The Russian economy risks in 2009: credit crunch, inflation and globalization

Three fronts: the Russian economy in 2009 is faced with three consequential threats - accumulation of credit risks, strong inflation pressure and poor quality of global involvement.

"Credit freeze" consequences: middle-sized trade and construction companies are in the risk zone. Share of loans in retail trade amounts to 82.3%, in construction - 76.8% - almost all turnover capital needs are secured by credits. Re-financing in 2003-2007 was easy due to speedy growth of these companies. Presently the business model is in danger: rates of development slow down due to limited income of the population; re-financing is less accessible due to harsh monetary policy. To avoid systemic crisis of "bad debts" the state should mitigate its monetary policy, the government should provide banks with long-term resources and banks should diversify their portfolios by industrial sectors.

Instead of beating inflation "at any price", you need steps to prevent inflation shocks. Inflation almost doubled within a year (consumer price index increased from 107.9% in April 2007 to 115.1% in April 2008) and curbed saving and investment activity. High but stable inflation might be less restrictive. Such shocks discourage internal savings and make creditors include some premium into cost of money for possible inflation outburst. To make high inflation jumps less probable, deep economic imbalance - corruption schemes, credit-encouraged consumption boom and poor competition in many strategic branches - should be eliminated. You may restrict inflation only at the asset markets; and consumer inflation would be decreasing slowly.

Globalization: participation is not enough - be victorious. Due to lack of powerful national banks global involvement causes outsourcing of your financial system and loss of sovereignty. The state savings are redistributed through mediation of external capital markets thus making the national bank sector lag behind. Expansion of foreign banks pulls key management functions together with added value to foreign head offices. The USA tend to export their risks all over the world - under such circumstances the role of powerful sovereign institutions gains importance. Only strong banks backed by long-term domestic resources of the state, population and business may participate in global "power play" and benefit from the process by imported technologies, staff and financial resources.

Anti-crisis tracks: what is in store? The Russian economy is yet to overcome the crisis, characterized by high inflation together with recession in the majority of sectors. The stock market downfall is but a leading indicator of such developments. The crisis will force the government to take active steps: redirect financial flows, change regulative norms to resolve system problems. Anti-crisis experience of developed countries should be speedily adapted to our circumstances: relatively weak financial market, absence of competition, possible raider redistribution of property with reference to the crisis. Subordinated credits constitute a good example - the crisis attracted attention to one of the key problems in the banking sector (long-term resources deficit). But the measure requires additional bank liabilities, otherwise resources would be spent for inflation-building consumption crediting or purchase of devalued assets.