Your SlideShare is downloading. ×
0
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
8 Trans2
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

8 Trans2

489

Published on

Published in: Education, Sports, Automotive
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
489
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Commonwealth of Independent States 12 Former USSR Republics 3 groups of countries Russia Ukraine Belarus Moldova Armenia Georgia Azerbaijan Kazakhstan Uzbekistan Kyrgyzstan Turkmenistan Tajikistan
  • 2.  
  • 3. China vs Russia
  • 4. Transition Recession: Why? <ul><li>Subsidies to state enterprises cut (Credit crunch) </li></ul><ul><li>Decline in population income </li></ul><ul><li>Decline in trade within CIS and with CEE </li></ul><ul><li>Russia’s energy subsidies to other countries cut </li></ul><ul><ul><li>1990: $40 bl to union republics, $18 bl to CMEA </li></ul></ul><ul><ul><li>Dependent: Ukraine’s imports 85% of its natural gas from Russia </li></ul></ul><ul><li>Disorganization of production </li></ul><ul><ul><li>Transaction costs: New borders, tariffs, new currencies, check points </li></ul></ul><ul><ul><li>Informal links between enterprises broke down </li></ul></ul><ul><ul><li>Integrated power grids and water systems collapsed </li></ul></ul><ul><ul><li>Rail transportation to/from remote areas deteriorated </li></ul></ul><ul><ul><li>Telecommunication sector under-developed </li></ul></ul><ul><ul><li>Putin on disintegration of USSR: “national tragedy of an enormous scale” </li></ul></ul><ul><li>Wars, refugees, resettlement </li></ul><ul><ul><li>3 mil Russians returned from other republics </li></ul></ul><ul><li>High interest rate (contractionary) monetary policy </li></ul>
  • 5. <ul><li>Lack of financial markets </li></ul><ul><li>Restructuring shock, no entrepreneurial experience </li></ul><ul><li>Defense spending cut– “bad” output </li></ul><ul><ul><li>Defense spending as share of GDP </li></ul></ul><ul><ul><ul><li>USSR 1987: 17% </li></ul></ul></ul><ul><ul><ul><li>1990: 12% </li></ul></ul></ul><ul><ul><ul><li>Russia 1992: 5.5% </li></ul></ul></ul><ul><ul><ul><li>1997: 3.8% </li></ul></ul></ul><ul><li>Welfare higher even if output is lower? </li></ul><ul><ul><li>Production shifted to“good” output </li></ul></ul><ul><ul><li>No lines to purchase goods –high income consumers better off </li></ul></ul><ul><li>Official data overstates collapse </li></ul><ul><ul><li>Informal sector </li></ul></ul><ul><ul><li>Over-valued output at old prices </li></ul></ul><ul><ul><ul><li>USSR reported higher than actual growth </li></ul></ul></ul><ul><li>Smaller recession </li></ul><ul><ul><li>in countries that integrated in world economy faster </li></ul></ul><ul><ul><li>In non-reformers, Uzbekistan and Belarus </li></ul></ul>Transition Recession: Why?
  • 6. Informal Economy <ul><li>Unreported activities, not measured </li></ul><ul><li>50% of GDP, 40% of cash turnover </li></ul><ul><li>Moonlighting, barter, unofficial production </li></ul><ul><li>Household food production </li></ul><ul><li>“ Shuttle trading“ by 5-10 million entrepreneurs </li></ul><ul><ul><li>transport and sale of consumer goods </li></ul></ul><ul><ul><li>1995: some US$11 billion worth of goods </li></ul></ul><ul><li>Why useful to know size of shadow economy? </li></ul><ul><ul><li>Tax collection: informal economy erodes tax base and leads to higher government debt </li></ul></ul><ul><ul><li>Official data underestimates household income </li></ul></ul><ul><ul><li>Formulating policy </li></ul></ul><ul><ul><li>Measuring Informal Economy </li></ul></ul><ul><li>Direct estimates of income or household expenditure by survey </li></ul><ul><ul><li>not reliable, people conceal revenues </li></ul></ul><ul><li>Indirect methods </li></ul><ul><ul><li>demand for cash relative to broader monetary aggregates </li></ul></ul><ul><ul><li>electricity consumption - high correlation with GDP </li></ul></ul>
  • 7. Employment and Wages <ul><li>Large-scale privatization of money-losing state owned enterprises should increase unemployment </li></ul><ul><ul><li>East Germany and Poland: 16% in 1994 </li></ul></ul><ul><li>Russia: low unemployment rates </li></ul><ul><ul><li>1994: 6.3% </li></ul></ul><ul><li>High under-employment </li></ul><ul><ul><li>&quot;hidden&quot; unemployment </li></ul></ul><ul><ul><li>workers on administrative leave, part-time </li></ul></ul><ul><ul><li>labor hoarding </li></ul></ul><ul><ul><li>workers attached to enterprises by wage arrears </li></ul></ul>
  • 8.  
  • 9.  
  • 10. Health in Transition
  • 11. Virtual Economy by Gaddy and Ickes <ul><ul><ul><li>Workers, managers, regional governments adapt to environment that threatens their survival </li></ul></ul></ul><ul><li>2 sectors of Russian economy: </li></ul><ul><ul><li>Export-oriented (oil and gas) </li></ul></ul><ul><ul><ul><li>value-adding, cash-based </li></ul></ul></ul><ul><ul><li>Domestic (other sectors) </li></ul></ul><ul><ul><ul><li>value-subtracting, non-cash </li></ul></ul></ul><ul><ul><ul><li>inefficient, same output & technology </li></ul></ul></ul><ul><ul><ul><li>as under central planning </li></ul></ul></ul><ul><ul><li>average age of plant and equipment </li></ul></ul><ul><ul><li>1980: 9.5 years, 1995: 14.1 years </li></ul></ul><ul><li>Gazprom supplies gas to domestic economy at low $28 / ‘000 cubic meters </li></ul><ul><ul><li>gets paid with arrears </li></ul></ul><ul><ul><li>in exchange for the right to keep export profits </li></ul></ul><ul><li>Corruption, looting, barter, offsets </li></ul><ul><li>Stable equilibrium </li></ul><ul><ul><li>Participants pretend it’s not happening </li></ul></ul>
  • 12. “ Lawless Capitalism Grips Russian Business” The Washington Post November 7, 2000 - <ul><li>Moscow - center of banking and foreign investment </li></ul><ul><ul><li>often to exclusion of other regions </li></ul></ul>Russian Business Environment, mid 90s <ul><li>Organized crime, protection rackets, </li></ul><ul><li>contract murders, kickbacks, bribes </li></ul><ul><ul><li>Most businesses not able to function without paying for mafia protection </li></ul></ul><ul><ul><li>violence to enforce contracts </li></ul></ul><ul><li>State dependent on criminal structures </li></ul><ul><ul><li>enterprises did not have money to pay taxes </li></ul></ul><ul><ul><li>government borrowed at high interest rates from commercial banks </li></ul></ul><ul><ul><li>banks lend to the government government’s own money </li></ul></ul>                                   
  • 13. Ineffective financial intermediaries <ul><li>Adverse selection effect of high interest rates </li></ul><ul><ul><li>Only high risk individuals borrow </li></ul></ul><ul><ul><li>Default if high risk project not successful </li></ul></ul><ul><ul><li>Low risk – low return projects not undertaken </li></ul></ul><ul><ul><li>Bad loans for banks, low public confidence in banks </li></ul></ul><ul><ul><li>Government intervention possible - Interest rate subsidies, deposit insurance </li></ul></ul><ul><li>Bank runs, failures: </li></ul><ul><ul><li>Latvia, Lithuania : 1995 </li></ul></ul><ul><ul><li>Czech Republic, Bulgaria, Romania : 1996-97 </li></ul></ul><ul><ul><li>Russia: 1992 - savings in Sberbank frozen and destroyed by hyperinflation </li></ul></ul><ul><ul><li> 1996-98 - bank runs, withdrawal of deposits, failures </li></ul></ul><ul><li>Financial scandals </li></ul><ul><ul><li>Russia, Albania, Romania, 1994-94 - Collapse of financial pyramids </li></ul></ul><ul><li>Causes of bank runs and financial scandals </li></ul><ul><ul><li>non-performing loans to state-owned enterprises </li></ul></ul><ul><ul><li>quick financial liberalization allowed too many new banks </li></ul></ul><ul><ul><li>inexperience of bank management with risk assessment </li></ul></ul><ul><ul><li>deposit rates below inflation rate </li></ul></ul><ul><ul><li>no deposit insurance </li></ul></ul>
  • 14. Exchange Rate Regimes <ul><li>Float (Flexible Rate): </li></ul><ul><ul><li>value of national currency determined by market </li></ul></ul><ul><li>Peg (Fixed Rate): </li></ul><ul><ul><li>central bank buys and sells domestic currency to maintain exchange rate against a foreign currency </li></ul></ul><ul><ul><li>possible only if central bank has enough foreign exchange reserves to defend the peg </li></ul></ul><ul><ul><li>helps fight inflation </li></ul></ul><ul><ul><li>currency boards: Latvia, Estonia, Bulgaria </li></ul></ul><ul><li>Managed (“dirty”) floats </li></ul><ul><li>Adjustable (“crawling band”) pegs </li></ul><ul><ul><li>Poland, Hungary </li></ul></ul><ul><ul><li>Russia : “crawling band&quot; started at 4,300-4,900 Rb = $1 </li></ul></ul><ul><ul><ul><li>Slowly depreciating due to inflation </li></ul></ul></ul><ul><ul><ul><li>1997: 6,000 Rb = $1 </li></ul></ul></ul><ul><ul><ul><li>1998 currency reform: 1 new Rb= 6,000 old Rb </li></ul></ul></ul><ul><li>Success of transition is not crucially dependent on exchange rate regime </li></ul>
  • 15. Russian Financial Crisis ‘98 <ul><li>1997: </li></ul><ul><ul><li>Low inflation rate </li></ul></ul><ul><ul><li>Stable convertible ruble </li></ul></ul><ul><ul><li>Budget deficits (G-T) 7-8% of GDP </li></ul></ul><ul><ul><li>Deficit financed with short-term ruble-denominated government debt </li></ul></ul><ul><ul><ul><li>Annual interest rates >140% </li></ul></ul></ul><ul><ul><ul><li>Russian banks borrow from foreign banks to invest into government debt </li></ul></ul></ul><ul><ul><li>Asian financial crisis </li></ul></ul><ul><li>IMF loan $22.5 billion in July ’98, with conditions </li></ul><ul><ul><li>Contractionary fiscal policy </li></ul></ul><ul><ul><ul><li>cut spending, high taxes, tight credit </li></ul></ul></ul><ul><ul><li>Keep strict exchange rate band </li></ul></ul><ul><ul><ul><li>Russian government ran out of reserves buying rubles to support exchange rate </li></ul></ul></ul><ul><li>August 1998 default: </li></ul><ul><ul><li>Devaluation of Rb by 34% </li></ul></ul><ul><ul><li>Unilateral restructuring of Rb-denom. government debt due btw 8/19/98- 12/99 </li></ul></ul><ul><ul><li>90-day moratorium on private sector payments on external liabilities </li></ul></ul>
  • 16. 1998: Appeal of Devaluation <ul><li>Oil prices fell in 1998 to $11 from $23 in 1997 </li></ul><ul><li>Example </li></ul><ul><li>Year ExRate Oil barrel Oil barrel </li></ul><ul><li>p=$20 p=$10 </li></ul><ul><li>1997 $1 = Rb 5 Rb 100 Rb 50 </li></ul><ul><li>1998 $1 = Rb 10 Rb 200 Rb 100 </li></ul><ul><li>Real Effects of Devaluation </li></ul><ul><ul><li>Cheaper Rb  domestic exports increase, imports decrease </li></ul></ul><ul><ul><ul><li>good for exporters </li></ul></ul></ul><ul><ul><ul><li>import-substituting domestic production increases </li></ul></ul></ul><ul><ul><li>Leads to a recovery and output growth </li></ul></ul><ul><ul><li>Lower trade deficit ( Exports < Imports) or higher trade surplus </li></ul></ul>
  • 17. Devaluation <ul><li>Economist, August 1998: </li></ul><ul><li>“ Devaluation will not do much to create jobs in industry, because Russia’s miserable output of manufactured exports— chiefly clunky cars, vodka and weapons —is not very price-sensitive . </li></ul><ul><li>Although imports will become dearer, those relatively affluent consumers who favor French cosmetics and German cars are unlikely to find Russian goods acceptable substitutes .” </li></ul>
  • 18. Who made money on the default? <ul><li>Raw material exporters + local economies based on them </li></ul><ul><ul><li>did nothing different but earned 4 times as much cash </li></ul></ul><ul><li>Bankers charged clients up to 50% withdrawal fees </li></ul><ul><li>Medium size banks and insurance companies </li></ul><ul><ul><li>did not hold much government debt </li></ul></ul><ul><ul><li>charged clients higher service fees for ‘safer’ transactions </li></ul></ul><ul><li>Money changers: demand for $ increased, so did fees </li></ul><ul><li>Medium size companies, bank clients with idle money </li></ul><ul><ul><li>Have Rb1,000 sitting in your account for some time? </li></ul></ul><ul><ul><li>Buy $$ at Rb5=$1 ($200) </li></ul></ul><ul><ul><li>30 days later, sell $$ at Rb10=$1 (Rb2,000) </li></ul></ul><ul><ul><li>Do not show this transactions in the books- as if still Rb1,000 </li></ul></ul><ul><ul><li>Convert extra Rb1,000 into $$ </li></ul></ul><ul><li>Borrowers who took out loans before banks went bankrupt </li></ul><ul><li>Buyers shortly after devaluation paying old ruble prices </li></ul><ul><ul><li>eg. Car for $300 at new exchange rate </li></ul></ul><ul><li>State </li></ul><ul><ul><li>Did not return $60 billion worth of debt </li></ul></ul><ul><ul><li>Wage, pension and tax arrears fell in $$$ terms </li></ul></ul>
  • 19. Consequences <ul><li>Collapse of the banking system </li></ul><ul><ul><li>Most of 1,600 banks made insolvent overnight </li></ul></ul><ul><li>Temporary contraction in output and trade </li></ul><ul><ul><li>payments system paralyzed for over a month </li></ul></ul><ul><li>Inflation 138% </li></ul><ul><ul><li>wiped out household savings </li></ul></ul><ul><ul><li>reduced private wealth </li></ul></ul><ul><li>Incomes fell </li></ul><ul><ul><li>Poverty rate rose by 50% </li></ul></ul><ul><li>Capital outflow </li></ul><ul><ul><li>in 2000 $18.4 billion, 18% of GDP, higher than in 1999 </li></ul></ul><ul><li>Central Asia </li></ul><ul><ul><li>competitiveness and living standards declined </li></ul></ul><ul><li>Brazil </li></ul><ul><ul><li>re-evaluation of risks lead to crisis in in 1999 </li></ul></ul>
  • 20. Could Have Avoided Crisis with Right Policies? <ul><li>Gradual ruble depreciation: print rubles to pay off debts, stop convertibility for a while </li></ul><ul><ul><li>Inflation better that massive bankruptcies, loss of savings </li></ul></ul><ul><li>Capital controls to stop capital flight </li></ul><ul><li>Public infrastructure investment </li></ul><ul><ul><li>transportation, power, communication, railways, public buildings </li></ul></ul><ul><li>Pay back wages to stimulate demand for Russian output </li></ul><ul><li>Attract investment, domestic and foreign, for modernization </li></ul><ul><ul><li>Political instability </li></ul></ul><ul><ul><li>Functional legal system </li></ul></ul><ul><ul><li>Low cost credit for domestic production </li></ul></ul><ul><li>Renationalize enterprises that were sold at less true value </li></ul><ul><li>More public spending on science, technology, education </li></ul><ul><li>Temporary protection of selected industries and agriculture </li></ul><ul><li>Export less raw materials and energy, redirect more to domestic production – diversify economic base </li></ul>
  • 21. Russian Oil Production

×