Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Economists See Doom as Ruble Rises




In defiance of the odds, the ruble continued is steady rise against the dollar this week, provoking economists to warn Friday that the seeming stability bodes ill for the economy in the long run.


The ruble ended the week up 0.5 percent at 25.28 rubles to the dollar.


While the government rubs its hands at the prospect of cashing in on higher oil revenues, economists and politicians say the state will just miss another opportunity to use the money to tackle crucial economic issues.


"Devaluation of the currency can be exploited in two ways. You either restructure the economy or simply live comfortably for a couple of years," said Parvoleta Shtereva, fixed-income and currency strategist with Renaissance Capital.


In the 1990s, Poland devalued its currency several times and made the economy more competitive by using additional currency proceeds to fuel growth in key sectors, economists said.


Russia has apparently chosen another road, one that relies on a tight foreign exchange policy to keep the ruble stable at a time when two major elections are on the horizon, Shtereva said. Russians go to the polls to elect new parliamentary lawmakers in December and a new president next summer.


The inadequate foreign exchange policies pursued by the government are severely distorting the economy, experts said.


The 2000 budget has been drafted on the assumption that the exchange rate will hold at 32 rubles per dollar and inflation will range from 18 percent to 22 percent.


Therefore, if the ruble does not fall below 27 rubles by December, it will have to be devalued by at least five rubles by mid-2000 in order to put it in line with budget targets.


The Central Bank recently reported that the ruble would keep appreciating in real terms until year's end, that is, the dollar will appreciate slower than prices on goods will rise.


Economists said prices are unlikely to jump more than 10 percent to 15 percent over the next three months.


They also question whether it makes sense to devalue the currency by 2.5 rubles between April and December this year - the path the Central Bank appears to be taking - and then let it plunge by 10 rubles next year.


"It could be that the ruble rate is kept high because the Central Bank keeps servicing Russia's foreign debts," said Yevgeny Gavrilenkov, deputy head of the Bureau of Economic Analysis research center.


Keeping the ruble high could also be a step meant to over-fulfill the budget revenue targets for next year that were agreed upon with the International Monetary Fund. Devaluing the ruble suddenly next year would bring a lot more rubles from dollar-denominated export duties.


Russia may need to plump up its revenue figures through ruble manipulation because the other key source of income, taxes, is not bringing in much money.


Adjusted for inflation and a ruble/dollar slump, tax collection figures are simply bleak.


"You cannot call this additional revenues if you look at inflation figures," Pavel Bunich, head of the State Duma privatization committee, said. "This is just a joke."


In reality, it is difficult to make even theoretical estimates over the economy because the government is cooking the books, experts said.


Gavrilenkov said that six weeks ago the IMF noticed Russia's reserves had been bloated by some $1.5 billion and that the Central Bank could be gradually building a dollar cushion to bring actual reserves in line with the reported figures.


As a result, reserves reported for the week ending Sept. 17 again remained unchanged at $10.9 billion. Economists suggested the Central Bank could have been accumulating hard currency this week.