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Home›Russian economy›Why a weak ruble weighs on the entire Russian economy

Why a weak ruble weighs on the entire Russian economy

By Lawrence C. Saleh
June 19, 2012
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MOSCOW – We are told not to storm the exchange offices, where people are already starting to fight for dollars. Meanwhile, experts recommend that people divide their savings between rubles, dollars, and gold.

That’s good advice, especially since most Russians don’t have millions of dollars in savings, but maybe a few thousand. Salaries are paid in rubles, and that’s what most of us use to pay for food, clothes, and rent. For Russians, the standard of living mainly depends on the stability of jobs, wages and prices, not on the growth of pips.

But regardless, a weak ruble is a threat to all of these things, especially if you look not only at last month when the Russian currency fell 11% against the dollar, but also the whole of last year. The value fell from 27.5 to 33.5 rubles per dollar over the past year, a decrease of 21%. This huge plunge is a hidden devaluation. Slowly but surely, products like Dutch butter, Aussie beef, stationery, pencils and cellphones are getting more expensive.

Let’s say the government will keep rental prices low for low-cost shared accommodation, called “communal” apartments. Faucets, bulbs, and hoses are made domestically, but the trucks that carry these supplies are certainly imported. And if spending on multi-family apartments increases, then either you have to subsidize housing from the government budget (which means making cuts elsewhere), or you have to stop doing all renovations, and maybe shut off the water. hot.

But even that is not the most important effect. It is impossible to predict what the fall in the value of the ruble will mean for the Russian economy as a whole, just as it is impossible to understand the reasons for the devaluation.

Quietly, the crisis returned

The Central Bank spent $ 10 billion to buy rubles over the past month in an effort to support the currency. As reserves run out, an economic crisis is staring out the window. We decided to believe that the economic crisis ended in 2009, but in reality it just changed. The crisis began to recede last fall and is now progressing rapidly.

If the ruble exchange rate continues to decline, it looks like our exports, which are mainly commodities, will be worth more rubles. But with both the net amount of Russian exports and their dollar value falling, even exporters are cutting costs. And what about importers? The increase in their spending is linked to the exchange rate of the ruble, coupled with the decline in demand. And if you cut costs, that means you cut jobs as well. The government, of course, will punish companies that lay off workers, but jobs can only be kept if wages are lowered.

As with many other things, the fall of the ruble is attributed to “external factors”. In Europe, it is the euro crisis, in China and the United States, it is the slowdown in economic growth. “There is evil everywhere which makes life more difficult for Russians …” This half-truth, like most half-truths, is in fact primarily a lie. Yes, there is a global crisis. But unlike many countries, Russia has particularly little leeway when it comes to mitigating the blow to its citizens.

We have no source of government revenue that comes close to commodity revenue, which is often what is hit hardest by the crisis. We have no other way to support the ruble than to sell our currency reserves. This means that we should freeze the salaries of government employees, freeze military purchases, as well as pensions. We’re going to cut where it hurts, not playing with trade balances, export support and corporate restructuring, so that it affects people as little as possible.

For 20 years, we have been paying promises of modernization and diversification. We have paid to restrict unprofitable businesses and to retrain people who should have been laid off long ago. We paid in rubles.

* Elena Kotova is an economist and writer.

Read it original article in Russian.

Photo – Marc Véraart


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