Nezavisimaya Gazeta
Russian ruble to weaken in ten months
The ruble may weaken faster than the government is ready to admit due to booming imports, economists warn. Their best-case forecast envisages a 10%-15% monthly devaluation.
Imports grew 48.6%, year on year, in January-May 2011. Imports from the CIS showed the fastest growth, 146.9%, according to an Economic Development Ministry report. Analysts say locally-made products are being ousted by cheaper imports as a stronger ruble has pushed production costs up.
Independent experts from the Higher School of Economics believe the ruble may soon be at risk of devaluation even if imports growth slows. “Imports will most probably grow 25%-30% next year, leading to a devaluation of the ruble much sooner than the ministry expects. It is hard to predict how strong this pressure would be because devaluation depth is often determined by speculation rather than by the actual balance of Russia’s current account. Without a massive speculative attack on the ruble, we predict a slow weakening of the ruble, by 10%-15% a year,” they said in a forecast for 2012.
A government forecast envisages the ruble weakening to 33.8 per dollar if oil, Russia's chief export earner, falls sharply to around $70 per barrel. The basic scenario expects it to remain almost flat at 27.9.
More experts agree that the ruble is at risk. “Having import growth over 40% is dangerous if exports don’t grow. Russian exports are entirely dependent on commodities prices, making the national currency extremely volatile,” said Georgy Yeltsov, portfolio manager at Solid Management.
“Russian energy exports are fairly stable. At the same time, growing imports are reducing our foreign trade surplus,” agreed BKS analyst Maxim Lobada.
Other analysts don’t see ruble devaluation as unavoidable. “Commodities prices are on the rise. Russia has lifted the grain export ban, but its influence will not be felt until the second half of the year. Therefore, we stand a good chance of gaining a large trade surplus by yearend,” said Ilya Balakirev from UFS Investment Company. A sharp weakening of the ruble may only happen шf a second wave of crises hits, including a meltdown of the markets, speculator attacks, and unplanned government spending. “Voters are too concerned with the ruble’s weakening, while a strong ruble is more dangerous for the economy,” he said.
Many economists prefer to focus on the positive. “On the upside, Russian producers will become more competitive with a cheaper ruble. However, there aren’t too many companies in Russia with high added value, so this effect would not be all that great,” Yeltsov said adding that devaluation would hit large companies because their loans are primarily dollar denominated.
“Growing imports are aggravated by capital outflow. The two factors are bound to bring Russia’s trade balance to zero or below. A weakened ruble will certainly affect people’s living standards, but it will not be acutely felt. Some products’ prices will rise 10%-15%,” said Alexander Fyodorov from the Business Russia association.
Izvestia
Academics propose progressive income tax
Economists from the Russian Academy of Sciences have submitted a 95-page report to Prime Minister Vladimir Putin in which they encourage the government to save less and spend more while oil prices are high, and to reintroduce a progressive income tax system.
Putin met with the economists on July 11 and suggested they contribute to the government's Strategy 2020. Less than three weeks later, Director of the Institute of Economics Ruslan Grinberg, his first deputy Alexander Rubinstein and Andrei Gorodetsky, section head in the Academy’s “modern economics and innovative development institutes” academic council submitted a report that argues for continued state intervention in the Russian economy. The economists described Russia as having moved away from the “desired socio-economic standards of Euro-Atlantic nations” to more of a third-world status with alarmingly polarized personal incomes.
The economists' main conclusion is that surplus revenue from high oil prices needs to be spent. The adjusted mid-2011 budget forecasts a surplus of nearly 3 trillion rubles, but only 700 billion rubles is currently allocated to spending on economic development and other government needs.
The economists noted that the government is clearly working to overcome the budget deficit, accumulate reserves and cut inflation, but warned that there will soon be a budget surplus, and that saving money is therefore counterproductive. They propose allocating 40% of this surplus revenue (given oil prices higher than $85 per barrel) to boosting the state coffers and putting 60% toward new industrialization.
Their report suggests other ways of raising revenue, including tax increases and reverting back to a progressive income tax system. The economists argue that this will not only greatly supplement the budget, but also create a favorable public image – the tax system will be perceived as broadly fair since the rich will pay more.
They also propose making individuals pay their own pension contributions (currently the employers pay). Nevertheless, the economists decided that raising the retirement age would be counterproductive for economic, demographic and political reasons.
Another key recommendation was to plan the federal budget for five years, instead of three. The economists advised binding planned changes in economic institutions to the “political cycle” of 10 years, i.e. two presidential terms.
The Russian Academy of Sciences economists are not the only ones working on proposals for Strategy 2020. Since early 2011, a team of experts led by Yaroslav Kuzminov and Vladimir Mau has been working on the same task.
“We are in tough competition with Mau and Kuzminov,” Ruslan Grinberg said. “The government has been listening to them and them alone, for the last two decades. If our voices are heard and the Strategy 2020 team adopts any of our proposals, I would consider it my personal victory.”
Vladimir Mau was very terse in his response.
“We do not deal in competition,” he said. “We are engaged in science.”
Argumenty I Fakty
Rail fares could skyrocket 300%
The Federal Tariff Service has announced plans to increase passenger rail fares.
The current fares for seats only and second-class sleepers within Russia, which have been in effect since January 1, 2011, are expected to be raised by a coefficient of 2.995. As a result, fares in these classes may shoot up 300%.
Fares on long-distance trains will be recalculated but with a minimum increase: they will not be increased more than 61.7%.
In the spring of this year, Russian Railways President Vladimir Yakunin said his company plans to gradually replace second-class sleepers with compartment cars.
Increased fares on the most common classes of travel could speed up the scheduled reform plans, reports the Ayda.ru website.
RIA Novosti is not responsible for the content of outside sources.
