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Russian economy [1]
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Date: 2022-12-26
I just came back from a hiatus and see a lot of posts on the supposed Russian bank runs. I wanted to add my understanding of what may be going on.
The first issue to recognize is that Russian budget is beginning to literally crater. No, this does not mean that Russia will run out of money any time soon but it does mean that their liquidity is now directly affecting their geopolitics and also domestic policy. One very informative reference imho would be:
thebell.io/…
In an nutshell, while Russia has managed to make top line numbers into something respectable in November, they had to invoke/conjure up some major one-time revenues to do so. From that article: “Without that money, oil and gas income was down 48.9% compared with 2021.”
To get an idea about how this is affecting Russian geopolitics, consider:
www.reuters.com/…
The article is rather pro-Russian in tone but we can get the real state of affairs form the relevant paragraph:
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"The central bank can currently now buy yuan," a banking source close to monetary authorities told Reuters. But the bank would not do so while the government continued, as now, to spend its oil and gas revenues.
"(However), if next year budget revenues from the export of oil and gas exceed 8 trillion roubles, then the central bank will buy yuan," that source added.
Under the budget rule, designed to replenish state reserves, oil and gas revenues above that figure are currently directed to the National Wealth Fund (NWF), which Finance Minister Anton Siluanov has said is equivalent to oil prices of $62-63 a barrel.
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In plain language this says that at current oil prices, Russia has no money to put into social spending reserve fund and no money to buy up yuan for reserves. We can recall that in February 2022 Russia was very big on the idea of partnering with China to create an economic alternative to the West. The only issue is that to trade with anyone, including China, one needs not only liquid money but also reserves and Russia is starting to feel the pinch in both respects.
It is unclear whether Russia will be able to easily paper over plunging oil and gas revenues in December but it is already evident that the officials are panicking. Russia has recently started to beg the Europeans to buy and/or keep buying its fossil fuels. They have said just a couple of days ago that they stand behind oil supplies via Druzhba pipeline:
www.urdupoint.com/…
(which made Strelkov vomit on Telegram)
and they have now got on both knees and said pretty please with respect to gas via Yamal pipeline:
www.cnn.com/…
None of this is a sign of strength to put it mildly and it is very public now and must be very embarrassing so Russia seems to be in real and urgent need of money.
The second issue we need to remember is that in mid-October Putin introduced martial law in “annexed” regions and something similar in some places near Ukraine with widespread fear in Russia that this might extend further across the entire Russian territory.
www.cnbc.com/...
Why is this relevant? Because under Russian “martial law” law, the state has the right to simply take/seize the bank accounts at will for its military needs. In other words, since mid-October, anyone who was of their right mind was probably thinking of withdrawing their savings ASAP before martial law is extended into Russia proper.
For the average Russian, the third and final nail in the coffin is simply that the Ruble is crashing
markets.businessinsider.com/…
which then puts extra pressure to take money from Russian-denominated deposits.
Still, the question remains: are there bank runs going on in Russia? Everything I know so far suggests: not yet . Remember this little tidbit from the beginning of the war?
www.cnbc.com/…
Long lines, general disarray and many depositors getting screwed basically happens all the time in Russia. This did not last and did not produce any pressure on Russian government to end the war.
Every time there is a bump in the economy, you see the same thing. Workers are not getting paid by employers, while the latter use the unpaid wages as float to make profits or to shore up business (this includes state employees). Sometimes the unpaid wages are just stolen permanently. Pensioners are not getting paid and are literally starving and/or freezing.
We all know that Russian military and especially mobiks are often screwed on wages but this is a long running trend and is pervasive despite laws prohibiting this:
iwa-ait.org/…
www.business-humanrights.org/…
www.rferl.org/...
Also, businesses in Russia are often screwing each other over by violating contracts and hiring goons to break legs of the counter-party if they object. All of this stuff, we think of as the sign of extreme breakdown and major problems is fairly normal and even routine in Russia and seems to show up at the smallest economic pressure. We cannot just look at long lines at banks and assume that this is what it seems or what it would mean if it happened in the West. Everything we are seeing so far is minor and is merely a sign of a small economic disturbance. I do believe things can snowball at any minute in Russia because the necessary conditions seem to be in place but nothing we see so far indicates a major breakdown of the system.
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