On May 25, Alexey Vedev, Head of the Financial Studies Department at the Gaidar Institute, took part in the roundtable meeting with international participation on the theme “Financial Markets and Monetary Policy during the Period of Sanctions”, organized by the Financial University under the Government of the Russian Federation.
The roundtable participants discussed, among other things, the mounting geopolitical tensions of 2022 that required significant involvement of governments and financial regulators in order to maintain stability in financial markets and the economy at large. In this connection, they began to use some emergency levers to support their economies that had not been used before.
In his presentation, Alexey Vedev focused on two key issues: the impact of the current economic crisis and the sanctions pressure. Economic growth is one of the main economic policy goals of any country; however, the expert believes that Russia will have to forget this particular notion for the next 3-5 years. In his opinion, the Russian authorities have no experience of dealing with such situations, and their policy is more likely based on intuitive decisions.
“While assessing the level of influence of the sanctions, I would single out 3 response models. The first type is what has become quite popular - “business will solve everything”, and this seemed to be an absolutely non-working model. But about 50 companies among those that left this country have now announced their return to Russia under other names, and this gives us some hope for easing the sanctions. The second model is “we export at a discount, we buy at a markup”. It seems to be working rather well, but by no means across all industries. Thus, for example, this model is totally irrelevant with regard to purchasing components. I think that tomatoes or lemons, indeed, can be purchased through an intermediary. And besides, it may work in the sale of oil, because 60 mn barrels of Russian oil is at sea, ready to be sold to any buyer. And the third model is “all this is serious”. This is the essence of what the Chairman of the RF Central Bank has recently stated: until today, we have lived on our reserves of goods and materials, and so we have not yet started to feel the entire impact of sanctions; the critical months will come later, when the reserves run out,” said Alexey Vedev.
So, according to Alexey Vedev, one of the short-term tasks is to ensure food and technological security, as well as uninterrupted supplies. In the medium term, the key question is whether Russia will remain part of the global economy. For 30 years, an open economy has been built, where it was more profitable to import components than to produce them domestically. Russia’s exit from the world economy is going to be costly and time-consuming, a compromise between security and efficiency. Therefore, import substitution is directly related to technological simplification, and the financial system will be built within the framework of these challenges.
“I also agree that one of the fundamental challenges is the structure of assets and the corresponding adjustment of liabilities. But the key word here is uncertainty, a complete loss of reference points,” Alexey Vedev added.
The expert believes that inflation is not a global issue in the current crisis. It has more to do with the panic of the people, who are concerned about the disappearance of goods and so demonstrate an increased demand.
“I am convinced that inflation is not a problem. The factors that have been stabilizing inflation since 2015 will begin to work again, namely the factors of falling demand and falling incomes. And I think that interest rates have nothing to do with it. The Central Bank, apparently, shares this opinion and lowers the interest rate. Inflation acceleration was caused by increased consumer demand. Today, financial stimulation is the number one task, because both producers and the population need support,” Alexey Vedev said.
By way of rounding up, Alexey Vedev noted that, in view of global uncertainty, it was difficult to say which mechanisms and levers of monetary and budgetary policies can become the most efficient ones. In his opinion, the decisive factor in developing appropriate measures to counter the impact of sanctions will be the industrial indicators observed in July-August, which will demonstrate the degree of political dependence of the Russian economy on imports.