#8
BBC Monitoring
Russian economic expert finds positive aspects to
oil-price fall
Source: Strana.Ru web site, Moscow, in Russian 20 Nov 01
Sergey Vasilyev believes devaluation will help increase the competitiveness of Russian output. Here, in his opinion, the Central Bank's authority is so great that it can afford a "broad spectrum" of operations on the market.
Sergey Vasilyev used to belong to the Moscow-St Petersburg group of economists (Yegor Gaydar, Anatoliy Chubays, Petr Aven, Aleksey Illarionov and others). In 1994-1997 he was deputy minister of the economy. In 1997-1998 he was deputy leader of the government apparatus.
[Sergeyev] It looks as though OPEC has declared a "price war" against Russia. How long will we be able to withstand a price of 10 dollars or, let's say, 6 dollars a barrel?
[Vasilyev] Well, 6 dollars a barrel is sheer fantasy. Although it will indeed be harder for us to withstand a substantial reduction in oil prices than it will be for the Arab countries. If there is a long-term reduction of prices we will clearly require devaluation. Devaluation will increase our competitiveness and will help us cope with the consequences of the decline in oil prices.
Gradual devaluation would be a mistake. But the Central Bank has sufficient reserves to be able to afford to change the dynamic of the currency exchange rate. The markets' degree of trust in the Central Bank is also high so that the Central Bank can now afford a broad spectrum of operations to alter the profile of the rouble exchange rate.
[Sergeyev] What advice can you give the government - to hold out or to take some steps right now?
[Vasilyev] I can only speak from the outside. First, we must agree with OPEC. A price war is not in our interests.
And second we must try most vigorously to reach agreement on restructuring. The schedule for payments must be made directly dependent on oil prices - that will make it possible to avoid having to reach a new agreement every year...
[Sergeyev] Perhaps Russia should insist on debts being written off - in exchange for taking no part in OPEC's prices policy?
[Vasilyev] This is mainly a political issue. But the actual theme of debt restructuring should be opened again. This can and must be discussed with the creditors...
[Sergeyev] Some economists believe that the next fall in prices for oil could have a positive effect on the Russian economy....
[Vasilyev] That is quite right - a reduction in oil prices does have its plus points. Let me remind you that if there had been no decline in oil prices in 1998 then the powerful normalizing influence of the crisis on our economy would not have occurred. I believe the ideal situation for Russia is one with consistently low oil prices in the region of 12 dollars a barrel. In that case our economy would not experience destabilizing shocks because of leaps in world prices. In addition there would be no drastic "off-loading" of dollars into the economy and the problem of "sterilization" would disappear.
As for the creation of a reserve or stabilization fund from the flow of petrodollars I can say that all our governments have proven their inability to accumulate anything. The question of reserve funds and long-term planning is a question of the maturity of the elites. So far our elites are clearly still not ready for long-term planning and the creation of stabilization funds.
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