Saturday, January 10, 2015

The Bank of Russia "Guidelines for the Single State Monetary Policy for 2015-2017."

Errors that are worse than a crime | Nikolai Starikov


So called his article in the journal "Expert" academician, advisor to the President of Russia Sergey Glazyev. It is the policy of the Central Bank. That should be done and what can not be done in any case.Most interestingly, published an article at the end of October 2014. When the numbers on the scoreboard exchangers looked so menacing and collapse of the ruble was not in sight. Therefore, read the material Therefore special.


The status quo in monetary policy the Bank of Russia killer for the economy. Requires general revision of the current model of the money supply and rapid completion of the framework of the national financial system. unjustifiably harsh policy of the Central Bank has already led this year to raise the cost of credit by an average of 2-2.5 percentage points (n. n.), prompting Russia economy to stagflation swamp. If a year ago, the profitability of our real sector was an average of one and a half to two times less than the average cost of credit, at the present time, the gap increased to two and a half - three times. Return on invested capital was below even the key interest rate of the Central Bank - 6% to 8% per annum, respectively. The proposed cost of credit by banks, 10,3-12,2% (and this is for the best borrowers!) Allows only finance working capital enterprises for a short time. Long-term loans for investment purposes meaningless. Along with the decline in profits of industrial enterprises and the decline of public investment it entails decline in investment activity, preserving scientific and technological backwardness.Increased depreciation of fixed assets: it rose from 45.2% in 2005 to 48% in 2014 due to the decline in capital investment by 2.5% to reach 48.5%. Prior to the introduction of Western sanctions corporations and banks offset the restrictive monetary policy of foreign loans, amounting to more than 650 billion (74% of which are denominated in dollars and euros, see fig. 1). This value is equivalent to more than half of the circulating in the Russian economy in the money supply. Of them over the next three months to be paid more than 61.4 billion dollars, equivalent to 2.45 trillion rubles, or 3.5% of Russia's GDP. Even if we consider that some of this debt is a liability to related or parent company registered abroad, the amount still leaves considerable. In 2015, will have to repay more than 112 billion dollars. Total over the next 15 months, Russian borrowers are required to pay more than 173 billion dollars. Including 60-65 billion to be paid by private companies and banks that do not have access to alternative sources of refinancing under the same conditions. Additional losses of the Russian financial system in excess of $ 50 billion are due to illegal export of capital. Another 60 billion will go out of the country in the form of balance of income from cross-border investment. The proposed Bank of Russia "Guidelines for the Single State Monetary Policy for 2015-2017." ignore this problem. If, as follows from the above, the outflow of capital by the end of next year could reach more than 11 trillion rubles, an increase in credit to banks next year's planned Central Bank in the amount of 700 billion rubles, and in the run up to 2018 - 2.1 trillion rubles.Taking into account that part of the debt will be repaid at the expense of foreign exchange savings, as well as already given this year Central Bank loans to the banking sector, contraction of the money supply relative to the present, is clearly not enough even for simple reproduction level will be at least 5 trillion rubles. Given the announced sanctions in response to import, as well as the demand for loans from small and medium-sized businesses the money supply deficit of 6.5 trillion rubles. And if we take into account the need for lending growth in production at the existing production capacity and investment in their modernization and development, the artificially created shortage of money in the economy reaches 8.9 trillion rubles, which is about 12% of GDP. This is the output nedoberet the Russian economy as a result of monetary policy in this and in the following years.




Chronic shortage of money
Squeezing the money supply and raising interest rates, the central bank artificially worsens the conditions of lending to enterprises, forcing them to cut production and investment, as well as to shift additional costs to consumers through higher prices. At the same time, claiming "inflation targeting", the Central Bank can not achieve the claimed objectives, as their policies he spins the flywheel cost inflation and inflation expectations increases the transition to a free floating exchange rate. In contrast to the scholastic model of market equilibrium in the Russian real terms increase in interest rates does not give capital inflows and outflows from the real sector to foreign currency accounts, and the transition to a floating exchange rate turns its free fall. crunches and contraction of the money supply leads to a drop in production and investment (see fig. 2 and 3), as well as a chain of defaults companies facing the inability to refinance its liabilities. You can argue endlessly about how to increase the money supply affects inflation, but it is clear that its reduction is automatically associated with a drop in production, business, investment and innovation. In 2014, as a result of policy control rate of monetization of the Russian economy (the ratio of ruble M2 to GDP) will decline, according to our estimates, from 47 to 44% of GDP.This decrease corresponds to the slowdown in GDP growth to 3 p. P. With respect to the previously expected level (0.5 vs. 3.5%), as well as a two percent drop in investment. Over the last 16 years like a real contraction of the money supply was observed only twice: shortly before the destruction of the GKO-OFZ pyramid and default on government debt in August 1998, and then at the height of the financial crisis in the winter of 2008/09. promotes economic downturn and withdrawal of the Government of around 7 trillion rubles, frozen in the accounts of the Central Bank. This is more than the Bank of Russia credit to commercial banks and, through them, the economy as a whole. In other words, the real economy creditor acts not the Central Bank, and taxpayers whose funds are derived from the treatment and partially replaced by the Central Bank loans. Thus artificially reducing the final demand for goods and services, which leads to a decrease in GDP. And although some of the money seized by the government compensated loans the Bank of Russia, it is an unequal exchange. Withdrawal of money directly reduces working capital and business activity. And allowed the Bank of Russia refinancing of commercial banks is used by them for short-term operations, including speculation against the ruble. Compounding the financial health of the real sector and the government planned "tax maneuver" - Ministry of Finance proposed the replacement of the export duty tax on mining. This tax is, in fact, is a tax on the consumer of oil and other natural resources. Added to the "closing" the cost of production on the worst profitability field, it is automatically included in the price of goods. Even with the planned reduction in excise duties on petroleum products this maneuver brings the economy to a new level costs, representing a redistribution of the natural rent in favor of oil exporters due to its domestic customers. He further drives the economy into stagflation trap created by the policy of the Central Bank. Simple extrapolation clearly observed statistical relationship between GDP growth rates and the money supply shows that under the current and the next three years the declared policy of the monetary authorities expect GDP fall by 4% in 2015 and 2% in 2016 (see. Figure 4).




Subordination of goals
Need to change the model of speculative financial market model, focused on lending to ensure sustainable growth and modernization of the Russian economy. The necessary level of money supply to raise investment and innovation activity should be determined demand for money from the real sector of the economy and development institutions at the regulatory impact of the refinancing rate. The transition to inflation targeting should not occur due to failure of the other goals of macroeconomic policies, including the provision of a stable ruble exchange rate, growth in investment, output and employment.These objectives can be ranked by priority and set in the form of restrictions. Today, in our opinion, should attach greater importance to the growth of production and investment within the limits set by the dynamics of inflation and exchange rate. To keep inflation within the prescribed limits will require a comprehensive system of measures on pricing and pricing, currency and banking regulation, the development of competition. From the theory and practice of economic development of developing countries should be an integrated approach to the formation of the money supply in relation to the objectives of economic development and building upon internal sources of money creation. The most important of them - the mechanism of refinancing credit institutions closed for lending to the real economy and investment in priority areas. The format of this mechanism in Russia may include the use of well-known and used in the practice of developed countries indirect (refinancing secured obligations of the state and solvent companies) and direct (co-financing of state programs, state guarantees, funding development institutions) how the issue of money. One should also not exclude the possibility of sending money issue for state needs, as is done in the USA, Japan, the EU, through the acquisition of the central banks of government debt.



The new model issue
Must be legally included in the list of state goals of monetary policy and the Bank of Russia to create conditions for economic growth, increase investment and employment. However, amendments to the law - just a small part of the way to new strategies and routines Bank. Much more difficult task - go to the regulation of the money supply by setting interest rates to issue money primarily for the refinancing of commercial banks against credit requirements for manufacturing companies, bonds, state and institutional development. At the same time, as suggested by the experts of "Business Russia", drawing on the experience of developed countries, to be a shift from managing the rates "as a whole" to work with the curve rates, which aims to improve rates on short-term instruments, determining the availability of credit to finance current expenditure, and lowering interest rates on long-term instruments, determining the availability of credit for investment. The refinancing rate from these instruments should not exceed 3% per annum in rubles based on the average rate of return in the investment property, net of bank margins, and terms of loans must comply with the typical duration of the scientific and production cycle in industry and construction (up to seven years). Refinancing working capital must be maintained at 5% per annum in rubles with the average profitability of the manufacturing industry, as well as provide for lowering rates for agriculture, construction and other industries with low profitability and high seasonal volatility. Access to refinance should be open to all commercial banks in the universal conditions, including control over the use of credits, as well as development banks on special terms, corresponding to the profile and aims of their activities (including taking into account the payback period of investment in infrastructure to 20-30 years - under 1-2%). To expand the channels of credit flows necessary to radically increase the Lombard list of the Central Bank, the inclusion of paying bills and bonds of companies operating in the priority areas of development institutions, guarantees of the federal government, regions and municipalities. In order to avoid stimulating the export of capital and currency speculation reception of foreign securities and foreign assets of Russian banks as collateral for Lombard loans and other Central Bank should be discontinued. At the same time should be to simplify the issue of corporate bonds of industrial sectors and infrastructure, with the transition to the use of Russian rating agencies. It is also advisable to include in the Lombard list bonds secured credit requirements of project finance. An important trend in the expansion of credit to the real sector - increasing opportunities for refinancing banks against non-marketable assets, increased diversity of assets, reduction in the rate of discounting.Requires a significant increase in resource potential development institutions due to their Central Bank funding for investment projects guaranteed by the government based on the need of advanced growth of the new technological order. Place such loans development institutions should on the principles of lending for specific projects involving the allocation of money exclusively for established their costs without transferring money to the account of the borrower. With the formation of monetary policy the Bank of Russia should assess the macroeconomic impact of emissions rubles through various channels: to refinance commercial banks under obligations manufacturing enterprises, under the bonds of the state and development institutions, under the substitution of foreign currency loans under the purchase of foreign currency in the foreign exchange reserve, under the external demand for rubles for lending to foreign trade, capital transactions and formation of the ruble reserves of foreign states and banks. And do it on the basis of understanding the real dependencies and nonlinear feedback interaction financial and industrial sectors of the economy, rather than from a superficial understanding of the linear relationship between money growth and inflation.



Finish the financial infrastructure
Measures should be taken to increase the capacity and safety of the Russian monetary system and strengthening its position in the world economy, to make the ruble an international reserve currency functions and the formation of the Moscow financial center. First of all, in terms of sanctions is necessary to limit the borrowing of state-controlled corporations abroad gradually replace foreign currency loans of state-controlled companies ruble loans state-owned commercial banks at the expense of their target refinancing by the Central Bank under the corresponding percentage. Similar opportunities should be given to private companies subject to the return of exported overseas capital into the country. In order to neutralize the negative effects of sanctions on the financial market should create a reinsurance company based on the Russian Agency for Export Credit Insurance and Investment (EXIAR) using Vnesheconombank guarantees instead of direct investment Filling the authorized capital of the company, to provide him with a dominant position in the market reinsurance Russian residents. We must strongly encourage a shift in mutual settlements in rubles in the CIS, in the calculations with the EU - in rubles and euros, with China - in rubles and yuan. Recommend to business entities to move to settlements in rubles for exported and imported goods and services. At the same time provide for the allocation of related ruble loans States - importers of Russian products to maintain a turnover used for this purpose credit and currency swaps. Dramatically expand the system maintenance payments in national currencies between enterprises of the CIS countries can by CIS Interstate Bank, settlements with other states - using controlled Russian international financial institutions (IBEC, IIB, and others.). To protect themselves from economic sanctions, you must create a payment and settlement system in the national currency - the EurAsEC member states, as well as to develop and implement its own independent system of international payments and exchange of information between banks. This system would eliminate the critical dependence of NATO countries controlled systems SWIFT, Visa, MasterCard. It is advisable to include banks of Russia and countries - members of the Customs Union and the CIS, as well as participation banks offer BRICS, SCO, Mercosur and other traditional partners. It is time to organize trading oil, petroleum products, wood, fertilizers, metals, other commodities in rubles - in order to ensure market pricing and to prevent the use of transfer prices for tax evasion. It should also oblige manufacturers to sell commodities through the exchange registered by the Russian government at least half of its products, including for export.




Support the ruble
An important element of sustainable development policies is to ensure the stability of the exchange rate.To do this, expand the range of regulatory tools of demand and supply of foreign currency, the possibility of levying export duties in foreign currency with its accumulation of foreign currency accounts of the government in the case of excess supply of foreign currency. In addition, you must use the rules of compulsory full or partial sale of foreign currency earnings of exporters in the domestic market in case of insufficient supply. It is necessary to keep the establishment of pre-declared borders ruble exchange rate fluctuations that are supported for a long time. With the threat of going beyond these boundaries should be carried out one-time change of course with the establishment of new boundaries to avoid provoking an avalanche of capital flight and currency speculation against the ruble, as well as provide immediate stabilization of its exchange rate. In order to prevent the use of issued to refinance production activities, foreign trade and investment money on currency speculation, it is necessary to ensure appropriate disbursement of such loans by the relevant rules of prudential supervision. It is necessary to impose restrictions on the change in foreign exchange position of commercial banks resorting to refinancing of the Central Bank. This must be done to stop the speculations of banks against the ruble, without which you can not expand the channels of their refinancing. 5 on the chart clearly shows that the increase in net lending to credit institutions by the Central Bank of the Russian Federation leads to an increase in net foreign assets of banks. This means that the latter have become the main channel of the country's export of capital generated by monetary authorities. Of course, refinancing should be carried out in rubles, to encourage de-dollarization of the monetary system. State guarantees should also be limited ruble obligations. In particular, it is necessary to limit the provision of guarantees for citizens' deposits under the Deposit Insurance System (DIS) only ruble deposits with a simultaneous increase in the rates of contributions banks CERs on deposits in foreign currency. " 

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