Global Financial Crisis: Impact upon Russia

Transcription

1 Trade and Development Board Investment, Enterprise and Development Commission Multi-year expert meeting on international cooperation: South-South cooperation and regional integration Geneva, 4-5 February 2009 PRESENTATION SUBMITTED TO THE EXPERT MEETING Global Financial Crisis: Impact upon Russia by Mr. Ivan Korolev Deputy Director, Institute of World Economy and International Relations, Academy of Science of Russian Federation The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

2 GLOBAL FINANCIAL CRISIS: IMPACT UPON RUSSIA I.S. Korolev (IMEMO, Moscow)

3 Three features of the Global Credit Crunch of Depth. It has been compared with the USA s Great Depression in Global nature. It has affected ALL developed economies, transitional economies and most emerging countries almost at the same time. 3. Lengthy withdrawal from the credit crunch (assumption). No apparent options are in sight for fast development after the credit crunch, as was the case in

4 Expected cuts in the supply of goods/services in 2009 Industry / sector Prior growth rate Possible cuts in supply Decrease of employment Possible investment downturn Ferrous metals 3-5% per annum Historical price peaks in % 10-30% Investment programmes to be slashed by % Nonferrous metals 3-7% per annum Historical price peaks in Up to 20% with prices plummeting 10-20% Gas Historical price peak in 2008 Export prices to fall from the end of % Oil Production peak in 2007, price hike in June 2008 (prices grew 3 times over 1.5 years) Automotive industry Sales of new foreign-made cars by 40% per month until September % (cuts in profits of US$ 15 billion in August 2008) 10% Up to 5% with prices falling slightly Manufacturers 5%, Dealers and service stations - up to 20% Investment programmes to be slashed Exploration of shelves, fields in Yakutia and Irkutsk Region to slow down Some projects in eastern Siberia, northern shelves, etc. to be frozen New investment initiatives to be abandoned Retail, advertising, services Construction, construction materials 10-20% per annum Up to 20% (advertising - up to 30%) 10-30% Prices multiplied % over 10 years 20-30% (prices set to fall by 20-50%) 10-30% Investment programmes to be slashed by % New projects to be abandoned and existing projects to be frozen Banking 30-40% per annum 30-50% 30-40% Liquidity levels to be maintained with budget monies

5 Why has the 2008 Credit Crunch seriously affected Russia? 1. A high share of foreign capital in the Russian stock market has resulted in a more than four-fold meltdown. 2. Heavy debt incurred by Russian companies to foreign investors up to US$500 billion. 3. Dependence of social and economic development and national budget income on export oil prices. In the 2 nd half of 2008 prices fell from US$140 to US$42-43 per barrel (Urals). The fall of oil prices will result in a budget deficit, up to 5% GNP in A maximum reduction of the liquidity of Russian banks and companies on the eve of the crisis due to the Russian Central Bank s struggle with inflation by tightening the money supply. The rouble was overvalued. 5. Excessive budgetary expenditures due to the huge inflow of foreign currency in and the 1 st half of 2008 as well as high social and economic commitments made by the state. 6. Excessive deregulation of Russia s financial market and capital movement.

6 Export as a percentage of basic production (estimates for ) Energy Crude oil Petroleum products Natural gas Mineral coal Fertilizers Timber Metals Chemical fertilizers Wood pulp Newsprint paper Plywood Untreated timber Rolled iron (averaged) Nickel Cobalt Primary aluminium Titanium Zinc Copper 30-40

7 Banks liquidity support - Central bank and Government credits and refinancing National producers support - Depreciation of the ruble to the dollar and euro; - Small increase of tariff protection for a few products; - Export taxes reduction, first of all for oil, non-ferrous metals, fertilizers; - Selective financial support for approximately 300 enterprises, which are important for regional employment; - Small business support facilities (federal and regional levels)

8 Stimulation of domestic demand - Support of mortgage and automobiles credits; - Government purchases (agricultural products, non-ferrous metals etc.); - Budget financing large-scale industrial and infrastructural projects Social protection schemes - Unemployment benefits were increased; - Refinancing mortgage credits for those who lost jobs Main Sources of Funding: - Budget proficit of 2008; - Russian international reserves; - domestic government borrowing The cost of overall outlays: - 15% GNP additionally needed 10% GNP