Publication: Eurasia Daily Monitor Volume: 5 Issue: 205

In interviews over the weekend, top Russian economic officials sought to downplay fears that the global financial crisis would lead to a devaluation of the ruble and other dire consequences for Russia. Some observers, however, say Russian officials are playing down what lies ahead, and they warn that Russia’s economy is likely to be hit hard, possibly with a sharp devaluation of the currency and a wave of defaults.

First Deputy Prime Minister Igor Shuvalov told Rossiya state television on October 25 that discussions about the possibility of “sharp fluctuations” in the ruble’s value were “unjustified rumors” and that the Russian government and Central Bank “believe that a sharp change in the [value] of the national currency would be harmful and can by no means be allowed to take place.” The Central Bank, he said, “possesses a sufficient set of measures and monetary resources to prevent any sharp fluctuation either toward a decrease or toward an increase in the value of the Russian currency” (Interfax, October 25). In addition, Shuvalov told reporters that the government was drafting a program to sustain Russia’s economy in the face of the crisis, one that included “measures concerning the international financial structure and how international financial organizations should function, with regard to national regulation as well.”

Still, Shuvalov said that Russia’s large financial reserves and relatively unsophisticated financial system would allow it to weather the global storm. “We believe that we have a full arsenal to react [to problems] and insure the banking system,” he said (Moscow Times, October 27).

Likewise, Central Bank First Deputy Chairman Alexei Ulyukayev told Ekho Moskvy radio on October 25 that the Central Bank had the means to control sharp fluctuations in its currency but did not yet see the need to limit capital movements or change the ruble’s trading corridor. “We have a good balance of payments and large reserves, and the basic economic indicators are strong,” Ulyukayev said. “Just because the global financial crisis has hit our shores does not mean that the ruble has to be significantly devalued.” Ulyukayev said that while capital was leaving Russia, net capital outflows would be “much less” in October than the $25 billion that left Russia in September. Russia’s hard currency reserves dropped from $597 billion in August to $515 billion on October 17, in part as a result of efforts to defend the ruble (Financial Times, October 26).

According to Nezavisimaya gazeta, some skeptics took note of the qualifiers in Shuvalov’s promise that there would be no “sharp” fluctuations in the ruble’s value and Ulyukayev’s statement that the ruble did not have to be “significantly” devalued. The newspaper also reported that some economists believed that a devaluation of the ruble was inevitable and drew parallels to the currency’s crash in 1998. “A devaluation of the ruble today is inevitable, the way it was inevitable in 1998,” Mikhail Khazin, president of the Neocon consulting firm, told the newspaper. “Since 2003 Russian banks and companies have actively borrowed dollars, not having the possibility to receive ruble credits. This is exactly how the government acted on the eve of the 1998 default. Only then the banks changed money for their contractors so that they could play on the GKO [short-term state bond] market. And there is nothing surprising in the fact that the same policy that was carried out by [then-Central Bank Chairman Sergei] Dubinin, [then deputy prime minister in charge of relations with international financial institutions Anatoly] Chubais, [then-Deputy and now Finance Minister Alexei] Kudrin and [then-deputy finance minister and currently Central Bank Chairman Sergei] Ignatiev will lead a second time to the same result—an inevitable devaluation of the ruble.”

Khazin said that the government’s only choice was between a gradual devaluation of the ruble, which would require spending the country’s hard-currency reserves, and a sharp one, which would allow the reserves to be saved. Either way, banks and companies with large hard-currency debts would default, although in the case of a sharp devaluation more hard-currency reserves would be available to bail them out According to Khazin, there is a “theoretical danger” that state-owned energy giants like Gazprom and Rosneft could default on their debts and that their creditors could claim large Russian oil and gas deposits (Nezavisimaya gazeta, October 27).

In a commentary for, Alexei Mikhailov detailed a scenario under which Russia’s hard-currency reserves could be completely used up by February 2009, with the ruble’s value collapsing to 60-90 rubles to the dollar by January 2009 (the current exchange rate is 27.1 rubles to the dollar). “The greatest danger today is complacency, the distance between the real state of affairs and our economic authorities’ and economic elites’ notion of it,” he wrote.

Russia needs “a real program of action in the conditions of a global and Russian crisis (and it is already not simply a financial one),” Mikhailov wrote. He added that such a program should be “well thought-out,” without “illusions” and aimed at rescuing not only “connected” banks and “oligarchs” but the whole economy. “Only an honest, transparent, predictable, public, and responsible policy can keep the markets and people from panic and hold Russia back from catastrophe,” he concluded. “Otherwise, we have already been through what will happen. Exactly 10 years ago” (, October 24).