structure of Russia
(2009.1-6)
39
Economic crisis in 2008-2009
2007
2008
2008Q4
2009Q1
GDP
8.1
5.6
1.1
-9.5
Industrial
production
6.3
2.1
-6.1
-14.3
manufacturing
9.5
3.2
-7.7
-20.8
Retail trade 16.1
13.5
8.6
-1.1
investment
21.1
9.8
-2.3
-15
Foreign trade
23.5
32.1
-4.3
-43.5
unemployment
6.1
6.3
7.1
9.5
M&A (value)
194.6
-36.5
-38.6
4.8
40
Perspective of economic growth:
Crisis is serious (pessimist)⇔no crisis, crisis
hit the bottom (optimist)
2009
2010
IMF
-6.0
0.5
World Bank
-4.5
0
OECD
-5.6
0.7
EBRD
-7.5
2.5
Goldman Sachs
-7.3
3.8
Russian Government
-2.2
2-3
41
Defaults of corporate bonds (cases)
2008
2009.JanuaryApril
Total
Defaults total
56
77
133
Refinanced
loan
8
18
26
Technical
defaults
25
14
39
Employment (million)
73
72
71
70
69
68
67
66
65
2008April
employment
July
Oct.
2009.Jan.
April
July
43
Unemployment rate (%)
10
8
6
unemployment rate
4
2
0
2008Apr. June
Aug.
Oct
Dec
Feb
April
June
44
Russian recovery perspective and
positive scenario signals
• First Quarter 2009 oil and gas price increase and stabilisation. Urals price $
55 per barrel in May 2009.
• Ruble Exchange rate stability against the USD/EUR currency basket.
• Russian government and households sectors are not overleveraged.
• Russian corporate sector is restructuring and servicing the debts. Volume of
payments $ 114 bln. Per year 2009.
• Reserve Fund and public debt resources are used to support 2009-2010
Budget expenditures.
• Public budget and Central bank of Russian capital and subordinate credit
investments supported the Bank System equities.
• Public guarantees and credit placement to refinance corporate debts
• 2009-2010 Public and private capital investments to start GDP recovery.
45
Symptoms of recovery
After the first quarter of 2009, we can observe some symptoms
which signal the end of the panic period.
A.Kudrin, the Minister of Finance, considered Russia got out
of the crisis in August.
I.Shuvalov, the first vice-prime minister also announced a
recovery of the economic growth.
Oil price increased after May 2009, and the ruble exchange
rate seems to be stabilised.
Many corporations are restructuring and servicing their debts.
The resident house price began to increase.
In July 2009, almost all economic indicators were better than
in June. Unemployment also declined to 6.3 million (8.3%).
3.Outcomes of the crisis: A
collapse in the growth factors
What did the crisis bring about in the Russian
economy? Can Russia hold the growth factors
based on the path in the 2000s?
Specificities of the crisis in 2008
• The economic crisis is greatly influenced not only by
the global economy but also by national specificities.
Further, the crisis was contagious among not only the
weak economies but also those showing strong
macroeconomic performance; as a matter of course,
the transition economies and emerging markets
became the main target. Twin surplus in Russia
• The subsequent dismal economic performance seems
to have led Russian economists to describe extreme
scenarios. These often included the ‘hard landing’
scenario
Crisis in Russia not once in a
hundred years but in ten years
• Reconsidered 1998 crisis: GKO and the East
Asian currency crisis
• Fragility of domestic markets
• From deficits in 1998 to surplus in 2008
 common features and differences in the crisis
International financial flow (1998 crisis)
International fiancial
markets
Global oil and gas
markets
State
bonds
banks
government
Foreign reserve
Enterprises
Households
50
International financial flow (2008 crisis)
Global oil and gas
markets
International
financial markets
banks
government
Foreign reserves
Enterprises
Households
51
Domestic microeconomic
response to globalisation
• Speculative behaviour (M&A oriented)
• Natural resource
• Diversified paths to gat chap money
IPO
However,
• Capital flight and unmanaged trade surplus
Overheated money demand
M&A in Russia
• World M&A（Thomson Financial）：$ 4.48
trill. ($3.61trill. In 2006). USA 41%,
Europe 40%, and Japan 3%.
• M&A in Russia (2007)
ReDeal:1260, $120.7bln.
M&A：486, $124.6bln.
Ernst & Young：$71 bln., of which 11.4
bln (In-out), 13.7 bln.(Out-in) in 2006.
2008:In-out23.6bln., Out-in26.2bln.
53
54
In-out and Out-in of M&A
sectors
Share of
transact
ion (%)
Sectors
13739
58.13
energy
6017
23.00
energy
2685
11.36
food
3836
14.66
Construction and
real estate
1837
7.77
finance
3819
14.60
3503
13.39
Technology centre
1677
7.10
Metallurgy and
mining
telecommunication
790
3.34
chemical
3190
12.19
entertainment
660
2.81
retail
2051
7.84
transportation
540
2.30
machinery
1431
5.47
machinery
470
1.97
pharmaceutical
930
3.57
finance
370
1.54
Transportation
760
2.92
others
870
3.67
others
620
2.36
23633
100.00
26162
100.00
55
Metallurgy and
mining
total
total
Value
($ million)
Share of
transaction
(%)
Value
($ million)
IPO financing
• An increase of
syndicated loans: short
term funds
• An increase of IPO/SPO
29.4 billion (23 cases)
in 2007
⇒An increase of external
debts
• Suddenly dropped in
2008
External debts of Russia
Jan.
2006
July
2006
Jan.
2007
July
2007
Oct.
2007
Jan.
2008
July
2008
Oct.
2008
Jan.
2009
April
2009
Total
257.2
288.8
313.2
399.2
437.8
471.0
535.7
548.2
483.5
450.8
State sector
150.7
(58.6)
153.8
(53.3)
137.1
(43.8)
175.5
(44.0)
188.4
(43.0)
190.8
(40.5)
198.0
(37.0)
191.2
(34.9)
161.8
(33.5)
147.2
(32.7)
State
organisation
82.1
78.9
48.6
49.0
52.5
46.4
38.9
42.8
32.7
30.1
Banks
19.4
27.4
32.0
54.2
59.2
65.5
78.2
71.2
61.7
54.4
Other sectors
49.3
47.6
47.1
72.3
76.7
78.9
81.0
77.2
67.4
62.7
Private sector
106.4
(41.4)
135.0
(46.7)
176.1
(56.2)
223.7
(56.0)
249.5
(57.0)
280.2
(59.5)
337.7
(63.0)
357.0
(65.1)
321.6
(66.5)
303.6
(67.3)
Banks
30.8
39.3
59.8
76.1
87.7
96.9
113.1
125.2
102.9
90.6
Other sectors
75.6
95.6
116.3
122.5
136.0
156.4
191.8
199.0
186.0
179.7
Share of state secor in external debts
(beginning of the year, % in total debts)
50
40
30
20
10
0
total
in rubles
2007
2008
2009
in hard
currency
Ultimate debtors and
government behaviour
• Who is private sector? Firms which the government
manages or holds more than 50% of shares like
Gazprom (1/3), Firms which the government holds
less than 50% (block shares) or strongly influences.
Chebolization: “privatisation of profits and
nationalization of deficits”
• State-owned banks do not claim margin calls.
Specific relation between government and enterprises
• Protectionist measures
59
Anti-crisis measures
1) November 2008: stabilization of the financial
situation-accessibility of financial resources,
relaxation of business burdens,
improvements of social results and others.
The support to bog business
2) June 2009: social responsibility and the
linkage between the anti-crisis measures and
long-term projects (modernisation
programme)
Anti-crisis expenditure ($ billion)
State
gurantee
Capital
injection
Assts
purchase
0(0)
185(84)
11(5)
25(11)
222(13.9)
UK
393(39)
79(8)
0(0)
549(54)
1020(37)
USA
1769(50)
714(20)
663(19)
394(11)
3539(25)
Germany
539(60)
177(20)
0(0)
176(20)
893(23)
Japan
303(53)
0(0)
0(0)
273(47)
576(12)
China
0(0)
0(0)
0(0)
570(100)
570(13)
Russia
others
total
Anti-crisis measures
• Capital injection by the government
• Protectionist measures: Subsidies
• Guarantee of debts
• Nationalization
Anti-crisis modernisation programme
(Shuvalov commission, V.Mau) strategic
perspective of modernisation, list of
untouchable enterprises
Contents of June 2009 programme
(1) social security, including employment, pension system,
housing, etc.
(2) the development of production and technological potential by
increasing efficiency
(3) the activation of domestic demand for Russian products using
state investment and state order
(4) the stimulation of innovation and structural reorganisation
(5) the creation of an advantageous condition for economic
growth by reforming market institutions and promoting SMEs
(6) the formation of reliable financial markets
(7) macroeconomic stabilization and reliance on domestic and
foreign investors
Government increased its holdings
in the crisis: nationalisation
• State control over economic activity is
pervasive (OECD)
• The number of majority stakes of the federal
government increased
• Establishment of state corporations
• The state sector increased its share of assets in
the banking sector: VEB using the oil money
(the Fund of National Welfare)
Anti-crisis economic policy
• Access to financial resources (direct finance by -led banks and
others）
• Relaxation of business burden (tax, customs, administrative
measures and others)
• Improvement of social negative results and support to labour
markets (enlargement of unemployment benefit, focus on
education, housing and public health)
• Stimulation of domestic demands (government order and
others)
• Support to SMEs
 Concentration to big business in the support measures
 Support to city enterprises and agglomeration
 Priority sectors: automobile, agricultural machine, defense, housing,
construction
 PPP
 Strong protectionist measures
68
Main indicators of VEB
(end of year, billion rubles)
2007
2008
Assets
540.5
1597.2
Credit portfolio
352.1
1061.6
Net income on
interest
Operational
expenditure
4.1
20
4.6
14.3
profits
6.4
6.4
( $ billion
Russian foreign reserve
)
600
500
400
300
200
100
0
70
M&As by symbolised prices
price
buyer
asset
sector
Debts
Costs for
recovery
Date of
transaction
100 rubles
Alrosa
90% KITFinance
bank
100-120
billion rubles
90 billion
rubles
Jan. 2009
5000 rubles
NRK
Rossiiskii
kapital
bank
n.d.
8.2 billion
rubles
Oct.2008
5000 rubles
VEB
90% Cvyz’bank
bank
60 billion
rubles
59 billion
rubles
Oct.2008
5000 rubles
VEB
99%
Globeksa
bank
n.d.
80 billion
rubles
Oct.2008
1 million
rubles
Gazpromen
ergobank
75% Soyuz
bank
n.d.
n.d.
Dec.2008
1 Euro
S.Pugachev
65.1% Soir
media
n.d.
10 million E
Jan. 2009
60 rubles
VEB
51%
Systemy-Gals
develo
pment
$ 700 million
5 billion
rubles
March 2009
$1
Moscow
city
75% Sky
Express
airlift
2.5 billion
rubles
n.d.
2008
No cash
Sverbank
100% Moi
gorod
retail
$ 22 million
n.d.
Q1 2009
No cash
Sverbank
17% capital
city
Mixedused
$400 million
n.d.
Q1 2009
System-formation enterprises
• From strategic industry and enterprises to system
organizing- technological centre, large job provision,
exporter, large investor, inter-departmental sector
(MIC, metallurgy, company town and others)
• 325 billion Ruble
• 294 system organizing enterprises
• State guarantee for credit: 70% of defense enterprises
• rescue of leading enterprises
Effects of the policy
• GU-VSE and MATS are skeptical: 60% have a
weak effect.
• The policy includes negative aspects: the
worsening of competition, corruption,
asymmetric information between businesses
and the government
• Another nationalisation in social aspect:
reduced working hours and others
Weak response in employment
•
•
•
•
Informal sector expands
Incomplete employment has increased
Wage arrears revived. – illegality
Non-monetary transaction revived.-barter and
mutual settlement (barter does not increase by
Russian economic barometer)
• Work hours decreased and temporary holidays
increased (Russian work share)
Robust foundation of the Russian society
Unemployment and unpaid work
Wage Arrears (millon R)
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1
2
3
4
5
6
2008
7
8
9
10
11
12
1
2
2009
3
4.Causes and the significance of
the crisis in Russia
Specificities of the crisis and the
meaning of the crisis
Global factors
 The structural crisis of the ‘New Economy (service sector, asset based economy
based information technology)’
 Financial deregulation
 Overheated investments and the housing bubble
 Lack of liquidity and the credit crunch among financial organizations
 Mistakes made by the US government and Federal Reserve Board (FRB)
 Market failure through securitization and the increases in the securitization risk
 The uncertainty associated with derivatives
 Credit expansion through deregulation and uncontrolled financial technology
 Global inflow of excess money into forward markets (deterioration of the real
sector by price jumps and the outflow of funds)
 The linkage between uneasy psychology and panic
 The real sector crisis stemming from a demand decline caused by drastic decreases
in stock prices and the adverse wealth effect
 A decline in investment, consumption and employment
 An upturn in the interest rate from credit risk (monetary constraints)
Causes of the crisis by V. Mau
(1) the root factor of the inadequate financial policy of
the US
(2) fundamental and systematic factors such as the very
aggressive growth-oriented policies of developed
countries and the development of financial
technology
(3) factors specific to Russia. From the perspective of
global capitalism, the flow of global finance has
changed
Economic growth has become a key
factor in the crisis.
21st century crisis
 21st century financial crisis:
1) private short term fund (Hedge Fund),
2) a decrease of IMF function
3) fragile financial system and drastic de-regulation
4) firm’s dependence on indirect financing and
foreign capital
 Closely involved in the global economy and cheap
global money
Crisis as the periodicity of business
fluctuations
• Russia synchronized with the business cycle of
the global capitalism.
Russia has competed the transition period.
• Stagflation in Russia: high inflation and
recession
Crisis in Russia
Inflation: price
increasing
crisis
Drop down of
production
82
Linkage of developed country
and emerging market economy
Emerging market economy
Financial pressure
fragility
Global factors:
price
production
Interest rate
Source: IMF, 2009, p.143
Linkage of
finance
Specific factors
Developed countries
Financial pressure
84
Specificity of crisis in Russia
Stagflation (Depression or stagnation and
inflation) for Russia and CIS
Deflation and Depression for developed
countries
Crisis under the dual profits (budget and
balance of payments)
Crisis as transition indicators
A comparison of economic
background in 1998 and 2008
• Different political situation: regency (weak president)
vs authoritarian (strong president)
• Different economic policy: stabilization and state
intervention by GKO vs high economic growth and 4I
• Different economic situation
 Macroeconomic indicator : growth, inflation and
finance
 Micro economic performance: loss-making
enterprises and barter transaction
 Labour and social indicator: employment and income
 Contrast of two periods
Comparison of crisis in 1998 and
2008
Source of
crisis
Acors of
crisis
Volume of
external
debts ($
billion)
GKO holders 20
(banks)
1998
crisis
GKO,
government
2008
crisis
Loans,
Debtors
global crisis (banks,
and banks
enterprises)
and
enterprises
500
External
reserve ($
billion)
10
800
87
Comparison of crisis
in 1998 and 2008
Financial deficits
Final debtors
1998
crisis
Large deficits
government
2008
crisis
Stable surplus,
austerity economic
policy, sterilization
policy
Enterprises and banks
(private but semigovernment,
government)
88
Comparison of three crises
1992
1998
2008/2009
Political crisis
Yes
Yes
No
Decline of demand
Yes accompanied
with
collapse of
USSR and
CMEA
No
Yes linked with cyclical recession in
the global economy and
overheat in the non-trade
sector
Decline of oil price
No
Yes
Yes
Currency crisis
Yes
Yes affected by managed
devaluation of ruble and
rejection of exchange rate
change by monetary
authority
Yes affected by appreciation of
ruble and rejection of
exchange rate change by
monetary authority
Instable state budget
Yes
Yes
No A decline of revenue does not
bring about instabilisation due
to Stabilisation Fund
Debts crisis
No Russian
cannot
attract
foreign
money
Yes The main debtors were state
Yes The main debtors were
corporate sector
Capital flight
No
Yes Short-term state borrowing
led outflow of capital for
clearing GKO
Yes Foreign investment led outflow
of capital for declining
markets
A comparison of crisis in 1998
and 2008
• International financing and foreign debts caused the crisis.
GKO vs M&A
weak domestic financial markets
difference: international balance: from state to private, shot
term funds
• Relaxation of restriction on capital transfer extended
dependence on foreign capital. Parallel economy functioned in
Russia. Capital flight
• The fragility of the domestic financial market made financing
more delicate.
• Mistake of Central bank: reluctance of devaluation ex
Argentine
Different characteristics of crisis in
1998 and 2008
• Petroleum price (determined not by supply ability but
by speculative funds, abnormal price change in 2008)
1) increase of Russia’s dependence on exporting
resources: from 32% in 1998 to 62% in 2007,
narrower economy
2) state budget dependence on the petroleum price:
foreign reserves
• International financial flow
M&A funds and IPOs
Russian specific factors
(1) Political situation
(2) High dependence on export of raw materials: Due
to the crisis the prices and the demand for the main
Russian export goods sharply declined.—1) capital
flight, 2) government’s dependence, 3) dependence
on foreign money, 4) out of control of oil price
(3) The fragility of the market: financial market and
monopolisation, M&As
(4) Russian peculiarities
92
Ownership in companies in
Russia
1995
1997
1999
2001
2003 2005 2007
2009
*
Insiders, total
54
52
50
50
50
48
51
55
Managers
11
15
15
19
25
31
35
41
Workers
43
37
34
28
22
16
13
10
Outsiders, total
37
42
42
42
45
45
40
38
Non-financial outsiders
27
31
33
34
36
38
31
24
Outside individuals
11
15
20
22
21
20
13
8
Other enterprises
16
16
13
12
15
18
18
16
Financial outsiders
9
9
7
8
8
5
8
13
State
9
7
7
7
4
7
9
7
Russian peculiarities: response of
economic actors
• Specific adaptation: revival of “transition
phenomena”
Labour market and employment: low elasticity
in employment (informal sector, incomplete
employment), high elasticity in wage
Transaction: barter ad non-monetarized
transaction
• Enterprises kept their speculative activity
94
Russia’s specificities in crisis
• Unbalance of transaction: heavy import dependence
and natural resources (direct impact)
• Violation of liquidity: chap foreign money and high
leverage ratio
• Inflation with weak competitiveness: The government
cannot devaluate Ruble.
• Self-satisfaction of national financial system with
speculation
• Speculative management with Russian corporate
governance
• Abnormal Russia survives.
Transition and crisis
From the perspective of market transition, paradoxically speaking, it can be
stated that the Russian transition concluded as a result of a close linkage
with the global market as well as the regressive institutional changes and
regeneration of embedded institutions. However, the end of market
transition does not mean that one needs to build an Anglo-Saxon-type
liberal market economy. As far as the state continues intervening and
businesses do not lose their paternalistic behaviour, the Russian-type
coordinated market will continue to be fragile. The weak competitiveness
along with profits from abundant resources becomes a catalyst for crises,
and the sustainability of the market institutions is undermined by conditions
such as aging equipment and shortage of labour force and skills.
At the beginning of 2008, the outdated (no longer serviceable) machines
occupied 51.1% in enterprises.
(1) Government failure: deep-rooted
corruption
• Corruption of bureaucrats:
The economic policy doe not
have consistency.
• Corruption of police and
public servants: enforcement
of the law is weak.
• There are many cases of
takeover including raids.
Ownership and M&A have a
risk.
• Administrative costs are
pervasive.
Russian corruption （INDEM fund)
2001
2005
Corruption
involved
50.4%
54.9%
Corruption risk
25.7%
35.0%
Bribe average
(Ruble)
2162
2452
Total business
33
corruption value
($, billion)
316
(2) The population problem is unsettled.
• From 148.3 million in 1991 to
141.9 million in 2009 (-4.3%)
• A decline of population brings
about shortage of labour forces.
Labour forces decreased from 75
million in 1992 to 74.2 million in
2006.
• The social policy is difficult to
keep in the future.
• The age structure distorted.
• A decline accompanies
depopulation and overpopulation.
2006
Populatio 142.24
n million
2007
142
Natural
change
- 687
- 478
thousand thousand
Social
change
+ 132
+ 240
thousand thousand
(3) Skill and human resource are
indispensable for survival.
• The most difficult constraints for the firm is human
resources.
• The skill formation system in the Soviet period
collapsed. The advantageous condition of Russia
“potential good labour force” disappeared.
• The new skill formation system has not created yet.
The talented skill market and temp agencies are not
well organized.
• The size of non-regular workers is 15%.
Constraints of enterprises (%)
%
80
60
domestic
demand
import
unpaid
40
lack of finance
lack of
employees
lack of
equipment
20
0
1995
1998
2001
2003
2005
2007
Young people change their job.
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
Less than
one year
41
43
43
41
40
1-2 years
30
29
27
28
28
2-5 years
21
19
19
21
21
5-10 years
13
15
12
12
16
10-20 years
13
12
13
10
12
More than
20 years
9
12
11
10
10
Conclusion
• The global crisis penetrates the Russian
economy and it has a chance to adapt the
global standard. E.g. revision of law on
bankruptcy
• Before the global crisis, the Russian economy
has changed its economic structure under the
economic growth. Russian was synchronized
with the global capitalist business cycle, and
the Russian economy cannot survive without
the global markets.
102
• Strong hand of the government characterizes
the Russian market.
• The crisis recalled the Russia’s innate
institutions and such institutions played a role
of soft-landing (adjustment behaviour) of the
crisis.
• Russia continues to face a market that is both
fragile and robust.
Thank you
•Fin
104