Barry W. Ickes. No. 3, pp

Transcription

1 Barry W. Ickes Based on Gaddy and Ickes, Eurasian Geography and Economics, 2010, 51, No. 3, pp July 1, 2010

2 Three Key Factors Three Key Factors explain how Russia will respond to the World Financial Crisis First, the crisis has reminded us of how thoroughly dependent Russia is on oil and gas. Second, Russia is addicted to the resource rents. Third, Russia, like all resource abundant economies, has a specific system of management of its resource rents. July 1, 2010 Prepared for the III Astana Economic Forum 2

3 Resource Dependence Resource dependent economies face two critical problems How to control and distribute ib rents This requires a rent management system How to control addiction to rents This is most important in post Soviet economies where addiction takes place through production Russia is key example July 1, 2010 Prepared for the III Astana Economic Forum 3

4 Russia is all about oil July 1, 2010 Prepared for the III Astana Economic Forum 4

5 Oil Prices and the Stock Market July 1, 2010 Prepared for the III Astana Economic Forum 5

6 Oil Prices and Retail Sales July 1, 2010 Prepared for the III Astana Economic Forum 6

7 Oil Prices and Railway Car Production July 1, 2010 Prepared for the III Astana Economic Forum 7

8 Oil Prices and Russian Imports July 1, 2010 Prepared for the III Astana Economic Forum 8

9 Oil Prices and the Exchange Rate July 1, 2010 Prepared for the III Astana Economic Forum 9

10 Oil Caused Boom and Bust Russia suffered severely because of its dependence on oil 1998 crisis and in 2008 But it grew dramatically from the same cause Russia was better prepared in 2008 than in 1998 Putin s policy of reduction of leverage Did not expect world financial crisis to be the shock July 1, 2010 Prepared for the III Astana Economic Forum 10

11 Addiction Addiction refers to a condition in which there is an imperative to allocate rents to maintain and expand specific production sectors of the economy, notably those that the Russian economy inherited i from its Soviet predecessor Structural change in the economy due to production for productions sake Big problem for post Soviet economies Addiction leads to tolerance, withdrawal, and willingness to sacrifice for addiction Crisis has not ended addiction Putin used reverse Bretton Woods to limit addiction He did not expect western financial system to implode July 1, 2010 Prepared for the III Astana Economic Forum 11

12 Rent Management System Putin Built a new Rent Management System Putin s Protection Racket system centers on monopoly control of financial information mutually beneficial i system Controls the oligarchs from fighting over rents Survived the crisis July 1, 2010 Prepared for the III Astana Economic Forum 12

13 Reversing the Leverage July 1, 2010 Prepared for the III Astana Economic Forum 13

14 Should Russia Have Diversified? July 1, 2010 Prepared for the III Astana Economic Forum 14

15 Landesburg on Diversification [There] are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months the ships reappear with Toyotas on them.... International trade is nothing but a form of technology. July 1, 2010 Prepared for the III Astana Economic Forum 15

16 Key problem Key problem for energy abundant economies is volatility of the oil price Oil prices close to random walk in postwar period Price uncertainty puts risk on producer countries that are relatively high cost producers If current trends were to continue Russia (and similar countries) owns the world Is that likely? July 1, 2010 Prepared for the III Astana Economic Forum 16

17 Oil Prices: History and Future July 1, 2010 Prepared for the III Astana Economic Forum 17

18 Resource Rent Projections July 1, 2010 Prepared for the III Astana Economic Forum 18

19 Putin s Current Problem Putin s current Problem is that informal rent sharing is ill suited to smoothing distribution when rents are cyclical You cannot build a "rainy day" fund with informal rents How to get oligarchs to share in the downturn is Putin s key problem now July 1, 2010 Prepared for the III Astana Economic Forum 19

20 Russia s Long Run Problem How to share risks of investing for future oil Price volatility may remain International risk sharing is the sensible solution for resource dependent economies Invest surpluses in ROW, let western companies invest in new resources International risk sharing in the wake of the world financial crisis July 1, 2010 Prepared for the III Astana Economic Forum 20