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The great debate on Russia’s economic policy

Comments by Central Bank Chair Elvira Nabiullina confirm Russia will maintain tight monetary policy as it seeks to rein in inflation and to move from an economic model based on consumption towards one focused on investment, manufacturing and export.

Alexander Mercouris

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With annualised inflation in Russia falling to 6.9% at the end of August, and with Russia reporting zero inflation in the first weeks of September, the strong indications are that the Russian Central Bank is preparing to cut interest rates by 0.5% to 10% at its next meeting on Friday 16th September 2016.

The Central Bank has indicated that it intends for the time being to keep its key rate 3% above the annualised rate of inflation.  Since the annualised rate of inflation is now roughly 7%, following the logic of the Central Bank’s own policy that should mean a cut in interest rates on Friday to 10%

Central Bank Chair Nabiullina calls interest rates of 10% against an annualised inflation rate of inflation of 6.9% and an underlying rate of inflation which may be as low as 5.5% a “moderately tight monetary policy”. 

In reality this “moderately tight monetary policy” is leaving Russia with by far the highest real interest rates of any major economy in the world.  To be clear, such a “moderately tight monetary policy” were it attempted in any Western economy or in China, would cause an extremely severe recession, one far more severe than the one Russia has just been through.  

The reason Russia has managed to avoid such a severe recession is not because the high real interest rates are not for real.  It is because its debt levels are so much lower than in the West and in China that it can live with interest rates they would find unendurable.  As it is these very high real interest rates are depressing economic growth, which is why the Central Bank, in the absence of any softening of policy, forecasts that growth in the medium term will remain low.

Nabiullina on Friday at an economic conference in Sochi provided an explanation for her policy. She made it clear that she has no intention of softening her policy. Rather she intends to keep interest rates 3% above inflation for the indefinite future in order to purge the Russian economy of its long running inflation problem, one which extends back to the 1960s (though it was masked during the Soviet period by the Soviet practice of fixing prices), and which caused Russia to experience double-digit inflation continuously throughout the 1990s and 2000s, with a sustained fall in inflation to single figures only taking place since roughly 2010.

Nabiullina has made it clear that this is all part of a long term policy of moving the Russian economy away from a model based on consumption towards one centred on investment and manufacturing.   The Central Bank explained its thinking back in November 2015 in the Guidelines it published to explain its monetary policy

“Interest rates on long-term contracts always imply inflation expectations. The Bank of Russia proceeds from the fact that as the inflation and inflation expectations decline, long term rates on loans will go down boosting the economic growth. Amid low inflation expectations long-term rates will persistently develop at the low level. It is an important advantage of the inflation targeting, under which the Bank of Russia implements the monetary policy.”

In the same Guidelines the Central Bank also made clear that it sees low inflation as the means of achieving long-term stability for the rouble

“……ensuring the stability of the national currency does not mean fixing its exchange rate against other currencies at a specific level, but rather achieving stability by maintaining the purchasing power of the ruble, i.e. by ensuring price stability.”

This is a policy framework which would be immediately familiar to the Bundesbank, from whom it appears to have been copied.  The idea is that the combination of low inflation, low long term rates of interest, and positive real interest rates, will encourage long term saving and investment, increasing over time productivity and growth. 

Until that comes the Central Bank is prepared to accept a trade-off of lower growth because of the tight monetary policy to reduce inflation in the short term.  This is the policy framework that I heard Kudrin and Nabiullina discuss at SPIEF. 

A further aspect of the policy is that in order to increase competitiveness and hold down imports the current policy also seeks to bear down on consumption by keeping the budget out of deficit.  Russia in fact already runs a very tight budget, with the country’s federal budget deficit as it exits recession no more than 2.9% of GDP in the first 8 months of the year – a fact which points to a budget surplus once the economy achieves sustained growth.

Somewhat to my surprise Kudrin justified the policy of keeping the budget out of deficit by conjuring up the so-called “crowding out” hypothesis whereby the need to fund the budget deficit supposedly “crowds out” funding for private investment.  

 It would be more true to say that keeping the budget balanced or in surplus tends to limit consumption and that this can result over time in trade and balance of payments’ surpluses.  Again that is the policy followed in Germany and is the reason for the very large  trade and balance of payments surpluses there.  Once again it seems that Kudrin and Nabiullina want to copy it.  

In other words, by raising investment and limiting consumption they want to make Russia an exporter of finished goods rather than, or as well as, an exporter of commodities.

That incidentally point to an important fact about the current fall in real incomes in Russia which has happened since the start of the recession, and which is still underway, and which critics of the government speak so often about.  

As Kudrin and Nabiullina both know it is the product of super-tight monetary and fiscal policies they are both insisting on, and is moreover an intended consequence of those policies.  In other words it is being deliberately engineered as part of a programme of moving the Russian economy away from an economic model based on consumption towards one based on investment, manufacturing and export.

 Again the parallels with Germany, which also squeezes real incomes in order to limit consumption and gain competitiveness, are very striking.  Given the implications this has for most Russians, it is no wonder that Kudrin and Nabiullina are unpopular.

All of this of course was accompanied both at SPIEF and in Nabiullina’s latest comments at Sochi by much talk of various incremental reforms to improve the business climate, which took up most of the time during the presentation at SPIEF which I attended.  

As Kudrin and Nabiullina of course both know, these reforms have actually been underway in Russia for some time, and have resulted in a sharp improvement in Russia’s World Bank Ease of Doing Business rankings

From time to time the reality of this improvement is questioned.  However there is no reason to think it is not taking place.  Anecdotal evidence on the contrary suggests it is. German Gref, a supporter of Kudrin and Nabiullina who is Sberbank’s CEO, recently told Putin that it actually is taking place, and as the CEO of Russia’s biggest bank he is arguably in the best position to know. In a meeting on 4th August 2016 to discuss the support Sberbank is providing to small businesses, he said the following

“As far as small businesses go, there are two aspects here. First, they need rapid and high quality lending. Second, there is everything related to assisting small businesses to resolve all the remaining problems such as convenient practice for keeping accounts, banking accounting and so on.

We have made great progress in this area and, starting in September this year, a new law will come into effect making it possible to open accounts, make transfers, register changes to company charters and so on online.

Essentially, small businesses will not have to visit state agencies in person anymore. This programme, which we are implementing together with the tax service, is a big step forward in general.

I think that the environment that we will have in place by the end of 2016, when all of the legal amendments take effect, will mean that Russia will be offering one of the most interesting and technologically convenient environments for small businesses.”

(bold italics added)

To those who assume that Kudrin and Nabiullina are free market fundamentalists, I would say that the word “market” was barely mentioned during their entire SPIEF presentation, just as it barely appears in the Central Bank’s Guidelines document. 

On the contrary – and as I have heard Kudrin say before – Kudrin seems to favour elements of industrial planning, as well as state involvement in developing infrastructure, even as he criticises excessive government interference in private business activity.  I doubt there is any Russian official who believes – as do some people in the US and in Britain – that the market is infallible and can be left alone to take care of itself.

Like it or not this is Russia’s economic policy.  I know that some people don’t like it.  I also know that there is an alternative plan being proposed by the Stolypin Group which takes an altogether more Keynesian approach by seeking to expand the economy through higher deficit spending. Whilst this alternative plan seems to have some supporters in the Economics Ministry, and though Putin has agreed to look at it, it was absolutely clear to me at SPIEF that it is the current policy that Putin favours and which has his backing, and which has the overall support of the government.

I don’t expect it to change and Nabiullina’s comments on Friday all but confirm as much.

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Here’s Where America’s Imported Oil Comes from: Venezuela Is Currently the 4th-Largest

Saudi Arabia used to be the top foreign source of oil imported into the US, but now it’s only a very weak second-place to Canada.

Eric Zuesse

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Originally posted at strategic-culture.org:


At the present time, the latest month for which the US Department of Energy publishes the number of barrels per day (bpd) of oil that’s exported to the US is November 2018. Here are the rankings:

1. Canada        142,206 bpd

2. Saudi Arabia  30,028

3. Mexico        18,020

4. Venezuela     16,889

5. Iraq          11,767

6. Colombia      7,769

7. Russia        7,611

8. Ecuador       5,866

9. Nigeria       5,392

10. Algeria      4,848

11. UK           4,653

12. Norway       4,073

13. Kuwait       3,027

14. Brazil       2,777

15. Belgium      2,075

16. S. Korea     1,927

17. Netherlands  1,462

18. Egypt        1,405

19. UAE          1,771

20. China        1.268

21. France       1,239

22. Singapore    1,232

23. Indonesia    1,204

24. Argentina    1,101

25. Peru         1,061

26. Denmark      1,000

27. Brunei       961

28. Spain        846

29. Angola       833

Here were the top 10 for the entire year of 2015 as reported by Bloomberg Finance at Forbes. For comparison to today, the country’s sales and rank in November 2018 is also indicated [between brackets]”

1. Canada        3.2 million bpd  [1. Canada 142,206]

2. Saudi Arabia  1,1 [2. Saudi Arabia 30,028]

3. Venezuela     780,000 bpd [4. Venezuela 16,889]

4. Mexico        690,000 [3. Mexico 18,020]

5. Colombia      370,000 [6. Colombia 7,769]

6. Iraq          230,000 [5. Iraq 11,767]

7. Ecuador       225,000 [8. Ecuador 5,866]

8. Kuwait        210,000 [13. Kuwait 3,027]

9. Brazil        190,000 [14. Brazil 2,777]

10. Angola       190,000 [29. Angola, 833]

Clearly, the figures change over time. Whereas Angola was #10 in 2015, it’s #29 now; and whereas Russia, Nigeria, and Algeria, weren’t in the top 10 in 2015, they now are.

US President Donald Trump is bringing down the latest Venezuelan monthly number from 16,889 to close to zero. On 25 August 2017, Reuters headlined two stories, “Trump slaps sanctions on Venezuela; Maduro sees effort to force default” and “Venezuela says US sanctions designed to push Venezuela to default”. The first of those reported that, “US President Donald Trump signed an executive order that prohibits dealings in new debt from the Venezuelan government or its state oil company on Friday in an effort to halt financing that the White House said fuels President Nicolas Maduro’s ‘dictatorship’.” The second reported that Venezuela’s Government daid that Trump’s action “essentially forces the closure of its US refining unit Citgo,” which means bringing an end to Venezuela’s oil exports to the US

Venezuela’s socialized oil company, PDVSA, of which Citgo is the US distributor, had never prepared for the measures that Trump is now imposing, and Reuters’s report said, “As a result, it will be it tricky for PDVSA to refinance its heavy debt burden.” The Reuters report continued:

“Maduro may no longer take advantage of the American financial system to facilitate the wholesale looting of the Venezuelan economy at the expense of the Venezuelan people,” US Treasury Secretary Steven Mnuchin said on Friday.

PDVSA, the financial engine of Maduro’s government, is already struggling due to low global oil prices, mismanagement, allegations of corruption and a brain drain.

However, the likely failure of Venzuela’s oil company is due not only to the lowered price of oil, but to the fact that Venezuela’s oil is among the two costliest in the world to produce, because it’s from the dirtiest source, tar sands, much like Canada’s oil is. The difference between Canada and Venezuela is twofold: first, that whereas Canada is a vassal-state of the US empire and so its aristocracy is allied with America’s aristocracy (which controls America’s Government), Venezuela isn’t. And, second, that whereas Venezuela has a monoeconomy that’s based on oil (which accounts for around 95% of Venezuela’s exports), Canada does not.

Saudi Arabia used to be the top foreign source of oil imported into the US, but now it’s only a very weak second-place to Canada in this, exporting only 21% as much oil to the US as does Canada. This is a huge decline for the Sauds.

Whereas Saudi oil is the world’s most “light” or cleanest and least-costly to produce and therefore has the lowest “carbon footprint” of any oil, Canada and Venezuela have the most “heavy” or dirtiest and most-costly to produce and therefore have the highest “carbon footprint” of all the world’s oils.

(NOTE: There are many different ranking-systems for the ‘average’ cost per barrel of oil produced, such as this and this and these, but all tend to vastly underestimate in order to continue the case for fossil fuels. The BBC once noted that its calculation-system “only covers the cost of production, not the cost of exploration and development.” And it also ignored the cost of transit. It also ignored environmental costs. It also ignored the costs to taxpayers for the many subsidies they pay in order for the fossil-fuels investors to continue investing in those companies. The environmental site “The Energy Mix” headlined in April 2018, “Ditched Bitumen Desperately Seeks True Commitment” and reported that fewer and fewer investors were continuing to trust the industry’s reported numbers regarding the costs of tar-sands oils. Also, on 11 February 2019, they headlined “Trans Mountain’s Fee Plan for Fossil Customers Represents $2-Billion Taxpayer Subsidy”. But, mostly, the heavy taxpayer subsidizations to the fossil-fuels industries are ignored, both by consumers and by investors. Realistically, the tar-sands oils in both Canada and Venezuela are costing far more than any per-barrel oil price that’s below $100. They are money-losers, but bring lots of money to the ‘right’ people.)

So: the US is replacing the world’s cleanest oil with the world’s filthiest oil, and that’s not only from Canada but also from Venezuela. However, because the US aristocracy want to take over Venezuela, the US Government now is set to zero-out oil imports from Venezuela, so as to increase the pressure on Venezuela’s Government to place in charge there a leader who will do America’s bidding. Canada has been working right alongside the US to achieve that objective, and will probably be supplying to the US much (if not all) of the 16,889 bpd oil that currently has been supplied by the other producer of very dirty oil: Venezuela. The US produces fracked oil, which is dirty but not as dirty as that from Canada and Venezuela. The US, Canada, and Venezuela, have been committed to ignoring the global warming problem. To the extent that the problem becomes globally recognized, the oil-production in all three of those countries will decline in its marketable price even more than will the oil-production in other countries (especially than Saudi Arabia’s oil-production, since that’s the cleanest); and, so, the profits from those dirty oils will quickly (especially for Canada and Venezuela, where it has already happened) turn into losses. All three governments — Venezuela, Canada, and US — are trying to postpone that, till as late a time as possible.

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While Pompeo Pouts In Poland, Putin Pushes Peace In Syria

In the end, the Neocons in D.C. and Tel Aviv are showing real desperation in summoning everyone to Poland while having almost no support for the intended policy, war with Iran.

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Authored by Tom Luongo:


If there was ever a Valentine’s Day which highlight the stark differences to diplomacy between the U.S. and Russia it is this one.

In Warsaw, the U.S. cajoled some sixty countries, many of them Arab, to send representatives only to be scolded like schoolchildren by Vice President Mike Pence for undermining the drive for war with Iran.

Mike Pompeo, for his part, showed no signs of shame or remorse after his public rebuke by Hungarian Foreign Minister Peter Szijjarto.

Szijjarto retorted to Pompeo’s lecturing that “the world is not going to be a better place if some countries spend their time intervening in the internal political affairs of other countries.” He insisted that Budapest can have transparent relations with Moscow and Beijing and the West, and said it was an “enormous hypocrisy” that Hungary is singled out for its ties with Moscow.

He then went to Poland with the intention of whipping up support for a war with Iran. But not to actually call it that. Until Benjamin Netanyahu arrived with fever dreams on his lips.

As Moon of Alabama pointed out, this was a huge slap for Pompeo, whose staff kept trying to downplay the anti-Iran nature of the Poland fiasco to make it more palatable for media consumption.

By claiming that the conference is about waging war on Iran Netanyahoo is not only embarrassing the State Department and Secretary Mike Pompeo. He also makes it extremely difficult for other attendees to justify their presence. The Arabs will be especially furious that they are shown in such an open alliance with Israel and its hostility against Iran. Scheming with Israel in the dark is fine. But being publicly associated with a war mongering Israel is difficult to sell to their people. It would be unsurprising to see some of them leave.

The entire Warsaw meeting was designed to impress upon everyone how seriously they should take U.S. and Israeli desires for regime change in Iran. And how committed they are to keeping everyone in the fold on all matters pertaining to the Trump administration’s hostility towards Iran, Russia, and China.

This is part of a wider set of actions, taken broadly, designed to hit the headlines all at the same time:

  • U.S. is openly pushing for regime change in Venezuela and drumming up international support for it.
  • It is also urging EU Parliamentarians to push through new pipeline rules as part of changes to the EU’s Third Energy Package to try and stop the Nordstream 2 pipeline from being completed.
  • New sanctions were placed on Russia a few days after Moody’s had to accede to reality and upgrade Russian government debt to investment grade, which will only accelerate foreign capital inflows into Russia.

Pompeo and Netanyahu were putting the world on notice that they are not only 1) insane but 2) committed to their path to braying for war While, as Elijah Magnier points out, the entire dog and pony show in Warsawa was for Netanyahu’s re-election bid amidst cabinet resignations and corruption scandals.

At the same time, Russian President Vladimir Putin met with his Iranian and Turkish counterparts in Sochi to discuss the next phase of bringing peace to Syria.

These three countries continue moving the ball forward pragmatically and diplomatically to resolve the issues left by the U.S.’s insistence on staying in Syria.

Putin, with the iron fist firmly in his velvet glove, said two things that are important in his post-meeting remarks .

The first will give the frothing red-baiting, Trump-hating buffoons in the U.S. media and foreign policy establishments a fit of the vapors.

“President Trump is quite actively working on fulfilling his election campaign promises, which in practice rarely happens in the US political life. The withdrawal of the American troops from Syria was one of those promises,” Putin said.

Think of the thirteen different ways Rachel Maddow will spin this simple statement of truth by Putin. He’s got the goods on Trump. Putin wouldn’t say this if Trump were working for the U.S. Yadda Yadda Yadda.

This type of naked stupidity used to be frowned upon now it is openly encouraged at every level of the U.S. and European narrative machines.

But regardless of that, Putin is right to encourage Trump to fulfill that campaign promise because that is the quickest path to peace in Syria, a U.S. troop withdrawal.

Putin continued, “If that happens the only right decision in terms of security would be handing over those territories under the control of the Syrian armed forces.”

And that is his way of saying that he has control of Turkish President Erdogan and will not let the Syrian Kurds be attacked. Syrian President Bashar al-Assad will not make reconciliation between his government and the Kurdish Syrian Democratic Council easy. But it will be better than anything Erdogan would offer them.

But, then again, they lost their gambit for independence the day Barzani’s Peshmerga forces were destroyed in Erbil, Iraq last year by the Iraqi militia known as the Popular Mobilization Unit.

Erdogan’s biggest worry is the U.S. leaving the Kurds weapons after leaving to be a constant annoyance on Turkey’s border. That’s the Bolton way of doing things.

Putin also stressed that Erdogan’s pet terrorists in Idlib province are to be wiped out as part of the plan to stabilize Syria. These are all wins for Syria diplomatically, establishing Turkey as Russia’s subordinate in the power structure to reshape the Middle East.

The fact that Erdogan was not in Warsaw with his NATO allies but rather at a high level summit with the Russian and Iranian presidents tells you all you need to know about where he feels his future lies.

Then again, I’ve taken for granted that Erdogan is still a NATO member in name only for a couple of years now, so I wasn’t surprised by this.

Lastly, don’t overlook the Saudi’s offer to Putin recently about creating a new OPEC+ cartel with Russia and Saudi Arabia leading it. Trump’s own plans for Middle East peace rest on the Saudis keeping the rest of the Gulf States in line, which is why there was nothing on the agenda about ending the conflict in Yemen.

In the end, the Neocons in D.C. and Tel Aviv are showing real desperation in summoning everyone to Poland while having almost no support for the intended policy, war with Iran.

You can only hold onto people for so long through fear of retribution. Eventually, they realize you can’t attack everyone at once all the time, though Trump and company are certainly willing to give it the old college try.

As each instance of disobedience occurs and punishment is ineffective – Erdogan is still in power despite a coup attempt and a currency attack, for example – the bolder allies will become in their own defiance.


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Deep State coup d’état against Trump confirmed by Andrew McCabe

The Duran Quick Take: Episode 84.

Alex Christoforou

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RT CrossTalk host Peter Lavelle and The Duran’s Alex Christoforou take a quick look at Andrew McCabe’s 60 minute interview, where the disgraced FBI Deputy Director admitted that DOJ officials were considering the removal of President-elect Donald Trump from office in a brazen coup attempt, by invoking the 25th amendment.

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Via RT


President Trump has lashed out at former acting FBI Director Andrew McCabe, after McCabe said he investigated Trump out of concern the case might “vanish.” McCabe also revealed Justice Department plans to remove Trump from office.

“Disgraced FBI Acting Director Andrew McCabe pretends to be a ‘poor little Angel’ when in fact he was a big part of the Crooked Hillary Scandal & the Russia Hoax,” Trump tweeted on Wednesday. “McCabe is a disgrace to the FBI and a disgrace to our Country. MAKE AMERICA GREAT AGAIN!”

Trump savaged McCabe for his handling of the ‘Russiagate’ investigation, branded a “witch hunt” by the president. A report by the Justice Department’s Inspector General last year found that the FBI acted improperly during the investigation. McCabe, according to text messages examined by the IG, discussed developing an “insurance policy” against Trump with two other FBI employees in 2016.

Trump described the message at the time as “treason,” and said it laid bare an FBI plot to work against him once elected.

The president also accused McCabe of giving “Hillary a pass,” after the agency cleared Hillary Clinton of wrongdoing in its investigation into her email misuse, overseen by McCabe.

In her 2015 campaign for Virginia’s state Senate, McCabe’s wife Jill had taken donations from Terry McAuliffe, a prominent Virginia Democrat “with long-standing ties to Bill and Hillary Clinton.” McCabe allegedly leaked information to the press about an FBI investigation into the Clinton Foundation, to deflect attention from his own ties with the Clinton family and push back against the narrative that he was therefore impartial.

Although referencing old events, Trump’s latest attack on McCabe comes as the former FBI #2 embarks on a tour to promote his new book. Titled ‘The Threat,’ the book is a passionate paean to the three-letter agency and a diatribe against Trump.

In an interview with CBS, McCabe said Trump’s firing of then-FBI Director James Comey in 2017 prompted McCabe to open an investigation into Trump as quickly as possible.

“I was very concerned that I was able to put the Russia case on absolutely solid ground, in an indelible fashion,” McCabe told CBS’ Scott Pelley, in an interview due to air on Sunday. “That were I removed quickly, or reassigned or fired, that the case could not be closed or vanish in the night without a trace.”

McCabe did not explain the agency’s rationale for opening the investigation, beyond unsubstantiated rumors of “collusion.” He did not present any new evidence to back up the oft-repeated but still-unproven accusation.

Wearing a wire
Instead, Trump himself seemed to be the problem. Pelley said that McCabe described panic at FBI headquarters after Comey’s firing, as “the highest levels of American law enforcement were trying to figure out what to do with the president.”

Among the ideas circulated was that Deputy Attorney General Rod Rosenstein would wear a wire to surreptitiously record the president, gathering evidence that he was unfit for office, and triggering his eventual removal under the 25th Amendment. The New York Times reported this plan last year, citing an anonymous cabinet member, but Rosenstein dismissed the story as false.

Now, McCabe told Pelley that the plan was real. Rosenstein came up with the idea himself, and “it was so serious that he took it to the lawyers at the FBI to discuss it,” Pelley said.

McCabe’s investigation was handed over to Special Counsel Robert Mueller eight days after Comey’s firing and has been ongoing since. Over a year later, the investigation has not found any evidence of collusion between the Trump campaign and Russia, and is reportedly close to wrapping up.

McCabe himself was fired by then-Attorney General Jeff Sessions last March, after the Inspector General’s report concluded he lied to FBI agents about his disclosures to the press regarding the Clinton Foundation investigation.

 

 

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