Posted on 04/21/2003 9:09:06 AM PDT by RussianConservative
The economy surged 6.4 percent in the first quarter of this year, compared with 3.7 percent in the same period in 2002, Prime Minister Mikhail Kasyanov said at the Cabinet meeting Thursday.
"The results of the first quarter are cheering. This is a heartening indicator. But the positive trend could be lost without further systematic action," Kasyanov was quoted by Interfax as saying.
Similar GDP growth was last seen at the end of 2000 -- and the economy was shrinking at the time. In addition, growth that year was the result of an economic rebound from the 1998 financial crisis, while the 6.4 percent this year is pure growth, economists said.
"The economy is flying," said Al Breach, chief economist with Brunswick UBS.
"Fate is giving Russia a gift for the third time in the five years since the 1998 economic crisis," said Alexei Moiseyev, economist with Renaissance Capital.
The gift Moiseyev was referring to is negative interest rates. Banks tie interest rates to the ruble exchange rate, and with high inflation factored in, factories are ending up with free money to invest in production.
"It's rather simple. You borrow at 12 percent to build another beer-producing line, and beer prices get 15 percent more expensive due to inflation. This is a very attractive option," Moiseyev said.
Industrial production shot up 6 percent in the first quarter of this year, Kasyanov said, citing State Statistics Committee figures.
The previous two "gifts" that stimulated the post-1998 economy were the relatively long-lasting effects of the ruble devaluation and three years of high international oil prices.
The economy grew 4.3 percent in 2002, compared with 5 percent in 2001 and 9 percent in 2000. The government is forecasting annual growth of 4 percent to 5 percent this year and next.
Moiseyev said the current availability of money for investment is priming big companies for further growth. Worryingly, however, the small and medium-size businesses that fuel the economies of developed countries are being left out of the windfall, he said.
Kasyanov stressed at the Cabinet meeting that industrial growth was not tied only to the expanding oil sector.
"In addition to ongoing growth in oil and heavy metals, high growth rates were registered in machine-building and a number of other sectors, including a range of processing industries," he said.
Kasyanov, however, noted that light industry is continuing to lag behind. The sector soared in 1999 and 2000, fueled by a trend of heavy import substitution after the ruble devaluation.
Breach said first-quarter growth was also linked to strong domestic demand, which has been steadily growing due to political and economic stability. "Russians are starting to feel comfortable investing savings domestically," he said.
In another sign of a strengthening economy, Russian stock markets on Wednesday saw their highest trading volumes since the beginning of this year. Trading volumes on the MICEX and RTS and in ADRs exceeded half a billion dollars. (Story, page 5.)
The Central Bank's reserves are also on the rise, swelling $1.8 billion to $57.6 billion in the week ending April 11.
The ruble gained 10 kopeks this week to 31.18 rubles to the U.S. dollar.
Breach said ruble appreciation could have a positive effect on the economy if it forces factories to improve productivity in order to survive and withstand competition from imports.
13% flat tax works overtime!!
Rubles per dollar, 1994 to 2003
1994 - 2.2
1995 - 4.6
1996 - 5.1
1997 - 5.8
1998 summer - 6.3
1998 fall - 20.8
1999 - 22.3
2000 - 27.8
2001 - 28.5
2002 - 30.9
2003 - 31.2
Average ruble devaluation per year vs. USD 1994 to now - -26% per year, or dollar up 34% per year
Average consumer inflation 1998 to now - prices up 32.2% per year
Rise in dollar since 98 crash - 50% or ~9% per year
Rise in dollar from 94 to pre-crash - 186% or 26% per year
They just got a whole bunch of the real terms smash out of the way in 1998, when they defaulted on $40 billion in debt.
The last 3 years of "stability" have involved a slide of 4% per year in the value of the ruble compared to the dollar, with "growth" of 4-5%. In dollar terms their economy is going nowhere. Over the last 9 years, a ruble has lost 93% of its value - against dollars, which have themselves dropped about 20% in value compared to the consumer price index (US consumer prices in dollars have risen 25%, 2.5% per year, over the same period). Against consumer goods in the US, rubles have lost 94.4% of their value in 9 years.
Inflationists believe the secret to "growth" is "free" capital. Actual capitalism is based payments for and to capital, ensuring its most efficient use. To the inflationists, the whole point of making access to capital "free" is to gain control of resources without having to pass the test of efficiency and benefit to others from its use.
Oh wait, this is Russia.
Never mind.
Japan actually made things. They didn't get an inflationary brainstorm that they could instead live off of the proceeds of counterfeiting until their bubble in the late 1980s. Their economy has not grown since. Inflation and devaluation accomplish nothing, except to protect the connected, allow them to loot others, and avoid the efficiency and discipline of actually investing capital only in worthwhile ways.
I don't understand why you are so negative. Its not your currency. Is it just out of spite? You can say what you want, but almost 4 years of only positive results and sustained growth rates makes the case. The US dollar, by the way, is being steadily devalued. The EU is now worth more then the dollar, by almost 10%.
On other matters, Russia still hasn't paid those it defaulted to, in case you just forgot. A deadbeat should not look around for applause. As for making things, I meant besides Iranian nuclear reactors and giant Iraqi arms caches. Russia doesn't act as a responsible country in the world, so you should not be surprised if it doesn't get a whole lot of respect.
As for Russian consumer price inflation, it has averaged 34% since 1994, which tracks the progressive devaluation rather closely. It has been lower in the last 3 years, primarily because the 98 devaluation "front loaded" a lot of it.
The article wants to make it out as a good thing, that interest rates are 10% while prices go up 15%. Then that gets called "capitalism", when it is confiscation of savings. Capitalism *starts* when the *opposite* relation exists between inflation and interest, when people are paid to save instead of paid to loot savers.
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