The Russian economy quickly comes nearer to collapse of which main signs are a prompt collapse of ruble in relation to dollar and euro in the recent days. The collapse of ruble testifies serious mistrust to economy in the near future and says that Russia can suffer the highest rates of inflation in the next months.
The decreasing prices at oil became the main reason of decline in business activity. As it expects, the fixed reduction of oil cost poses a question toward the capability of some exporting countries (Russia, Venezuela) to fulfill the trade and other liabilities. The reduction of oil cost causes quite expected consequences. Low prices do not affect the countries which control the market (as Saudi Arabia) and the USA to which will be enough to reduce production of slate oil but literally undermine economy of the countries depending on oil export.
The decision of OPEC (leading by Saudi Arabia) not to reduce oil extraction as though specially planned over causing serious damage to such rival countries as Russia, Iran and Venezuela. Oil is not the unique factor of crisis. It is necessary to take into account also possible change of monetarist policies of the USA. When Washington decides to increase discount rates, the collapse of the investments performed by developing countries in the national currencies will begin.
There are not specific recipes for elimination of risk of local crisis. The increament of discount rates in Russia is the act of despair not to allow a final collapse of ruble and somehow to constrain inflation. However, perhaps it would be more reasonable to go on the way of increasing of production and respectively decreasing in a discount rate.
Russia got in an economic trick. Its economy needs lower discount rates to provide growth, but its companies need higher rates to push ruble up, and not so all dollars taken by them on credit cost are so much. Despite all aforementioned facts, the head of Russian MFA Sergey Lavrov expressed confidence that Russia will cope with the economic shock caused by the western sanctions.
Sergey Lavrov, during interview to France 24, condemned the measures taken by the European Union. President Vladimir Putin, who sees Russia’s economic woes as the consequence of a Western plot, must be increasingly amenable to the recipes that worked in another country ruled by an anti-Western authoritarian leader: Malaysia in 1998.
When the Asian financial crisis hit, Malaysia’s position looked a lot like Russia’s today: It had big foreign reserves and a low short-term debt level, but relatively high general indebtedness if households and corporations were factored in. At first, in order to bolster the ringgit, Deputy Prime Minister Anwar Ibrahim pushed through a market-based policy with a flexible exchange rate, rising interest rates and cuts in the government spending. It did not work: Consumption and investment went down, and pessimism prevailed, exerting downward pressure on the exchange rate.
For original text click here
 Bloomberg: Leonid Bershidsky: “Will Ruble’s Rout Force Capital Controls?” URL: http://www.bloombergview.com/articles/2014-12-16/is-russia-ripe-for-capital-controls
Bloomberg: Leonid Bershidsky: “Will Ruble’s Rout Force Capital Controls?” URL: http://www.bloombergview.com/articles/2014-12-16/is-russia-ripe-for-capital-controls