Saving for a Sunny Day

Artwork: "Garden", Asya Nemchanok
The economic crisis is taking its toll in Russia, yet people are keeping faith and the authorities will not let a looming budget deficit get in the way of a sunny Victory Day parade. Well, at least that’s what the “Russia in Figures” section of this week’s Vlast magazine seems to indicate.
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According to the Russian Home Office, on the 19th of April (Orthodox Christian Easter Day), an Easter church service was held in 9,300 churches across Russia with a participation of approximately 4.5 million people and an extra 106,600 thousand police officers on duty (or one extra police officer for every 42 people). Between 60 to 70 per cent of Russians consider themselves Orthodox Christians (85 to 99 million people), of whom 1 in 19 attended an Easter service.

Compare this with Christmas church-going. On the 7th of January (Orthodox Christmas), 2.1 million people (or one in 40 of those who consider themselves Orthodox Christian) attended a service at one of the 8011 churches open that day. An extra 85,700 police officers were on duty. This means that at Easter 2.4 times the amount of people attend Church than at Christmas. The proportion of police officers to visitors however is 1.68 times higher at Christmas than at Easter, leading the writers of Vlast to conclude that Easter is celebrated more widely in Russia than Christmas, but rather less riotously.

15,280 rubles [£310 / €348 / $462 by today’s exchange rate] was the average income in Russia for March of this year. This was 13.3% more than in March 2008.

According to Alexei Kudrin, Russian Finance Minister, the Reserve Fund of the Russian Federation [Note: which peaked in January 2008 at $157 billion] “will be practically completely run dry” by 2010. On the 1st of April 2009 the fund was still over $121 billion in the black.

Inflation over the period from the 1st of January to the 20th April 2009 stood at 6%. This is the same as over the same period last year.

The Moscow authorities will be spending 65 million rubles [£1.3 million / €1.48 million / $1.96 million) this year on cloud dispersal treatments for the 9th of May Victory Day celebrations and Moscow City Day celebrations [Note: on important bank holidays planes are sent up around Moscow to disperse the clouds and to ensure sunny weather. Boris Johnson should really take note.]

2,700 kilometres of road will be built in Russia in the upcoming year, which is 17.4% more than last year.

2.26 billion people were registered unemployed by the 15th of April – 1.6% more than the amount registered by the 9th of April. According to official statistics since the beginning of October last year 329,000 people have lost their jobs.

The foreign trade turnover of Russia in January and February of this year stood at $50.5 billion – only 56% of the turnover taken during the same period of last year. According to official statistics exports stood at $36.7 billion (52.3% of last year’s amount) and imports at $23.8 billion (64.5% of that of last year).

The price of medicine rose 14.2% in the January to March period of this year in comparison with prices in December 2008.

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Person of the Year 2008

Photo: Oleg Videnin
Every year, Expert Magazine, a business weekly, nominates its own Person of the Year a la Time Magazine. The award recognises the individual that the editorial believes has had the greatest political, economic or social impact in Russia throughout the preceding year. Previous winners have been (surprise, surprise) Putin (2007) and Medvedev (2005), as well as Abramovich and Khordokovsky (2003) and the Minisiter of Defense, Sergei Lavrov (2006).

In contrast to Time’s nomination of Obama as a ‘wind of change’, Expert chose Sergei Ignatev, head of the Central Bank of Russia, who they characterised as a rock of stability, working to prevent Russia from descending into total financial collapse. In an extremely balanced article, Expert argued that, whilst the Central Bank’s policies are far from perfect, it is this institution alone that holds the potential to ensure Russia's economic stability.

The main bulk of the article constituted an appraisal of Russian economic policy this past year, emphasising both its highs and lows. Expert neither blindly praised the bank’s handling of the crisis nor too harshly criticised it. The message was clear: despite its many mistakes, the Central Bank’s actions were instrumental in avoiding total economic meltdown. But it’s leader must not relax – difficult times lie ahead and the bank must act carefully if it wants to ride out the storm intact.

Below is the introduction to the article, which sets out why Expert chose Sergei Ignatev as Person of 2008.

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He Must Find a New Equilibrium

By nature, employees of the Central Bank are curt and enigmatic. The High Priests of liquidity do not have it in them to be loquacious. Sergey Ignatev, head of the Russian Central Bank takes this maxim to new extremes - he is simply silent.

Once or twice a year, he delivers the Central Bank's positions and predictions to an exclusive audience consisting of the President and Prime Minister. General communication with the wider public and mass media is left to his vice, Alexei Ulyukaev. Heavy chinned, peering gloomily out through old-fashioned, heavy rimmed, thick-lensed glasses, Ignatev's silence is unreadable and can thus mean many things. He, more than most, can be judged by his actions alone.

Following his appointment as head of the CB in March 2002, he set about assembling a quality team of financial professionals, who would shape CB's policies in the years ahead. Let us examine three of them.

First, there's Oleg Vyugin, who determined macroeconomic regulation of the CB: strengthening the accumulation of international resources and sterilising links with the Ministry of Finance through the establishment of the Stabilisation Fund (2004).

Then there's Andrei Kozlov, who used his strengths to create our system of insurance payments, to introduce new controls and to implement a large-scale purge of scammers and pseudo-bankers within our banking systems - work that he paid for with his life.

Finally there's the aforementioned Alexei Ulyukaev, who replaced Vyugin as the first deputy of the CB in 2004, and set in motion a new system of refinancing banks, the durability of which is currently being tested.

Despite the importance of the actions of these individuals, our choice of the main banker as person of the year represents the flexibility and decisiveness with which the Central Bank has so far faced the current crisis. We want to point out straightaway that we do not judge all elements of the Central Bank's strategy for dealing with the crisis as effective, or even successful. Furthermore, in our opinion, the acuteness of today's crisis is, in many ways, due to mistakes made by the Central Bank at an earlier stage. For example, what was the point in raising interest rates and norms of the essential reserves at the start of this year, when the means of saving Russia from the global liquidity crisis had already been neglected? Likewise, the greatest weakness and vulnerability of our financial system springs from the failure of the main bank to devise a strategic plan for its development.

Nevertheless, the main event of this year has been the crisis; the person of the year must therefore be the most important actor in the struggle against the crisis. We consider the Central Bank to be the most important actor in the crisis, and, as the head of the bank, Sergey Ignatev symbolises the bank’s policies.



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