Vedomosti: "Two realities"
Editorial
The statement about a more flexible currency rate and the trend of a minor weakening of the rouble made by the Central Bank Chairman Monday became an instant hit.
In fact, it required a lot of courage, as politicians are there to reassure the public and prevent panic, without, however, getting too far away from reality.
The rouble's effective rate is falling as a result of declining oil prices and an unpredicted economic slowdown. The Government's best choice in this situation may have been a relaxed policy that allowed the national currency to weaken, instead of spending reserves to support an excessively high rouble rate amid falling exports.
The support of an overstated national currency rate is similar to the 1996-1997 situation that came to no good, analysts at Raiffeisenbank pointed out. The Bank of Russia has been spending its reserves unsparingly, losing $112 billion since the peak in July ($597 billion).
Therefore, Sergei Ignatyev's courage deserves respect, as he is the one who called a spade a spade. The next thing to decide is whether the rouble's weakening will be rapid, or gradual and controlled. The two scenarios will certainly have different economic and political consequences.
A gradual decline will mean the Central Bank will continue tapping its reserves to smooth out fluctuations of the rouble on the way to a more adequate rate. Moreover, after Ignatyev's statement, which naturally strengthened the dollar, the rouble's weakening won't be easy or cheap.
The public as well as market players have taken Ignatyev's statement as a direct instruction: even the staunchest advocates of the national currency are stocking dollars, which can lead to irrational development. The Central Bank will then have a problem to handle.
Federal TV channels, the most important spheres of influence, are pointedly ignoring the crisis. It is hard to tell how effective this policy will be in the medium term, or even short term. One can assume, however, that if the discrepancy between the outer reality and the one shown on TV is too visible or too persistent, people will stop believing what is said on TV and start using exchange office price tags as the only reliable source of information.
This policy of ignoring reality will then make no sense, because the very confidence in its information channel will be undermined.
This is the main reason why Ignatyev's statement is so important - he has in fact tried to harmonise the two realities. It could be a sign that the Government is trying to avoid a shock plummeting of the rouble.
Sharp changes of this kind are always unpleasant, although sometimes it is good to for things to happen quickly. In that case, people receive a single shock that can be alleviated with the help of strong political and social institutions. Many politicians say a quick shock is easier on people than a long and painful decline. Anyway, the Russians have had several major shocks over the past 15 years, and therefore will not be entirely psychologically unprepared.
However improbable this scenario might seem, one must bear in mind that we could not imagine the present global and domestic situation three or four months ago, either.
In June, 40% of those surveyed by Levada Centre, a national pollster, did not believe another 1998 was possible, while 36% did believe in that possibility, and the rest said they didn't know. Another pollster, Bashkirova and Partners, who asked the same question in October, reported a dramatic change in the ratio, to 34% and 46%, respectively.
It is hard to predict whether Vladimir Putin would want to tip the existing political balance. It is clear, however, that [President Dmitry] Medvedev won't venture devaluation without his Prime Minister's support.
Unfortunately, modern Russia does not provide many sites for an open discussion of ways out of the crisis. The current composition of the lower chamber of parliament makes substantive discussion virtually impossible. Bailout measures are mostly adopted privately, which increases the risk of error.
The situation needs to be changed, which, in turn, requires a change in the current information policy. National television should be made a more open site for expert discussion than was previously thought possible.
If national television sticks to avoiding any mention of the crisis for much longer, the sharp changes in the "non-TV" reality will eventually undermine public confidence in this key government-society communication channel. The gap between the two realities will become too wide, and it will become impossible to bring trust back.
The Government will probably have to feign that it, too, was taken by surprise by the crisis, that it really came as a shock when they were watching the news. They might also have to resort to public flogging and other showy actions against chosen scapegoats - specific bankers and officials.
On the other hand, the officials that may have to be sacrificed are valuable professionals, vital to the country's economy and finance.
This situation reminds everyone that television should not be the only communication channel between the political government and the public.
Other channels should be available, such as an independent parliament representing all important political forces, non-government organisations with their own expert groups, and independent media sources that could freely broadcast the opinions of different members of parliament and independent analysts.
This would be the best guarantee against lack of confidence and panic.
