Ruble Against Government

The government changed its mind. It comes back to the idea of the anti-crisis program, which hasn't been renewed for 2016 due to the decision made in 2015. On January 20, Russian Prime Minister Dmitry Medvedev said that the Russian government will continue to work on the anti-crisis plan. Banki.ru asked the experts what measures to save the falling economy need to be taken in the first place.

‘There won't be so-called anti-crisis plan’

The Russian government will continue to work on the anti-crisis plan, a number of new measures is expected to be added and some ineffective would be abandoned. This was stated by the Prime Minister Dmitry Medvedev at a meeting with members of the Government Expert Council. ‘We are preparing proposals, including, in fact, a continuation of the plan to support the economy, which had been implementing in the past year,’ Medvedev said on January 20. Thus, the government acknowledged that it is impossible to proceed without the anti-crisis plan, although it previously assured that no major mistakes were made and that the economy has adapted to the ‘new reality’.

‘... Some time ago, it seemed that we can do without a special plan and transfer the government's work in a routine standard form. But given the way things are going in last three or four weeks, we agreed with the colleagues from the government and with the Parliament representatives that the government will continue to work within the framework of the support plan for the economy, or, as it is sometimes called, the anti-crisis plan,’ said the Head of Cabinet. He explained that ‘it is necessary to include in the plan a variety of measures, and to continue a number of measures.’

Meanwhile, last year in October, members of the government confidently claimed that it is not necessary to implement an anti-crisis plan in 2016. For example, the Minister of Finance Anton Siluanov stated that the Russian government would not implement an anti-crisis plan the next year, as the economy is already beginning to adapt to the new conditions. ‘We believe that we can not constantly be in crisis. Indeed, the economy now, this year... experienced some shocks, but it begins to adapt. Next year (2016) we will not have the so-called anti-crisis plan. We will have a source, a fund to support priority sectors of the economy, in the framework of which will be provided support measures for key sectors,’ Siluanov told reporters. According to him, a special anti-crisis fund of up to 150 billion rubles, which was stated in the budget for 2016 (that is now probably also have to be rewritten), would help to support the economy, if necessary.

Now the government will have to drop its moderate optimism. On January 20 the dollar exchange rate on the Moscow Exchange during the trading session reached an absolute historical maximum since the time of denomination in 1998, approaching 82 rubles. The previous record – 80.1 rubles – was established on December 16, 2014. The euro exchange rate also updated the maximum, rocketing above 90 rubles. Official exchange rates set by the Central Bank, on January 21 were also of historical record: the dollar – 79.46 rubles, the euro – 87.03 rubles.

However, not all representatives of the authorities are alarmist. The President of Russia, Vladimir Putin, at the Opora Russia forum on January 20 said that entrepreneurs ‘even have new possibilities, referring to exchange rate differences and some opportunities in the markets.’ The First Deputy Prime Minister, Igor Shuvalov, advised Russians to almost ignore the ruble exchange rate dynamics. ‘Everything is fine. What kind of interventions? One should pay less attention to exchange rates,’ Shuvalov said. In turn, the Head of Bank of Russia, Elvira Nabiullina, told TASS agency that the ruble exchange rate is now close to being fundamentally reasonable. Deputy Minister of Finance, Alexey Moiseev, yesterday said that the government would not renew the state program of mortgage subsidies, one of the most prominent measures of the anti-crisis plan last year.

Banki.ru found out from the experts what measures the government and the Central Bank need to take in the first place in the new anti-crisis plan.

‘The main thing is to avoid the crisis of liquidity’

Alexander Levkovsky, CEO and Chairman of Board of SMP Bank:

– Bank of Russia already has sufficient experience and set of tools to successfully resist the crises. In particular, those are the measures that had been in force till the beginning of the year: lowered exchange rate for the calculation of ratios, reduction of reserve requirements for certain borrowers, completion of the equity capital. At the same time, the most important thing in the current situation is to avoid the liquidity crisis. If it happens, the effect of it would be significant, and all other measures would prove ineffective. Among other measures, which would serve as support for the entire economy, can be named programs aimed at the mortgage development, because the construction industry is a locomotive pulling a large number of related industries, providing access for banks to long-term funding, attracting banks to projects in the field of state-private partnership.

‘Without a lifebuoy, many banks may drown’

Nikita Maslennikov, Head of Finance and Economics Department at Institute of Contemporary Development:

– First of all, one should decide against which crisis a plan is needed. The structural crisis – then first emerges the structural agenda, which is formulated in many key areas of the government's work until 2018. This is an enormous document, which better be reformatted, we should clearly define what do we do and when. It is obvious that we can not cope with the structural crisis within one year. This work is a serious, long, one should think of measures for two or three years.

The first thing to do this year is to optimize the budget as much as possible. There is a lot of excess spending in it, as always signals the Accounts Chamber of Russia. Even the fact of carry-overs – about a trillion rubles – is also an indication of the quality of budgetary planning and expenditure efficiency. It provides resources for structural reforms.

The second point: one of the main causes of budget imbalance is an unfinished reform of the pension system. There are a lot of problems in this area. The pension system requires a reboot. Naturally, this will require several months. However, it must be done, because next year an aging of the population continues, the working-age population will shrink by about one million people. What should we do? Raise the retirement age, motivate seniors to continue to work? It is not clear. The problem with the funded system is not solved. At the same time, we have a huge number of social beneficiaries who retire early.

Third, naturally, is the reduction of excessive nature of the government regulation. We are talking about a variety of supervisory and other regulatory audits. Our business in the past year lost about 800 billion rubles additionally – that is the cost of the administrative burden. In the context of crisis, it is an inexcusable luxury.

Of course, if we talk about this year's objectives, it is necessary to take a closer look at the situation in the banking sector – not all credit institutions have a good capital adequacy. This problem may show itself, despite many measures that were enacted in 2015. It is necessary to pay attention to this problem in the framework of fight with the crisis, because without a lifebuoy, many banks may drown.

‘I do not rule out that the Central Bank would decide to return to regulatory exemptions’

Igor Bulantsev, Chairman of Board of Nordea Bank:

– The main anti-crisis measure, from my point of view, is a struggle with the increased uncertainty, which decelerates business activity and consumer sentiment. It should be the formation of a clear vision of the steps that the government will take in the implementation of different development scenarios. It should be clear for people what will be in the focus of the Central Bank, how will look a plan to stimulate the real sector of the economy, import substitution programs. If there are no resources necessary for the implementation of the anti-crisis plan, they would not talk about the creating of it.

Many of the banking sector support measures have already been implemented, such as the program of capitalization through federal loan bonds, and series of regulatory exemptions. I do not exclude that the Central Bank will decide to return to regulatory exemptions. Everything is interconnected in the economy. And, for example, stimulation of the real sector would have a positive impact on the financial sector.

I am confident that the Bank of Russia will act in sync with the overall anti-crisis plan. The Central Bank has long refused to do foreign currency targeting and will not attempt to systematically return to it. In the conditions of addressed and weighted spending of reserve funds, opposing to movements in the global markets is, in my opinion, meaningless.

‘Reducing the key rate would stimulate the reduction in the resources cost for banks’

Dmitry Monastyrshin, Leading Analyst at Promsvyazbank:

– In order to support the banking sector, at the end of 2014 the Central Bank of Russia developed an anti-crisis plan, which includes regulatory exemptions, expansion of limits of liquidity provision, and capital injections. The package of measures was successfully implemented and helped banks to adapt to the deterioration of the operating environment.

At the same time, the continuing decline in world commodity prices is negative for the Russian economy, which includes the risk of further deterioration of the financial condition of banks' clients. In the current environment, banks may be supported by the following anti-crisis measures: the extension of use of the preferential exchange rate in calculating the capital adequacy ratios. Also important the reduction of minimum values of the capital adequacy indicators to a level under the Basel III, including the reduction of requirements for total capital adequacy ratio from 10% to 8% and core capital adequacy ratio from 5% to 4.5%.

Another measure for the banking system would be a smooth schedule for the formation of reserves on problem loans. Finally, the decrease in the key rate, which would stimulate the reduction in the resources cost for banks.

‘It is not necessary to stop the devaluation’

Anton Tabakh, Director of Regional Ratings at RusRating:

– I think that, first of all, must be reduced budget spending, but very carefully, thinking about priorities and postponing the execution of social presidential decrees of May 2012. We should also think about the support of regional budgets and regions debt refinancing.

As for the banking system, in the current situation, it would be helpful to postpone the full introduction of the Basel and to make an additional accrual of reserves, but this is within the competence of the Bank of Russia, and not the Russian government. In this case, in my view, within the framework of a floating exchange rate of the ruble, it is not necessary to stop the devaluation. What we should think is the stability of banks and timeliness of regulatory measures tightening.

‘The Central Bank will make decisions based on the rate of devaluation’

Karina Artemyeva, Head of Analytical Department at National Rating Agency:

– The government has not so few ways to solve the stated as key goal of fulfillment of social obligations – devaluation and reduction of budget expenditures. I think that the Central Bank will make decisions based on the rate of devaluation, realizing the scenario of further depreciation of the ruble, but without such surges, as we saw at the end of 2014. The second way – reduction of expenditures, especially those that are significant. For example, military.

‘The economy is not earning as much as it is planned to spend’

Anton Shabanov, Leading Expert at BCS:

– First and foremost, of course, should be increased the part of the plan related to the saving. The budget and the economy as a whole are not earning as much as it is planned to spend.

Parallel to this, we must try to improve the existing manufactures, increase their processability, return on invested capital. This will allow to use resources more efficiently, including financial ones, which are now in deficit.

For the banking system are now especially important the clear rules that are set by the government. Why? So that it would be unprofitable for banks to risk excessively on suspicious transactions, including lending transactions. So that banks would not use their instruments to launder money, but rather to support the economy.

Systemically important banks should also feel the support from the regulator, but at the same time feel a special responsibility, taking on the increased burden of financial problems. For example, helping in the rehabilitation of smaller players in the market.

Bank of Russia's plan must necessarily be part of the overall plan of the Russian government. After all, one of the most important parameters – the devaluation of the ruble – has a very strong influence on crisis indicators. For example, if the Bank of Russia make a strong devaluation, the budget would once again fully receive its income, an with rising oil prices – even a windfall income. What is the point of an anti-crisis plan then, if the economy would start to recover? And is it necessary to save the economy at such a price? Or we need a single, common anti-crisis plan that will keep the devaluation on acceptable for both the government and the citizens levels and will give impetus to the economy, which would not waste the money of National Wealth Fund? So, of course, a separate Bank of Russia's plan is necessary, but only as an integral part of the overall plan. Otherwise, it will be at sixes and sevens, and the overall effect of such incoherent maneuvers would be very small.

‘The budget of anti-crisis plan of the government this time will be very limited’

Timur Nigmatullin, Financial Analyst at Finam:

– Apparently, the budget of anti-crisis plan of the government this time will be very limited due to the prolonged decline in oil prices and the rapid exhaustion of the Reserve Fund. In my opinion, its budget would not exceed the level of 150-300 billion rubles. If we proceed from this amount, it would be efficient to direct about half of it for additional capitalization of the banking system, including regional banks. This will prevent the growth of disbelief in the interbank market.

The remaining funds would be advisable to send to support the real sector of the economy, namely the industries that most strongly influence the economic growth – housing, automotive, and so on. In particular, I am still waiting for a restart of the program of mortgage interest rates subsidizing in the primary market.

Banki.ru, 21/01/2016