Glazyev Assails Central Bank and Speculators

Academician Sergei Glazyev, the economist who is Russian President Vladimir Putin’s advisor on Eurasian integration, has escalated his pointed attacks on the Russian Central Bank for promoting speculators, failing to defend the ruble, and thus violating its Constitutional responsibilities.

The ruble is now hovering at around 78 to the dollar, a 50% collapse since its 2015 high of 50 to the dollar in May, and worse than its January 2015 collapse to 69 after the Central Bank floated the currency in December 2014, along with hiking interest rates sky-high.

“The purpose of the international reserves is to ensure the stability of the national currency—they exist for that very reason,” Glazyev told the official news agency TASS Jan. 21. “Our international reserves are twice the size of the amount of rubles in the economy; it is easy to stabilize the ruble exchange rate, and it would even have been possible to keep it fixed over the course of the past year.” These remarks were highlighted by the Financial Times, in an article gloating over the collapse of the ruble and the IMF’s projection that Russia’s GDP would shrink by 1% in 2016, driven by falling oil prices. The FT quoted Central Bank head Elvira Nabiullina that she was unprepared to take such action because she claimed there was currently no risk to financial stability.

In the past ten days, however, Russian leaders have engaged in fierce debates over Finance Minister Anton Siluanov’s announcement of a need to cut the 2016 federal budget by 10% (half a trillion rubles); over Central Bank and Finance Ministry calls for rapid passage of bail-in legislation to allow the forced conversion of deposits into stock shares, in the many Russian banks now in serious trouble; and over the decision to raise cash by privatizing substantial stakes in remaining state-owned giants like the oil company Rosneft, Russian Railways, and VTB Bank. The privatization plan was put on the agenda by the government in 2012, but blocked at that time by Rosneft CEO Igor Sechin and then-head of Russian Railways Vladimir Yakunin.

Speaking Jan. 30 on a Russian News Service talk show, Glazyev charged that Russia’s foreign exchange market is in the hands of foreign speculators. He said that over the past decade, non-residents made three-fourths of all transactions in Russian financial markets, while in the foreign-exchange segment, non-resident participation is as high as 90%. Glazyev noted that the lure of speculation over productive investment is the “insane profit margins,” which are 80-100%. “Let me note,” Glazyev said, “that the U.S. sanctions do not apply to speculative capital, they relate to only long-term loans, which are banned from being given to our country. As for the speculators—take a loan for 30 days, speculate all you want. Given the fact that the Moscow Exchange is run by speculators, they bet on fluctuations, using credit leverage and insider information. The Moscow Exchange has become a primary profit center in the country, which, in the past year of operations, has become two times the size of GDP, and five times the volume of exports or imports. This despite the fact that economic activity in the country is falling. They are pumping money to the banks, pulling it from the real sector, where the profitability is 5-7%.”

Glazyev has just released a 500-page book, titled The Final World War: The U.S.A. Is Starting It, and Losing.” He presented it at a Jan. 20 Moscow press conference, hosted by the Izborsk Club, at which he was joined on the podium, for discussion, by former Internal Affairs Minister and Accounting Chamber head Gen. Sergei Stepashin and Senator Yevgeni Bushmin, a member of Putin’s United Russia party. During the 90-minute event, Glazyev charged that the Russian economy is in the hands of “incompetents,” and that the Chinese model offers a clear and viable alternative, which we could have chosen. Glazyev said that it was madness to minimize state investment in the economy on the grounds of a lack of money for this in the budget; that budget spending is not the proper source for investment, but that the Central Bank should create new credit and direct it, through regulation, into the real economy. He noted that the spending on the military, at least, has been a net plus for the real economy, driving innovation and preserving industrial capacity.

At the book presentation, Glazyev also pointed to BRICS as representing a better future. He warned in a Jan. 30 interview with Russian News Service (RNS) however, that Russia’s trade, including with BRICS members, is being thrown into disarray by the Central Bank’s policies. “I’ve been engaged in Eurasian integration,” he said. “We successfully developed, we made plans that the ruble will become a reserve currency, we persuaded our partners to trade in rubles…. Now our partners don’t want to hear about trading in national currencies. They believe that the depreciation of the currency is unfair competition.” He concluded by blasting the Central Bank: “The Central Bank is not fulfilling its Constitutional duty of ensuring the stability of the exchange rate. As a result, today we have halted many investment projects…. No one knows what the rate will be tomorrow. In these conditions it is impossible to plan the conduct of business, or to invest, or to conduct trade in rubles.”