Publication: Monitor Volume: 5 Issue: 10

The Brazilian government’s decision to effectively devalue its currency–the real–sparked a discussion in Moscow yesterday on what impact, if any, that decision could have on Russia. Vladimir Ryzhkov, first deputy speaker of the State Duma and a top member of Russia is Our Home, said Brazil’s action–which has resulted in tens of billions of dollars from international lending institutions–could lead the International Monetary Fund (IMF) to change its overall strategy. “It is obvious that the financial methods once offered by the IMF have proved infeasible and should be revised,” Ryzhkov said. Aleksandr Shokhin, another top member of Russia is Our Home and a former economics minister, predicted that the Brazilian crisis will lead to a complete loss of investor faith in emerging markets. “It is obvious that everything which has been going on can [have a negative affect on] Russia,” Shokhin said, adding that the IMF will probably “take a pause” to reassess its strategy toward transition economies and developing markets. Like Ryzhkov, Shokhin criticized the IMF approach: “It has become obvious: The methodology of the globalization of finances, which was urged by the IMF in its time, has collapsed and needs to be reassessed” (Russian agencies, January 15).

Yegor Gaidar, former acting prime minister and now director of the Institute of Economic Problems of the Transition Period, a private think-tank, said yesterday that Brazil’s devaluation would not become a significant problem for Russia. Gaidar said the events in Brazil showed the seriousness of the effect which the global economic crisis has had on countries with significant budget deficits: “It again emphasized that, given the existence of internal problems in Russia, a very large part of what happened in 1997-1998 was nonetheless connected with general global problems.” Gaidar, who reportedly last year served as an adviser to then Prime Minister Sergei Kirienko until last August’s financial collapse, said that the events in Brazil did not change the IMF’s position toward Russia in any significant way. He said the lesson for IMF is that “the fund can help a country whose elite itself wants to deal with the crisis, with the fundamental economic problems, but it is completely hopeless if the country is not ready for that.” Gaidar said that Russia’s financial markets today are “so modest in size” that there is little sense in exaggerating the effect of the Brazilian crisis on them (Russian agencies, January 14).

Russia’s economics ministry plans to study the reasons for the Brazilian crisis, Deputy Economics Minister Vyacheslav Morgunov said yesterday (Russian agencies, January 14).