RS Especially for web A weak rouble will give the Russian economy an added boost

A weak rouble will give the Russian economy an added boost

August 2012

“The government has learned its lesson from the mistakes it committed during the crisis of 2008-2009 and will not repeat them”, declared the head of the Ministry of Finance of the Russian Federation, Anton Siluanov, at the plenary meeting in the Duma. However, experts note that it is unlikely that the investment situation in the country will change in the upcoming years.

In particular, Mr. Siluanov called the decision made by the government during the previous crisis about “Vnesheconombank’s” involvement in supporting the securities market unsound, despite the fact that the government bank made a profit of about 30 billion roubles. In the future the government is not intending on investing money in supporting the securities market if the situation worsens. Additionally, Siluanov assured lawmakers that the government learned some lessons from the previous crisis, especially in terms of currency policies. The actions taken during the last crisis will not repeat themselves. According to Siluanov, the rouble exchange rate is oscillating within the “corridor” outlined by the authorities. With that being said the Central Bank now will be pursuing the following policy: if the bi-currency “basket” approaches the top of this “corridor” then the Central Bank starts intervention on the currency market, but if this basket is in the centre of the range then the Central Bank does not perform such operations.

The head economist of the investment company “Troika”, Evgeniy Gavrilenkov, commented upon the developing situation in an interview for “Russian Survey” (RS).

RS: What’s your take on the rouble exchange rate which was been falling lately? How will this impact the Russian economy?

Evgeniy Gavrilenkov: It is fair to say that in the past few weeks it is not that the rouble has fallen, but rather almost all exchange rates have decreased relative to the American dollar. But one can observe certain effects of the weakening rouble. For example, inflation, which could be even lower, has picked up. One should expect price instability to come.

RS: Some experts view this tendency, a decrease in the rouble exchange rate, as a positive one, since this could lead to an increase in export.

Evgeniy Gavrilenkov: I am hesitant to make any far-reaching conclusions. Thus far weakening of the rouble has had a positive impact. The manufacturing industry grew by 7% this May. It grew relatively well in the second quarter too, as a whole. However, now as the inflation rate increases in real terms, the rouble may even temporarily strengthen, which will in its turn have a negative impact upon domestic producers.

RS: How do you assess the current investment climate in Russia? How do you figure, will it change and in which direction? Which necessary steps should be taken by the government to make Russia more investor-friendly and will it be able to implement these measures?

Evgeniy Gavrilenkov: The investment climate in Russia has not been changing significantly. The same group of people has been running the country for the past 7-8 years. Therefore, not much has dramatically changed in terms of making it easier to do business. No big shifts have occurred; well at least I don’t feel them.

RS: Which industries in the Russian economy are currently the most attractive investment-wise for foreign capital? Which ones will become attractive in the future?

Evgeniy Gavrilenkov: Nothing has changed either in terms of investment attractiveness. You can see yourself that the energy sector occupies its own special niche in the economy. Most likely it is worth investing in middle companies which are geared towards the domestic market. The domestic and any other economy grow due to these types of investments in addition to consumer industries, agriculture, food products, etc. Those are the very spheres which are the least susceptible to political fads…

Interviewer: Sergey Slavin
Economic observer for Russian-survey.com RS