Have I betrayed the Russian economy?

Alexander Polivanov
26 February 2009

 At the end of 2008 I changed all my money into dollars and euros.  That sounds very grand, but I didn't actually have that much money.  I ended up with several thousand euros and one thousand dollars.

I changed my savings into foreign currency not only, and not so much, because I didn't believe in the Russian economy, but because that is what the Central Bank and, indirectly, President Dmitri Medvedev advised me to do.  In November the Central Bank embarked on a soft devaluation of the rouble.  Before that they had not let it fall,  but at the end of December Medvedev announced that the monetary authorities should be more flexible in their attitude to changing the rouble rates.  In other words the President advised the Central Bank to devalue more quickly and this is what happened at the beginning and in the middle of January 2009.

On the other hand I didn't listen to the Prime Minister, Vladimir Putin, who said at the beginning of December that the rouble was the preferred currency for Russians to keep their savings in.  I also didn't pay much attention to the words of the Deputy Prime Minster and Minister of Finance Alexei Kudrin, who said in January that for the medium-term it was best to hold savings in roubles.

Kudrin meant about two or three years, which is why I didn't listen to what he said.  Macroeconomic forecasts change every 6 months in Russia, if not more frequently.  After all, with the crisis who can forecast what will happen in two or three years?  Actually anyone can, but they will all have the get-out that then, in 2008-09, we had the crisis, which meant it was very difficult to forecast anything.

So anyway, I believed the Central Bank and Mr Medvedev and didn't listen to Messrs. Putin and Kudrin.  Looking at the exchange rates over the last few weeks, I did the right thing - savings in dollars and euros bring in a good return.  Or they would have done if I hadn't gone abroad in the middle of January, to the Eurozone.  This means I am now spending my euros, not saving them.

I am haunted by just one question - am I a traitor or not?

One of the reasons the crisis in Russia is so deep is the outflow of capital.  Only recently foreign investors in Russia were buying up anything they could get their hands on and everything the government allowed them to buy.  Now they are taking their money out of the country and freezing their Russian projects.  This is normal during a liquidity squeeze:  Russian companies with assets abroad (mostly metals, oil and gas) have done exactly the same.

According to the most recent calculations the capital outflow for 2008 was 150 billion dollars.  A staggering figure.  The capitalisation of Gazprom, Rosneft and Sberbank on the Russian stock market is less than this.  And, moreover, one should not forget that in the first 2 quarters of 2008 there was an inflow of capital.  This means that the amount taken out of the country at the end of the year was much more than 130 billion.

Without these funds, relying solely on Russian company profits and state support, it is clear that the economy will struggle, indeed is already struggling.  On top of this Russian banks have sensed the opportunity to make an easy and painless profit, so they have stopped giving credit to the economy, preferring to transfer their assets into dollars and euros.  Companies with liquidity have done the same, as have many Russians - including me.

As a result the Russian economy, in addition to all the other problems, has come up against an additional shortage of rouble liquidity, which means that everything has ground to a standstill.  In January 2009 Russian GDP fell by 2.4% - and this is only the beginning.

It is the rouble liquidity shortage that has led the monetary authorities to stop letting the rouble down gradually by tightly controlling the limits of its fall.  How long it will be able to hold at 41 roubles against the dollar-euro basket is difficult to say.  The Central Bank assures us that it can cope with speculators in the marketplace, but uncomfortable macroeconomic statistics are leading more and more Russians to change their money into dollars and euros.

So what have I done to help my Russian economy?  Instead of ‘staying with roubles', as the financiers say, I changed all my savings into dollars and euros.  Instead of spending money at home, helping businesses to cope with the liquidity squeeze, I have come to Europe and am spending money (which I earned in Russia) abroad.  Given all this, I should feel that I am a traitor.  I have betrayed the Russian economy.

I should, however, say immediately that I do not consider myself a traitor.  Moreover I have given a great deal of thought to my actions at the time of crisis and have found several excuses and, as it seems to me, worthy arguments in my own defence.  Let's start with the excuses.

Firstly, if one is to feel that one is a traitor, or even just to blame, then someone has to tell you that you are doing wrong.  Or, even better, give a good example by announcing publicly that they are transferring all their savings into roubles, getting a Zhiguli or Volga car and only drinking Russian vodka or ‘Baltika' beer.

No one has set me such an example.  Neither the Central Bank and Dmitri Medvedev (to whom I listened) or Vladimir Putin and Alexei Kudrin (to whom I didn't).  Not one of them has even suggested he feels to blame.  None of the bankers has offered to give up his euro and dollar investments to save the Russian economy.  In the same way we have heard nothing from big businessmen (formerly called oligarchs and billionaires) except requests to save their companies and now the words somehow stick in the gullet.  Not one of them have thought of saving the economy as a whole - but they all think about their own savings.

Don't think I'm blaming anyone.  I'm not.  Blood is much thicker than water at a time of crisis.  And that is my second excuse.  After all I have actually done what was both correct and right for me in the given situation:  I changed my money into dollars and euros and went to Europe, where personal circumstances mean that life for me is cheaper than in Moscow.  So I haven't helped the Russian economy, but I have helped myself and my family.  Isn't that important too?

But still... even with these excuses I could have acted in such a way that my conscience was clear and I didn't have to worry whether I was a traitor or not.  One thing has become very clear to me in Europe and this could only have happened when I was away from home, from Russia.  I don't exist for the state.  It's the state that exists for me.  In other words it's not for me to help the state save the economy - it should be helping me to preserve my own well-being and that of my family.

This is really quite a simple thought, but if one extrapolates it to the whole of life, you get what seem to me to be quite unexpected results.  For instance, I shouldn't be buying Russian because I want to support Russian companies.  Russian producers, especially the state producers, should be arranging things in such a way that it's to my advantage to buy their product.  In Sweden everyone drives a Volvo, but not because the government has asked them to do so.  In France everyone drinks French wine and in the Czech Republic people drink Czech beer, because it's the best in the world.  Italian Barilla spaghetti is very popular in Italy, but not because it's Italian.  For the European the label ‘Made in the EU' indicates quality.  For us ‘Made in Russia' is an excuse for a joke.  About the same as ‘Made in China'.

All this simply means that it's not the government that should be asking something of me, but the other way round.  Civil servants should be developing programmes so that it will be to my advantage to invest in rouble assets and, indeed, in the Russian economy.

It could be objected that everything I have described applies to any more or less stable situation, but that at times of crisis one should help the state.  This is true.  But crises happen fairly systematically in Russia and we should at least try and learn something from them.  Anyway it's only during a crisis that one can demand anything from the government, because at times of stability the authorities consider there are no reasons for criticising them.

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