Second, even though Putin has helped the Russian economy overcome the challenges posed by sanctions and falling hydrocarbon prices, Russia is losing foreign investment. Preliminary data from the Central Bank of Russia showed that capital outflows for January-May 2019 amounted to $35.2 billion – almost doubling compared to the $18.9 billion in outflows from same period last year. Capital outflows include the physical export of money as well as the acquisition of foreign assets, and the Central Bank attributed this increase in large part to Russian investment in overseas assets. Meanwhile, foreign investment in Russian businesses decreased by more than $6 billion in 2018 to $15.9 billion, with no signs of improvement in 2019. Where foreign investors may have once used the opportunities of a weak exchange rate and crises in the Russian economy to boost their market presence and competitiveness, they’ve now been scared off by new sanctions. Furthermore, Russian businesses are now in a rush to pay off foreign debts before new sanctions take effect; the Central Bank says Russians have paid $5.5 billion more in foreign debt than they received since the beginning of the year.
There are no signs that oil prices will increase significantly in the near future – the tensions in the Middle East notwithstanding – and the European Union recently extended sanctions on Russia. The state, then, sees no other option to stimulate the economy than to use NWF resources.
A Difficult Decision
Still, the government hasn’t made a final decision on if and how it might use the fund, and it’s not expected to do so any time soon. The decision, when it comes, will be the result of a long and intensive discussion; whichever way the government decides, it will not mean an entirely positive result for the economy or the Russian population, and the government is particularly sensitive to how its measures will impact the public – especially if the results aren’t favorable.
There’s one faction of the government that sees the Russian economy as healthy enough to withstand a potential crisis: It has little public debt, a budget surplus and high foreign currency reserves. In the economy’s current position, they say, it’s possible to consider the kind of domestic investments the NWF would be used for. However, if the government starts investing in national infrastructure projects, it will drive up demand, and possibly cause inflation. After battling high inflation for years, that’s not an appealing prospect for Russia.
There’s another faction that instead is advocating the use of NWF funds to invest abroad in hopes of creating a demand for non-oil Russian products from foreign countries. First Deputy Prime Minister Anton Siluanov suggested, for example, using the NWF to invest in the construction of nuclear power plants in Egypt. As part of the project, Russia plans to extend a $25 billion loan to Egypt. This could very well work. But it would be difficult to explain to Russians why, in a time of stalled growth, the government isn’t investing at home.
If by the end of 2019 the NWF exceeds 7 percent of GDP, the government will be hard pressed to deliver on the economic growth that Putin has promised without tapping into the fund. What the government will have to decide is how much of the fund to spend and on which projects. If the Kremlin makes the wrong choice, inefficient investments could negate the positive results of the budget rule, which allowed the government to somewhat lessen its reliance on high energy prices. Add in the prospect of domestic unrest, and the government finds itself under significant pressure in this decision-making process.
|
0 comments:
Publicar un comentario