Future without petrodollars
Following the fall of the ruble and the price of hydrocarbons, citizens are expected to lay off
The weakening of the ruble, the decline in the price of oil threatens to seriously lower the standard of living of Russian citizens. Meanwhile, it is difficult to call all efforts of responsible persons aimed at rectifying the situation. It is not excluded that in Russia the situation of the beginning of the 1990-s may repeat, when many residents of the country were faced with the question of food.
The dollar has updated its record, its price is very close to 45 rubles. Since the beginning of the year, the American currency has risen in price by more than a third, and only from the beginning of November - by almost three rubles. In response, the Central Bank on Wednesday announced that from now on it will not spend more than 350 million dollars a day (about seven times less than the previous infusion) for foreign exchange interventions to maintain the ruble. In fact, this means that the "wooden" is sent to free fall.
It is quite possible that in this way the Central Bank is trying to compensate for losses from falling world oil prices. Futures on the WTI crude oil exchange on the New York Stock Exchange fell to 76 dollars per barrel. Recall that next year’s budget (with a deficit of 0,5% of GDP) is balanced with the expectation that oil will cost at least 96 dollars. At the current price, the treasury may be short of 1,5 trillion. rubles or 10% income. Save the situation can just a sharp drop in the national currency.
Our national economy is highly dependent on imports. Formally, the budget will be executed, but in practice our citizens will be able to buy significantly less. According to Rosstat, in the first nine months of 2014, products increased in price by an average of 9,6%.
At the same time, the state still has little control over speculators of all stripes who want to cash in on any problem. For example, in Russia, gasoline becomes more expensive when oil prices fall and when it rises, and every time our companies find excuses for their actions. Since January in the stock wholesale segment, the price of AI-92 gasoline has grown by as much as 34%. In the afternoon of November 5, it was reported that the Federal Anti-Monopoly Service (FAS) had filed a case against Bashneft, Lukoil and Rosneft. But few people believe that this will help correct the situation.
Keep up with oil giants and food dealers. Trading networks systematically rewrite price tags even for domestic potatoes and cabbage. The cost of cucumbers lately, according to Rosstat estimates, has increased by 40%.
As is known, a decrease in consumer demand leads to a reduction in wages and the number of jobs: a business is unable to keep the old wage fund. Even today, many enterprises are recruiting specialists for wages lower than a year ago, and the number of vacancies has decreased. There is, however, an exception: according to estimates of government agencies, the salaries of federal officials should double by the year 2018. But officials make up only 1,9% of the working population. So in the near future, our economy can expect a domino effect: an increase in the value of the dollar leads to a decrease in demand, a decrease in demand - to a reduction in nominal wages, a decrease in wages - to an even greater drop in demand and mass unemployment.
Against this background, the recent decision of the Central Bank to raise the key rate at which loans are provided to commercial banks against securities from 8% to 9,5% (at the beginning of the year it was 6%) looks very strange. In other words, the business will not wait for cheap loans, and all the talk about import substitution will remain nothing more than talk.
It is possible that the situation is trying to fix the increased supervision of budget expenditures. On Wednesday, the president signed a law on parliamentary control over the spending of funds on federal targeted programs (FTP). Previously, the government could approve the Federal Target Program without the approval of the State Duma and the Accounts Chamber, now it will have to enlist the support of deputies. But is not the very appearance of such a decree a recognition that, until now, money for FTP has been spent, so to speak, not very well?
It is clear that in the near future our citizens will hardly be able to afford the same expenses as before. But what will be the degree of decline in the standard of living?
Doctor of Economics, Professor of Moscow State University Andrei Kolganov believes that, despite all the difficulties, this disaster can still be avoided:
- There will be no economic disasters, but if oil prices are kept low, budget losses can be significant. First of all, they will cut social spending, spending on education and health care. Most likely, they will reduce government investment in the economy. There is nothing pleasant about it; the situation threatens to turn into a further slowdown in economic growth, if not a fall in the gross domestic product. Further depreciation of the ruble will mean a rise in prices for imported products, and we buy a lot of consumer goods and industrial equipment abroad. Of course, all this is not good news.
"SP": - Reducing social spending will lead to job cuts. Do not get a domino effect?
- I do not think that the current fall in oil prices could trigger a catastrophic fall in the economy. But if this is a long-term trend, then you have to tighten your belts. There will be no increase in revenues, and possibly their reduction.
"SP": - What could be the depth of the fall?
- I do not think that the decline in oil prices will continue. It is unlikely that it will hold at the current level and, most likely, will cost about 80 dollars per barrel.
"SP": - People should get ready in the spring to drop classes in scientific laboratories and go to plant potatoes?
- 1992 will not repeat the year. I'm not even sure that there will be a repeat of 2008. It is possible that we will manage with less blood than six years ago.
So far, we are only threatened by a fall in oil prices. The world economy does not yet present us with any other serious dangers. But a further decline in oil prices will be disadvantageous to all oil exporters, including Saudi Arabia, which has now played a fall. It is also unprofitable for the United States of America, since it puts their own development of alternative sources of hydrocarbons on the verge of profitability. It is unlikely that the global market will be further downhill, so I have some optimism.
Another thing is that if the price does not return to the mark of 95-100 dollars per barrel, and stabilizes at the level of 80-85 (which is most likely), then it will be hard for us. But this is not a disaster.
"SP": - In addition to oil prices in our economy and Western sanctions are beating.
- Sanctions are a painful thing, but their influence is not very great, oil prices have a stronger effect.
In strategic terms, the problem is that our economy is focused on the export of raw materials, oligarchic. Without a change in the structure of the economy in the long run, we will lose.
Vasily Koltashov, an economist at the Institute of Globalization and Social Movements, is more pessimistic:
- The fall of the ruble exchange rate is the result of a recession in the Russian economy, which has been developing for two years now with the complete inaction of the Russian government. The Cabinet of Ministers and the Central Bank are going to reduce the national currency, because by the beginning of autumn it was greatly overvalued. The fall is associated with an increase in the export of capital and simply with the withdrawal of funds from the economy: no one intends to invest in a dying ruble economy.
From the point of view of the government, the actions are correct. But in terms of the functioning of the economy, the decisions are catastrophic. We see a contraction in the domestic market, a drop in the demand for real estate, and cars. In the end, a base is created for the further fall of the ruble.
I believe that the price of a dollar in 60 rubles is not far off, if everything continues according to this logic.
Of course, with this approach, our officials will execute the budget calculated in rubles. But they will not be able to somehow stop the decline of the economy. All the same, production will be reduced, trade curtailed. A serious blow has already been dealt to the real estate market. Previously, he was in serious condition, now - in a situation of his destruction. Sellers do not raise ruble prices, because buyers are overwhelmed by devaluation.
Many citizens cancel their trips abroad, prefer to keep their savings, feeling the approach of a “black day”.
"SP": - The situation will worsen?
- The problem of our economy is that compared to 1992 year, our national economy is much more integrated into the market system. Without money, it will be very difficult for people to survive. By this, we are even different from Ukraine, which recently suffered a similar economic crisis. The Ukrainian crisis in the economy (non-political) is the forerunner of our crisis.
Of course, the value of natural economy and vegetable gardens will increase. At the same time, the demand for Russian agricultural products, such as onions, potatoes, cabbage, will only grow: people need to somehow survive.
These trends will develop amid falling production and job cuts. Layoffs have long been underway, and the labor market shows a drop in wages. Qualified specialists of the company prefer to hire for less money.
Overall, the prospect is scary. Yes, in ruble terms the budget will be executed. But stabilization in the economy is not expected, and this will only increase layoffs, lower wages. This scenario was already inside the eurozone.
"SP": - What is the cause of such negative consequences?
- At the beginning of the second wave of the crisis, in 2012, Russia had a very important economic resource. This resource was the domestic consumer, it can be called a representative of the middle class "zero". After the first wave of the crisis in 2008, consumer demand recovered slightly, wages in major cities recovered.
Our liberal economists have said that the increase in wages is our damnation. They say that these are the parasitic layers that eat up the country, that this is the basis of our low labor productivity and therefore we must lower wages. I am of the opinion that the increase in wages is a huge resource of the Russian economy, on which we must rely. It is possible to develop domestic production based on the domestic market, especially since this market has grown.
So, what happened this year and will happen next, is the narrowing of the domestic market. Perhaps formally our productivity will increase. But the trouble is that the resource is being destroyed, with the help of which it was possible to easily overcome the second wave of the economic crisis. Our middle class becomes poor and sometimes very poor. This means that there is no longer a basis for the correction of economic policy.
Actually, no one was going to correct anything. We are increasing dependence on the export of raw materials. All government actions are in no way connected with the processes occurring in the economy. Labor market processes are ignored, processes in the industry oriented to the domestic market are ignored. All attention is focused on maintaining the financial sector.
I have no doubt that the financial sector will remain stable this year and next. The largest banks will strengthen, export corporations will also retain their positions. On this will be spent resources that would have to go to the revival of the economy.
"SP": - Is it possible to associate with the complication of the situation in the economy the decision to introduce parliamentary control over the spending of funds under federal targeted programs?
- Rather, it is a red herring. Deputies will be engaged in the control of spending funds within the budget. There is no control over the Central Bank. But it’s not the budget expenditures that decide, but the policy of the Central Bank, which drastically changes the economic life in the country, the value of budget expenditures.
"SP": - Recently, the Central Bank raised the key rate.
- Raising the refinancing rate is a tool for the collapse of the Russian currency. Loan appreciation leads to further attenuation of economic life. The speed of circulation of money decreases. While the demand for "live" money is constantly increasing. But whoever has money, he transfers them into dollars and takes them out of the economy.
"SP": - Is it really impossible to force the Central Bank to act in the national interests, to revive domestic demand, to switch to import substitution? All recipes are already spelled out by academic expert circles.
- I will bring historical the analogy. This summer, when the so-called “fifth column” was preparing Donetsk for surrender, all active deputies of the Donetsk Republic were put in prison to write the Constitution of the DPR. But the writing of the Constitution at the moment when Donetsk could be taken at any moment did not matter.
In the same way, our economists are now engaged in discussions on the subject of which industries and how they can proceed to import substitution. Although the whole game has already been played, Russia is negotiating with the West. After the war of sanctions, the order of detente begins, there will be no new sanctions, and Russia will make concessions to the US and the EU. One of these concessions is the weakening of the ruble exchange rate, which depreciates the resource of domestic demand. We argue about what is not happening. So for a few years everyone was talking about modernization, which was not there. Although all conditions contributed to its implementation. Now we are talking about import substitution, which is not. In practice, Italian grapes will be replaced by cabbage and carrots, but there will be no substitution oriented towards the revival of strong domestic agriculture.
"SP": - That is, it is only about the speed of the fall of the economy.
- Exactly. The most interesting is that the bottom of the fall does not exist. In a market economy, the bottom can only be the complete destruction of commodity-money relations. This is the real bottom. And I really would not want us to reach it.
It should be borne in mind that as soon as this prospect becomes real, some forces appear in society that turn the process in the opposite direction, with some emergency measures they stabilize the situation.
I am afraid that this year a terrible mistake was made in Russia. It was allowed that the Central Bank devalued consumer resources. And it can be very expensive politically.
Now liberal commentators are surprised that people are crowded with exchangers and change rubles for dollars, and the mood “Crimea is ours” remains in force.
Over the past 15 years in Russia has grown not only the standard of living, but also a sense of national pride. Patriotic feelings grew along with the financial well-being of citizens, the two processes merged. Now we are in the economic plan again in the “nineties”. Accordingly, in the near future, a sense of national pride will also be trampled down. It collapses down in tandem with wealth. And it will be the basis of political resistance of society. Not by chance, on the eve of National Unity Day, the Central Bank conducted currency intervention and imitated the stabilization of the ruble exchange rate, having won back the value of the dollar by two rubles.
While citizens do not fully understand how the dollar exchange rate affects the labor market. But soon people will have more clarity. And then it will be possible not only a different economic policy, but, probably, we will live in a different society.
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