Russia’s Reserves

Opposition politician and leader of the party “Democratic Choice” Vladimir Milov had a long interview published today in He covered various topics in the Russian political and economic scene, but given the recent volatility in the ruble, I’d like to focus on what Milov had to say about the Russian economy, and where it is headed.

The interviewer asked:

After a temporary lull, the Russian economy is once again beginning to storm. Oil prices are fluctuating, and along with them the ruble. What is happening in the day to day lives of the Russian people?

Milov replied:

The ruble periodically swings back and forth, but it is not the leading indicator. The basic statistics are very bad and deteriorating from month to month: the closing of workplaces, falling investment, the [falling] income of the populace, and [decreasing] purchasing power. During the 1998 default, we also had a strong drop in income, but it was short-lived, and v-shaped. Then we quickly rebounded, and [the economy] began to grow. In addition, before the 1998 default, most people’s savings were in foreign currency. [And so] they were not impacted.

Now it is precisely the opposite: savings have been greatly depreciated due to the devaluation and inflation [note: inflation now sits at 15,3%]. Although officials claim that we have passed through the worst of the crisis. But this is a lie and does not correspond to reality. The situation is getting worse…

Milov goes on to explain that “there is no strategic exit. It is not clear how we are going to stop its [the ruble’s] decline and return to growth. Previously at least there was a mass influx of loans from the West, but now nobody is giving anything.”

Even if the sanctions are removed, he says, “the credit blockade will be long”.

This is because now Russia is seen as a “political risk”. Even those who are not on the sanctions list are still seen as a risky venture.

“All our major businesses are in one way or another connected to the state”, Milov explains. And if Russia continues along its path, and again “escalates hostilities” in Ukraine, “then everybody is well aware that the sanctions lists can be greatly expanded.” So nobody wants to loan money to Russian businesses “just in case”.

Everybody understands that while the current administration in power, nobody knows where Russia will invade tomorrow. And even now there is something of a lull, but we are talking about long-term loans and projects. This is very risky, because of Russia’s unpredictability, you can simply lose money. For us, this credit blockade is much more painful than sanctions.

And so international banks are choosing not to loan money or invest in Russian projects.

Milov also mentions Russia’s reserves in passing, noting that they currently sit at $360 billion. And that Putin is comfortable with this, even though “this is two times less than what Russia had during the 2008 crisis.”

However, Milov fails to note (though he has mentioned this before) that the amount of $360 billion is not entirely honest. Approximately $150 billion of that actually belongs to the Finance Ministry, and has essentially already been spent on projects. Another $48 billion (or so) is in gold and so is not ‘liquid’. This leaves the Central Bank with approximately $162 billion in reserves. Less than half of what they claim to have.

The Russian Central Bank posted the following statement today on its website:

On 28 July 2015, the Bank of Russia suspended operations to replenish international reserves due to increased volatility in the domestic FX market.

Previously, they had claimed that they were buying up to $200 million a day to replenish the foreign reserves.


Leave a Reply

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

You are commenting using your 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