Russia: the economic mystery that Moscow must be able to solve

Russia has limited the dissemination of much economic information so as not to provide intelligence to a Western enemy and make the application of sanctions more complex. An understandable attitude, but what you see shows that something is wrong.

There is a progressive worsening of its exchange rate against the dollar:

At the beginning of September the exchange rate seems to have stabilized, but this was essentially due to the government's instruction to the large industrial fertilizer export groups to pay their dollars to the central bank. These are companies owned by four Russian billionaires: Andrey Melnichenko (“Eurochem”, $25.2 billion), Andrey Guryev (“PhosAgro”, $9.7 billion), Dmitry Mazepin (“Uralkali” and “Uralchem ”, $2.8 billion) and Vyacheslav Kantor (Akron , $11.3 billion). At these companies, after a meeting with the Central Bank, large quantities of "Forgotten" dollars were found which were made available to the Central Bank which used them to regulate the exchange rate.

However, these resources are destined to run out and the Central Bank must act differently, and this explains its monetary policy. Recently the Russian Central Bank increased its interest rates, justifying it with the fight against inflation

In reality, inflation in Russia, which has no or very few energy problems, is quite under control, better than what happened in European countries:

What is Russia's problem? Let's look at the trade balance. After the invasion of Ukraine it seemed that there were no major problems with this value, indeed record values ​​had been reached due to the combination of high prices in oil and gas and a drop in imports from Western countries.

This situation, however, did not continue: on the one hand, energy prices fell, on the other, imports resumed, also to meet the military needs of the war in Ukraine.

This situation explains the latest moves by the Russian authorities:

• increase in interest rates to attract capital and, above all, compress domestic consumption and therefore reduce unnecessary imports;
• tightening of oil production to increase energy prices;
• the recall of all foreign exchange reserves in private hands, by hook and by crook.

However, these cures can be worse than the disease, especially as a compression of the internal economy. At this point, long-term solutions are needed, which could only come from a normalization of the international situation. Since this is not possible, Russia should try to improve its trade situation with triangulations via third countries.

For now, Moscow has been dutiful to OPEC+ and has applied a containment to oil production, while gas exports to the EU are little more than zero. However, Moscow should find a way to reverse the trend, including by using Turkish stram or LNG exports.

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The article Russia: the economic mystery that Moscow must be able to solve comes from Economic Scenarios .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/russia-il-giallo-economico-che-la-russia-deve-riuscire-a-risolvere/ on Thu, 21 Sep 2023 09:00:54 +0000.