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Adaptation of macroeconomic policy in Russia to changes external environment

2009

In the summer of 2008, for the first time, the Russian economy came across the cyclical nature of external demand, which was accompanied by the closing of international capital markets. The economic crisis of 2008-2009 is radically different from the transformation crisis of the early 1990s and the financial crisis of 1998 as it significantly affected the structure and mechanism of the Russian economy prompting a need to form new targets, principles and economic policy realization tools. In this situation, it is hard to evaluate the current state of the Russian economy and the prospects for its recovery without fundamental research into the adaptation process of macroeconomic policy to a changing external environment. 

The purpose of this research is to study the efficiency of a move to new paradigms of macroeconomic policy amid cyclical recession as well as researching the monetary and rate policy of the Central Bank of the Russian Federation when influenced by a rapidly changing balance of payments.

Researching this idea creates a framework for an independent expert evaluation of the official forecasts of Russia’s socio-economic development, drafts of Russia’s Federal Budget Law, the main areas of CBR’s monetary policy and to forward substantive recommendations to the Government and the CBR.

As part of the project, we have monitored on a regular basis:

  • Development of the world economy and changes in the key external factors exerting the largest influence on the Russian economy;
  • Measures of the monetary, currency and budget policies implemented by Russian monetary authorities; reaction of the economy to these measures.

This work resulted in an analysis of actions by monetary authorities of the Russian Federation in the environment of the global economic crisis in the second half of 2008 and in 2009.

This analysis indicates that in the crisis of 2008-2009, monetary authorities of the Russian Federation successfully managed the emerging problems and were able to overcome the difficulties related to implementing their monetary policy.

At the same time, it is clear that many problems are of a long-term nature and their solution will go beyond 2009 and 2010. These problems include:

  • The need to return to a balanced federal budget,
  • The search for optimal principles of the rate policy,
  • The need to rebuild the balance sheets of banking institutions.

During the course of the research, we carried out an analysis of the main reasons for the profound fall of the Russian economy amid global economic crisis. In particular we considered both external (global economic recession, collapse of world financial markets) and internal factors (unbalanced macroeconomic policy, debt crisis, mistakes of banking supervision etc).

We analyzed the rationale of the main anti-crisis decisions of the Russian authorities and problems related to their implementation.

Our analysis of the key problems facing the Russian monetary authorities in the process of implementation of their policy demonstrated that an improved foreign trade environment and higher commodity prices strengthened the position of the federal budget on the one hand, even though deficit financing will be the main channel of money supply growth in the next few years. On the other hand, the consequent sustainable current account surplus strengthened the rouble.

These results lay a foundation for understanding the problems that face the monetary authorities of Russia in an environment of a changing balance of payments, and allow an analysis of their actions and to make decisions taking into account the existing limitations.