Vladislav Inozemtsev: “The Russian economy was saved from a complete collapse by the Central Bank”

Ekaterina Maksimova

When will the budget receive a “serious additional hole” and whether defense bills will be paid. What decline in GDP will the population fully survive, what thesis about the technological backwardness of Russia is “the most stupid” and which of the Russians will be rescued by the authorities in a crisis in the first place. About this and much more - in an interview with economist Vladislav Inozemtsev.

-Question of the year: why is the Russian economy, despite the collapse predicted for it in February, holding its own?

- Collapse as such could not be by definition, because after all the Russian economy is not Serbia, which was actually defeated by sanctions in the early 90s. It's not even Iran. This is a large economy, which, in principle, provides itself with most of the necessary things.

At the same time, the collapse happened in the aircraft industry, the automotive industry, and transport engineering. In those sectors where foreign companies were most involved. In industries heavily dependent on components. The worst-case scenario happened there. Other than that, it was hard to expect.

Moreover, Western sanctions were not instantaneous. For oil, we saw them only 10 months after February 24th. Plus, of course, there are many options for circumventing restrictions. One after another, investigations are coming out that even chips for the military industry continue to be imported to Russia in huge quantities.

-In 2014, you proposed to the Central Bank a model of Malaysia, which in 1998, at the height of the Asian financial crisis, suspended all financial transactions with the foreign market for several months. After February 24, Elvira Nabiullina made just such a decision. Was it right?

- In that crisis, our Central Bank did not dare to do this. And now they have done it very smartly. In the spring, the economy could collapse very seriously only in one case: if there was a collapse of the financial system. The problem is not oil, components, the closure of air traffic ... This is all very secondary. In order to seriously undermine the Russian economy, it is necessary to provoke a large-scale financial panic. As a matter of fact, in March we came very close to this.

And the authorities reacted very adequately to the possibility of this financial panic. By and large, the Russian economy was saved by the Central Bank. If there were no restrictions on the movement of capital, orders on the mandatory sale of exporters' foreign exchange earnings, then a catastrophe would be inevitable. Absolutely!

Nervousness - with a dollar exchange rate of 140 rubles, an attempt to take money from banks - would dominate, suppressing everything. And inflation would be 30% or even higher. If we return to the first question, two points are important: sanctions, in principle, could not fundamentally kill the economy before a very serious recession. And the second - what could kill, was stopped very quickly.

-A fall in GDP of almost 3% - is this not a serious recession? What do we see if we analyze this figure?

- When the government says that a decline of 2.5% or a little more is nothing at all and nonsense, then this is not entirely true.

Firstly, you need to understand that there were a lot of plans and in 2022 a growth of 3.5% was planned. Now, let's say there will be a 3% decline.

That is, the ratio of the actual value to the forecast value is already minus 6.5%. Big change.

The second point is also important. The budget for 2022 included a surplus of 1.3% of GDP. A deficit of about 2% is now expected. Simply put, at least 3.3% of GDP was injected into the economy.

Plus, you need to understand that the budget due to additional income this summer is much larger than expected a year earlier. I would say that here not even 3.3%, but all 5.5% were thrown into the economy. And if we add these 6.5% of the changed GDP forecast and 5.5% of GDP, which the state additionally invested in the economy that was still shrinking (and this certainly causes GDP growth), then this is a serious correction.

If you invest, conditionally, a trillion rubles, then it is clear that this money turns into orders, then orders into salaries, taxes, and so on. And a multiplier effect is launched, even if this investment is spent irrationally from the point of view of a normal person. Transporting those mobilized to the front is also an increase in GDP by paying for the services of Russian Railways or airlines.

Therefore, in any case, the real blow to the economy is, in fact, a big one. Especially when compared with what was supposed, what happened and by what means it was achieved. Then we see about 10% - these are the "eaten" opportunities for economic growth for this year.

- This year, it was possible to receive additional trillions of rubles from exporters to the state budget due to a combination of factors. Removed pre-sanction "cream". It won't work in 2023.

- Definitely won't work. I think that in 2023 we will see a dip compared to this year. Now additional income has exceeded 3 trillion rubles, even closer to 4 trillion, probably. There will be no such income next year. I think even compared to 2021 there will be a certain drawdown.

Because we will see a serious decline in gas production and exports. There will also be a decline in oil. Although not so radical, of course, and not too long, but it will take time to restructure from the European market to other markets. All in all, 2023 will be a challenging year.

How much will income fall?

-Compared to 2022, I think five trillion. And the budget is already planned with a deficit, despite the fact that revenues there have not been adjusted.

It seems to me that we will get a serious additional hole in the budget and the deficit will not be 2% of GDP, as is currently planned, but at least 4.5%.

-Is it critical?

-No, it's not problematic either, because we have a lot of sources. The liquid part of the National Welfare Fund is about 7.6 trillion rubles. And this is more than any deficit next year.

Plus, we see that the Ministry of Finance has entered the borrowing market very briskly. In the fourth quarter, there was a plan to raise 150 billion rubles with OFZs, and almost 10 times more has already been raised - 1.4 trillion rubles.

And it does not cause any catastrophic consequences. These loans can be increased. Moreover, the Ministry of Finance can actually do this for free: place these securities among banks that will buy them out, but, if necessary, re-mortgage them with the Central Bank. Accordingly, interest income minus commission will go from the Ministry of Finance to the Central Bank. And the next year, the Central Bank is obliged to transfer 75% of the profits it receives back to the budget. If now the OFZ rate is 9-10%, then the real price for the Ministry of Finance will be no more than 3%.

And borrowing can be very large. The domestic market is full of money. And taking into account the investment situation, few people will invest them somewhere.

Even the deposits of private individuals in banks now amount to about 37 trillion rubles. That is, the government can always draw money from the domestic market and in any quantity.

And when I hear that there will be a budget collapse in 2023-2024… Well, I don’t understand what this is based on. He won't. Even if Putin does not stop and continues the NVO, the military bills will be paid. What will happen in 2025 is a distant prospect, we'll see. But I don't see any problems for the coming year.

- What is more terrible for the economy now: the reduction of petrodollar flows or technological degradation?

-There are a lot of myths about this. I would say this: the government itself does not care about this degradation at all, I have such an impression. All these stories that we are for the development of Russian science, modernization, for import substitution and technology, we will have ... This is already so tired. We've been listening to this for decades. It's just a hoax.

No breakthrough should be expected, of course. The degradation will be long.

Somewhere by 2024-2025, the equipment of industrial production, which was purchased, will begin to fail quite seriously, and there are a lot of European and American equipment in Russia.

These are not just foreign aircraft that will gradually fail. This is, first of all, industrial equipment: almost half of the import deliveries before the North Eastern Military District were industrial equipment, and it was supplied mainly from Europe and the USA. Plus, Europeans and Americans imported equipment to their own enterprises, which will now be nationalized one way or another. All this will begin to slowly break down and require maintenance.

No breakthrough is expected here, because Chinese equipment will not replace Western machines. There have already been many attempts to somehow connect them and, judging by the stories that I hear from entrepreneurs, these attempts are all unsuccessful. It is easier to build new enterprises, fully equipping them with Asian technology.

This does not mean that everything will stop and stop working. But one way or another, there will be a decline, there will be degradation, but this degradation will not be critical. Trains will not stop, planes will not stop flying completely, industrial enterprises will not close. It's just that a constant return to more primitive production standards is inevitable, and production itself will continue. Yes, there will not be, relatively speaking, some kind of electric self-switching kettle, but there will be a kettle with a button that you will have to turn off yourself.

- How many years, decades will it throw Russia back?

- Ever since the days of “modernization according to Medvedev” (and I was then an active “foreman of modernization”), I was embarrassed by the thesis that “if we do not modernize today, tomorrow it will be too late.” It seems to me that this is the dumbest thesis imaginable. Because the countries that started catch-up development at various stages eventually achieved similar results.

The question is not that if a country fails technologically for 10 years, then its "tomorrow" will disappear forever. You can catch up. Relatively speaking, it is possible to quickly recreate the automotive industry, make the aviation industry normal, and something else. This is not a problem in cooperation with the world. But we are destroying these opportunities for cooperation. And this is our big mistake, which is "worse than a crime."

When idiotic restrictions are lifted, when Russia stops fooling around, when normal authorities appear capable of dealing with the economy, then it will be possible to catch up quickly. The tactics of catching up upgrades have long been worked out, there is no need to invent anything here.

If, for example, we look at our banking sector, before the crisis it was much better developed than the American one. By the number of services that banks provide to citizens, by quick transfers, by the size of commissions, etc. Or mobile communications - another example of successful cooperation. Russian operators are also better than Western ones, because they took existing technologies, processed them in an excellent way and offered them very cheaply to the population. And all over the world, monopolies drive up prices.

Yes, we are forever behind, but in the sense that we will never be leaders. It is a fact. Not with anything. But we can always be better than yesterday, and the people need just that.

- All sectors that fell under the sanctions are already showing negative dynamics, in most regions of the country the index of industrial production has fallen. How will the process develop further: are we slowly sliding or are we already rapidly falling? What should the inhabitants of the Kaliningrad region, where the auto giant has stopped, prepare for?

- There is no direct connection. Russia is a country with an amazing economy. Nowhere in the world is there more than 50% of the population working in the public sector. And people receive a significant part of their income from the treasury. Teachers, doctors, security forces, military, pensioners, employees of Gazprom, other state-owned companies and companies with state participation - all these people are relatively protected in their incomes. They both received them and will continue to receive them.

And the problem of falling industrial production - yes, it is significant. The same Kaliningrad - a cluster of mechanical engineering - it is clear why it sank. It is clear why Kaluga sank. The regions where the largest metallurgical enterprises are concentrated will follow. There will be problems in certain areas where logging has dominated. Because Europe stopped buying timber and metal. There will be serious problems.

But again: what does serious problems mean? These are the problems that we will see on paper first. Yes, Kaliningrad sank by 30% due to the automotive industry, Kaluga by all 50%, or even more. But this does not mean that teachers or doctors in Kaluga will no longer receive salaries, or that pensions will no longer be paid. This will affect the employees of these enterprises, who will accordingly be fired or continue to receive the minimum allowance for downtime.

They will be affected. It is a fact. Only now the entire Russian industry, at best, is no more than 8-9% of the workforce. All Russian oil and gas production - 600 thousand employed, less than 1% of the workforce.

On an economic scale, we will see a drop in WFP, but the coverage of the population facing this problem will not be very large.

- But the state cannot but react to the fact that almost 10% of the population has a sharp drop in the standard of living ?

- How to save is a question to the state. For example, over the past two years, construction has developed very rapidly due to preferential mortgages and due to the fact that the state subsidized. And 5 million people are employed in construction. What is Putin doing? He, despite the fact that the Central Bank is against, extends preferential mortgages.

The same will happen in other industries. The state will try to support these sectors, which suffered the greatest blow. Yes, not radically, yes, not always properly, but there will be support and these industries will be able to stay afloat.

Therefore, the question “what to do and where to run” is still a bit of exaggeration. Yes, some industries are in a catastrophic state. I do not know what will happen with the reduction of personnel, for example, in aviation, in the automotive industry. In Kaluga and Kaliningrad, the problems are already obvious, but on the scale of the same St. Petersburg, where there were also large car factories, this is less noticeable.

- But even in In capital cities, people stopped going to shopping malls, coffee shops and restaurants. Market participants are talking about a drop in traffic at the level of 20-25%.

- And that's a big problem. The decline in incomes of the population will cause a large decline in the service sector. Namely, much more income is concentrated here, from which the budget receives its share.

This is a huge part of the population, which will cease to receive wages. And no one will support this sector. Who decides to support a bankrupt coffee shop? People will just go outside. And this causes a corresponding public mood and economic problems.

So far, the main word here is so far, the situation does not look terrible, but no one understands what will happen next. The main question, in my opinion, is when (not even with what exactly) the SVO will end.

Each week of this process is killing the economy, leading to continued departures because people are fleeing and fleeing the country. And, of course, it causes a deep misunderstanding by people of their prospects. All this provokes a decrease in the costs of the population.

And the reduction in spending is actually the main element of economic deceleration, because the state will never replace it.

We have a payroll fund of 59 trillion rubles a year, and all state investments will be 6-7 trillion at best. Best case scenario. It is impossible to contain the economic recession through public investment if the people stop spending.

- Already stopped.

- There is an alarming trend, let's say so. In September-October, the share of savings in the income of Russians reached a record over the past 15 years. And this shows that people are afraid. And this is not a condition for economic development.

So, of course, it will get worse. The only question is the speed of this deterioration. It's one thing if it gets worse so that salaries depreciate by half, inflation is 30% per year, and another thing is what we see now.

Yes, there is a bit more value there. Yes, somewhere there is no salary increase, somewhere there are layoffs, somewhere people are afraid that they will be fired. For now, it's all virtual.

If next year we see a decline in GDP (and it will definitely be more than this year) by about 4-4.5%, then this is tolerable.

The people will survive this. The main wish of the Russians: not to get worse. No one expects a serious improvement in their economic situation.

The last 10 years of geopolitical rhetoric that there are enemies around us has certainly influenced the population. And people have become much less demanding in terms of economic development. Therefore, I do not yet see that something very strongly threatened the authorities. We'll see what will happen in a year. Now I don't see the drama. I see a downward movement, it hasn't stopped since 2014, but I don't see a sharp drop into the abyss.