Ignatyev: Russia Can Survive If Oil Dives


Central Bank chief Sergei Ignatyev

WARSAW, Poland -- Central Bank chief Sergei Ignatyev said Tuesday that the economy was ready to cope with a potential sharp drop in oil prices after the crisis in Iraq is resolved.

In 1998, the economy fell into a deep depression after crude prices crumbled, but Moscow has since made structural reforms that would help it avoid a repeat, the reform-minded central banker said at a banking seminar in Warsaw, Poland.

"Even if the price of oil falls to $14 to $16 per barrel from $29, there will be no economic crisis in Russia," Ignatyev said through an interpreter. "We have [large] foreign exchange reserves. ... We have no obligations to keep the exchange rate fixed as we did in 1998."

He also said the Central Bank was not able to meet both its exchange rate and inflation targets last year.

"The Central Bank was unable to strike a balance between these two contradictory objectives," he said.

"We have devoted too much attention on not allowing the ruble to strengthen, and in effect we managed to weaken the ruble against other currencies. At the same time, we failed on our inflation goal, we were off by one percentage point."

But Ignatyev went on to defend this policy, saying that currency appreciation would hurt the Russian economy more than high, but relatively predictable, inflation.

"We are too cautious, but I think this policy is fully justified. Our inflation target is not ambitious, but it is enough to ensure that price growth is predictable," he said.

Ignatyev said more currency appreciation may be in store for 2003.

"This year, we want inflation at a level of 10 to 12 percent, and we believe the real effective rate of the ruble [against a basket of currencies] could go up by 4 to 6 percent."