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Whether Hard Rouble Will Kill Weak Russian Industry?

Whether Hard Rouble Will Kill Weak Russian Industry?
Konstantinov Ilya 10.08.2007
As everyone know, the rouble exchange rate in relation to dollar has been growing already for a long time. It grows quickly: by Tuesday, the 7th of August of the current year the Central Bank once again lowered an official dollar exchange rate for 10,34 copecks, to a level of 25,45.


In relation to euro rouble "has a little grown thin", that is connected with change of situation in the world financial market where euro has risen in price in relation to dollar more than for a cent and comes nearer to a level of 1,4 dollars for euro.


Meanwhile, according to the newspaper "Vzglyad", international investment banks predict sharp strengthening rouble exchange rate in relation to leading world currencies. Analysts of Bank of America and Swiss bank UBS are sure that the rates of strengthening of rouble in the second half-year 2007 will be doubled. It is connected with the fact that the Russian currency, in their opinion, is underestimated, the fact that negatively affects inflationary processes in Russia. By the way, by estimations of the Central Bank, strengthening of rouble on 1 % reduces inflation on 0,3 %. Achievement of the figure planned - 8% - of annual inflation supposes, according to different forecasts, rouble price rise from 2 up to 40%. Thus, to the beginning of the next year dollar will cost from 24.5 up to 15 roubles. That is the opinion of the foreign experts.


We shall reject last figure as unrealistic (Central Bank will not go on such revolution) and shall stop on a "plug" 24,5 - 24,0 roubles for dollar that will already seriously affect the Russian economy. The simplest dependence is obvious - it will become more profitable to import the goods than to export. This is a new tendency: in the first half of the year 2007, according to Roskomstat, import of the goods to Russia has grown on 39,4% in comparison to the corresponding period of the last year, while export on 9,8%. Meanwhile in the first half of the year 2006 corresponding figures made 22.7% - import and 31.1% - export. It's possible to suppose that at the end of the current - the beginning of the next year the tendency of more rapid growth of import will remain or even will increase.


What will be the consequences?

Russia exports basically raw material, first of all hydrocarbons and imports mainly cars, equipment, vehicles and the foodstuffs (together 63-64% from import volume). Strengthening of rouble on a background of steadily high price for our basic export goods - oil and gas - will result neither in decrease in their extraction and export, nor to reduction of incomes of the Russian treasury. Superprofits of oil kings can fall but these are their problems.


The state of things with the Russian mechanical engineering which recently shows decent growth is worse: manufacture of cars and equipment is growing from 2003 and in 2006 their manufacture has increased for 3,3%. Strengthening of rouble is capable to complicate situation in this branch.


The Russian agriculture will find out itself in even more dramatic position, it's hardly rising on legs during the last 3-4 years. Inflow of cheap foodstuffs from abroad (it is not possible to shrug off also prospect of the introduction of Russia in WTO) can put an end to prospects in this sphere. Thus, quick strengthening of the Russian rouble not being balanced by corresponding measures of protection character will promote fixing of raw status of the domestic economy with all possible consequences.

We can only hope that the heads of the Russian state will manage to take adequate measures not having admitted uncontrollable rise of the Russian currency. I shall remind that president V.Putin has expressed himself not so long time ago having warned about inadmissibility of the conflict between financial authorities and industrialists.


The first vice-premier D.Medvedev expressed similar ideas at the Petersburg economic forum emphasizing priority of diversification of the Russian economy and necessity of prime development of science-driven industrial branches.

Thus, the struggle between monetarism and the idea of strong industrial policy in management of the country continues. The nearest year, by all appearances, will be crucial.
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