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Sep 16, 2022
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Currency feast during the plague

The monetary authorities of the Russian Federation are frank and shameless lobbyists of Russian oligarchs

I have already written about such a strange and dangerous phenomenon in the Russian economy as the chronic excess of exports of goods and services over their imports. And suddenly Russia’s trade surplus began to grow. In the first half of this year, it reached $158.4 billion (in the first half of last year it was $60.5 billion).

The Bank of Russia data for eight months of the year have just been published. Surplus – 213.6 billion dollars. If the trends continue, then by the end of the year the trade balance surplus will exceed 300 billion dollars. The figure is fantastic! I will give data on the size of the surplus (surplus) of the trade balance of the Russian Federation for the previous five years (billion dollars): 2017 – 114.6; 2018 – 195.1; 2019 – 161.8; 2020 – 93.4; 2021 – 190.3.

The explanation is simple: the value of exports skyrocketed as a result of the rapid rise in energy prices (the rise in prices was provoked by anti-Russian sanctions); import volumes have been greatly reduced due to sanctions restrictions and bans.

In May, the Ministry of Economic Development gave the following forecast for the current and next years. Exports in 2022 will amount to 484.4 billion dollars, in 2023 – 451.6 billion dollars. Imports in 2022 will be equal to 251.9 billion dollars, in 2023 – 275.0 billion dollars. Thus, the trade surplus in the current year will be equal to 232.5 billion dollars, in the next – 176.6 billion dollars.

In August, the Ministry of Economic Development revised its forecast. New figures: exports (billion dollars) in 2022 – 585.3; 2023 – 505.4. Import (billion dollars): 2022 – 285.7; 2023 – 275.0. Balance (billion dollars): 2022 – 299.6; 2023 – 230.4.

I emphasize: figures of tens and hundreds of billions appearing in the reports and forecasts of economic departments are virtual. The lion’s share of Russian export revenue is denominated in toxic currencies. And this means:

FirstlyWe won’t buy anything with these currencies. We will not buy machinery and equipment, vehicles, parts and spare parts in addition to what was purchased earlier, high-tech products. The West firmly blocked the supply of these products to Russia.

SecondlyRussia’s accumulated toxic currencies can be frozen and even confiscated at any moment. That is to disappear.

Without much stretch, one can say: the supply of Russian energy carriers and other goods to the West is our gratuitous help to the enemy. And the supply of some materials (titanium, aluminum, some other non-ferrous metals) is used in the production of weapons and military equipment.

The tragic paradox of the current economic situation in Russia is that fantastic foreign exchange surpluses recorded monthly by the Central Bank are accompanied by a deterioration in the domestic financial situation.

We started 2022 with a healthy budget. Its parameters are as follows: revenues – 25.54 trillion rubles, expenses – 23.69 trillion rubles, budget surplus – 1.32 trillion rubles, or about 1 percent of the expected GDP. After February 24, life began to make adjustments. There were unplanned expenses. As can be seen from President Vladimir Putin’s speech at the Eastern Economic Forum (EEF), by the end of the summer, additional (unplanned) budget spending amounted to 6 trillion rubles. However, after all, additional income should also appear due to the fact that currency rain has begun to fall on Russia!

However the budget surplus began to evaporate from the middle of the year. In July, for the first time this year, a budget deficit was recorded on a monthly basis, and not weak – 1 trillion rubles. In August, another monthly deficit – in the amount of 344 billion rubles. According to the results of eight months of the year, there is still a surplus of 137.4 billion rubles, but the Ministry of Finance expects that by the end of September, plus will change to minus, the surplus will turn into a deficit, and the deficit will continue to grow.

This trend is due not even to additional expenditures, but to declining budget revenues. As reported on September 12 by the Ministry of Finance, federal budget revenues fell for the second month in a row in annual terms – in August by 11% after 26% in July. In July-August, both oil and gas and non-oil revenues decreased. In August, oil and gas revenues amounted to 671.9 billion rubles. This is 3.4% less than in August last year and the lowest since mid-2021.

And very simply: economists call it “currency liberalization.” It would seem that in the conditions of the sanctions war, one should speak of “currency mobilization”, but here everything is the other way around.

The first presidential decrees after the start of the sanctions war demanded the return of all foreign exchange earnings from exports to Russia, the mandatory sale of 90 percent of earnings in rubles, prohibitions on the free withdrawal of capital from Russia, a ban on foreign investors transferring their income in foreign currency abroad, etc. In addition, the President of the Russian Federation urged to switch from toxic currencies to rubles in foreign trade settlements as soon as possible. On March 23, he, in particular, announced Russia’s transition to settlements on natural gas supplies to Europe in rubles (instead of euros).

However: the March decrees and initiatives of the President by the monetary authorities of Russia began to be torpedoed and distorted. This was done with the help of the same presidential decrees, the drafts of which were prepared by the departments of the financial and economic bloc. In particular, on May 23, 2022, it was decided to reduce the level of mandatory sale of export earnings to 50%. The same decree gave the Board of Directors of the Bank of Russia the authority to determine a different deadline for the fulfillment by residents participating in foreign economic activity of the obligation to sell foreign currency than that provided for by the first anti-sanctions decree of February 28. Initially, the period was 3 days, and the Bank of Russia took advantage of the new decrees and on May 26 increased the period to 120 days! For four months, the currency can hang around somewhere!

Little of. On June 7, the Ministry of Finance announced that the subcommittee of the government commission for the control of foreign investment in Russia, operating under the department, decided to allow exporters to credit the currency received from non-residents under foreign trade agreements to their accounts abroad. “This is possible subject to the conditions for the subsequent repatriation of funds to the Russian Federation and the subsequent sale of export earnings in the amount determined by the decree of the President of Russia“, – emphasized in a message on the website of the Ministry of Finance.

At the end of June, at the congress of the Russian Union of Industrialists and Entrepreneurs, officials of the Ministry of Finance and the Central Bank (A. Siluanov as well as E. Nabiullina) have explicitly stated that they are completing work on “zeroing” the mandatory sale of this proceeds and are preparing a complete abolition of the mandatory repatriation of exporters’ foreign exchange earnings. Nabiullina said that currency liberalization in Russia should be accelerated: it is necessary, they say, to allow businesses to rebuild logistics:

The monetary authorities of the Russian Federation act as frank and shameless lobbyists of the Russian oligarchs. And they are pushing through laws that effectively give exporters immunity from prosecution for any violation of Russian laws. Officials adopted a very strange formula: “violation of currency laws without fault“. What is worth, for example, Federal Law No. 235-FZ on amending Article 15.25 of the Code of Administrative Offenses (Code of the Russian Federation on Administrative Offenses), which was signed and officially published on July 13, 2022. Here are some fragments of the document (in the presentation):

Reduced fines for illegal currency transactions and for violations of the currency legislation of the Russian Federation: from 75-100% to 20-40% of the transaction amount for violators, 20-40% of the transaction amount, but not more than 30,000 rubles. – for officials.

The penalty for violating the deadline for fulfilling an obligation under a foreign trade contract by other permitted methods has been reduced from 5-30% to 3-5%, but not more than 30,000 rubles.

The maximum fine for non-return of the paid advance in foreign currency for goods not imported and services not performed is limited to 30,000 rubles.

All this means that participants in foreign trade operations can leave billions of dollars abroad with impunity for penny indulgences, called fines.

Since July, the monetary authorities have done a lot of hard work, which led to the fact that the Russian treasury stopped receiving even crumbs from those billions that exporters get from the export of Russian resources …

Photo: REUTERS/Dado Ruvic

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