Vladislav Inozemtsev, the director of the Center for research of the post-industrial society:
The current crisis has been caused more with our internal reasons than with the global influence. Even if the crisis in the West had not been so sharp, the falling of our stock markets would have begun anyway.
The government likes positioning our country as a state from so called BRIC group (Brazil, Russia, India and China). Well, last year the Shanghai Composite index was 6,100; by the beginning of the crisis in Russia it was 3,000; and now it is 1,800. The dynamics that could be seen in China, India and Arabic countries, is noticeable now too. We are going with certain delay only due to euphoria that began in the stock market in May, after Medvedev’s inauguration.
Investors treat the developing economies in accordance with some common patterns. This is why the state of the Russian stock market seems to me to be out of the question. That means, this market will be restored no earlier than in next five years.
The problem of the exhaustion of gold and currency reserves of the Central Bank is treated by our analysts in a bit one-sided way. Let us assume that, according to official statistics, in September we had the flight of capital for the amount of $25 bn, while since the beginning of October we have already had over 20 billions gone. But, actually that’s not the figure of the flight; that’s the balance. We forget that our export taking in September and October did not disappear, and the amount is $40-50 bn per month. When the amount of the flight of capital is named to be 25 billions, that means that in reality it is 75 billions leaving the country, which is proved with simple calculation. That is, the flight of capital from Russia is much bigger than it may seem.
Besides, in the next months we are going to lose significantly even this air bag, due to going down prices for the main items of the Russian export. The prices are falling rapidly. The nickel is about $10,000 per ton now, and a year ago it was $53,000. This dynamics is even worse than that by the oil. If the latter had similar dynamics, it would cost now $30 per barrel.
In such a context, the actions by the government giving more and more money to the banks look very risky. The flight of the capital that came here from abroad is limited objectively by its volume, while the outgoing means related to foreign credits are limited with the volumes of credits taken. And in case that now the government starts infusing huge money into banks in an uncontrolled way (this is possible to be done only so), then the banks will be withdrawing that means just for self-preservation reasons. That is, distributing the accumulated reserves within the banking system, the government will be stimulating the further flight of capital, which is extremely dangerous.
This is why, to my mind, it might sound cynical, but it would be more sensible to let some banks “die”. Of course, that’s not about ruining utterly their depositors. It would be enough accepting the state of factual bankruptcy, taking the state control over such banks, and just giving out the money to the depositors, while dismissing the management from such banks.
Besides, of course, it is necessary to liven up the inter-bank market. Last week the Europeans allotted 95 billions of euros for insurance of the inter-bank credits. With the money being present in the banking system, the current crisis is much related to the crisis of trust. In case it gets overcome, that would lead to positive effects even without direct infusion from outside.
As for the influence by the crisis upon wider strata of the population, the unemployment is going to become the main issue. The investment projects will be closed down and, definitely, the enterprises will be reducing production, which means cuts of pay and reduction of staff. Against that background, the inflation will be a secondary problem, as under such conditions prices cannot go up even in a super-monopolized economy.
Along with that, it is important to realize that our economy has been irrational one from the point of view of incomes. If we compare it to the productivity of labor, we shall find no grounds for having paid those expenses we did. Taking China, the wages there are equal approximately to 32% of their GDP, while the figure for Russia is 67%. Of course, that goes beyond all limits!
As for the ruble’s currency exchange rate, we are repeating the mistakes by Chernomyrdin, done in 1997. The ruble’s rate must not have been held back; instead it would have been better to let it go up for 1.5-2 % per month. I don’t think that it would have caused any panic. Naturally, people would have been spending less on the imported goods, but now this is what is going to happen anyway.
Speaking in general, with normal crisis management provided, the crisis can be passed easily through, whatever strange it may sound. Really, what needs to be done is a certain reduction of incomes, as they hinder any modernization; it is also necessary to reduce prices for assets and to begin the economic re-structurization. It’s easy to be done, with a certain level of competency and willingness provided. Unfortunately, our elite do not possess that.