Is Russia Broke?

We’ve been having a conversation on Twitter recently about Russia’s reported reserves. Russia’s Central Bank is required to report the amounts it has in foreign exchange reserves on a weekly basis. But the amounts look odd to me, and I’m skeptical. To be honest, I’m not sure they have very much left at all. Here is why:

In January, Russia’s Finance Minister, Anton Siluanov, said that they were going to start using one of the Finance Ministry’s funds to buy rubles.

“We are selling a part of our foreign-currency reserves. We’ll get rubles and place them in deposits for banks, giving liquidity to the economy.”

In May, the Finance Ministry reportedly began buying more foreign currency after the Central Bank resumed “daily purchases of foreign currency… for the first time since June [2014] to replenish reserves”.

However, when you look at the actually amounts reported by the Central Bank on a monthly basis, the amounts are not growing. And in fact, the International Reserves have fallen by approximately $24 billion since the end of 2014.

The Finance Ministry should also not be adding anything to their funds because crude is still below $70 a barrel.

In addition, Siluanov has said that the Reserve Fund will fall to $38.28 billion by the end of this year. The Finance Ministry’s website claims [in Russian] that there is currently $76.83 billion in the Reserve Fund.

As near as I can make out, there is $6.254 billion in the National Wealth Fund (with another ~850 billion in rubles). [Note: if I’m reading this incorrectly, please let me know].

Recall that according to Vladimir Milov, this money should not be included when discussing Russia’s “reserves” because it is not the Central Bank’s to spend.

Meanwhile, the Central Bank is systematically shutting down banks, and plans more closures in the near future:

As a result, the Deposit Insurance Agency is looking for an infusion of cash:

Something that was sharply criticized by the Economic Development Minister, Ulyukayev:

It also appears that oligarchs are bailing out the CBR by buying up assets. Vladimir Potanin, for example, recently purchased palladium from the Bank (note that the Bank does not reveal how much palladium it holds).

In March economic prophet Slava Rabinovich predicted a crash no later than May or June.

If I am right and Russia’s Central Bank is lying about how much it holds in reserves, the decision is now a political one rather than financial.

In the interim, the Central Bank will have to limp along, depending on the oligarchs (who are nothing more than glorified state bankers) to bail them out, and utilizing creative accounting practices to conceal the fact that Russia is broke.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s