Oil Drop Spurs Call for Ruble Depreciation
themoscowtimes.com
By Karl Emerick Hanuska -- Reuters
Falling world oil prices are threatening the profitability of Russian oil firms that provide much of the country's hard currency earnings and are leading to calls for a policy of ruble depreciation.
Proponents insist it would benefit not only domestic oil firms by reducing production costs but all industry as it claws its way back from a decade-long slump.
But critics warn that even a controlled depreciation could bring about a fresh surge in inflation, historically one of the country's biggest economic problems, and destabilize its currency market, reducing the benefits from oil exports. Russia is the world's second-biggest oil exporter after Saudi Arabia.
"Oil companies don't need it. With oil prices where they are right now, these companies are still very profitable," said Roland Nash, chief economist at Renaissance Capital. "If prices fall to $12 per barrel, it might be an idea. Now, a ruble devaluation would do more harm than good."
Benchmark Brent crude climbed toward $19 a barrel in London on Monday.
The ruble's official rate is set daily by the Central Bank. Usually, the rate is based on the results of a special trading session in the foreign exchange market that is controlled by the Central Bank and into which exporters must sell 50 percent of their hard currency earnings.
While the Central Bank has been allowing the currency to ease versus the dollar, it has only allowed it to slip at a rate slower than that of domestic inflation. At first that policy, adopted in the months after the August 1998 financial crisis, sparked worries that manufacturers would lose competitiveness and that the economy would be harmed.
But oil prices rose to over $30 at the end of 2000 and in early 2001, setting the economy growing at a tempo unseen in the last decade. Oil firms are still continuing to export at maximum capacity, bringing billions of dollars back home to fill tax coffers and allow the Central Bank to stockpile record reserves.
But falling oil prices have led to calls in some quarters for a ruble depreciation that would cut domestic production costs and improve profit margins.
"That is confidential information, but it is known to me," said Nikolai Gonchar, a member of the influential budget committee in the State Duma.
"This measure is not needed to compensate for state revenues after the fall in oil prices, but for oil firms, to make oil exports more profitable, especially if they are cut," he said.
A policy of ruble depreciation would be a real turning point for the economy. The Central Bank has fought to keep the ruble steady since Russia's 1998 financial crisis and has spent hundreds of millions of dollars in recent weeks alone to satisfy the market's appetite for dollars.
That has not stopped the official ruble rate from hitting a low of 29.93 per dollar in the last week, down from about six to the dollar before August 1998. Gonchar said the government was considering letting it fall to 32 per dollar by year-end.
But Finance Minister Alexei Kudrin, who has warned that lower oil prices could reduce economic growth, rejected the idea. "It's ridiculous," he told journalists at the Duma on Friday.
Prime Minister Mikhail Kasyanov also seemed to rule out the idea. "The government and the Central Bank are sure that macroeconomic and national currency stability will be maintained further," Kasyanov told Duma deputies.
Nash at Renaissance Capital said any benefits from a ruble devaluation would be overshadowed by negative effects and that he saw such a move as unlikely.
"First, the Central Bank would have to print massive amounts of rubles to buy up [exporters' hard currency earnings], triggering inflation. Second, it would destabilize the forex market, whose stability has been the bank's biggest success over the last two years." |
