The concept of "Russia as a safe haven" was presented at the Davos forum a year ago. It was assumed then that amid the world financial crisis, which was widely expected, the Russian markets would remain stable. "Interest in Russia as an island of stability will grow," the Russian Finance Minister Alexei Kudrin was trying to convince the world economic elite. "The US economy is on the edge of recession and world economic growth is slowing down," he said.
The Russian economy was still growing, with the Urals crude costing $95 per barrel. Last autumn the Finance Minister had to eat his words about the promise to turn Russia into a "safe haven".
The organisers had invited Prime Minister Vladimir Putin to deliver the opening speech at Davos-2009. This is an honour: The report, by tradition, sets the tone for the whole event. Newsweek's source in Government said that Mr Putin had set his speechwriters several simple tasks: first, the Prime Minister wanted to allay the fears of Western investors and bankers who were afraid of nationalisation in Russia. Second, he wanted to voice his opinion on the causes of the crisis and his vision of the post-crisis world. Finally, he wanted to promote Russia as a promising booming economy and a future energy giant.
The authors of the report, First Deputy Prime Minister Igor Shuvalov and Presidential Aide Arkady Dvorkovich, did a good job on the Prime Minister's speech. Mr Putin too played his part well: He read out the speech from the script and refrained from ad-libbing.
Things were going swimmingly, but on the second day of the forum the chairman of the board of the Modern Development Institute, Igor Yurgens, sprang an unpleasant surprise on the Russian delegation. Speaking to the Financial Times on the fringes of the forum he said that "the Russian Government is considering scenarios that envisage a drop of the economic growth rate from 6.3% in 2008 to anywhere between 0 and -10%."
The Government had never yet made public its worst-case scenarios (a drop of GDP by 10%), but last Friday Mr Shuvalov admitted to the State Duma that it was not beyond the bounds of possibility. "We are considering a fairly tough scenario, but it can be even tougher", the First Deputy Prime Minister told the Duma deputies.
A source at the Government House confirmed that the forecast made public by Mr Yurgens was not a figment of imagination but "the most pessimistic and the least probable" of the scenarios under discussion.
Mr Shuvalov spoke against the background of a speculative attack on the rouble: The middle of last week saw the expiry of the deadline for paying taxes and the banks again got some money to buy US dollars. On Wednesday the rouble dropped by 30 kopecks against the dollar, on Thursday by nearly 1.5 roubles and on Friday by a further 70 kopecks to reach 35.41 roubles to the dollar. The rate against the two-currency basket was nearly 40 roubles, just one rouble short of the upper limit of the currency corridor.
An anonymous Kremlin official promised the agencies that if the rouble continues to fall "the Central Bank will use innovative methods of supporting the currency". Bank dealers expect that early this week the Central Bank may embarrass the speculators: The banks owe huge amounts to the Central Bank (the money had been disbursed to pay arrears in industry), which it will probably claim back. That may provoke forced sale of dollars and probably boost the rouble against the dollar.
Our sources in Government claim that the process of strengthening the rouble may be supported by introducing limits on the purchase of currency for banks and companies. "Everybody is in agreement, all that remains is to persuade the Prime Minister," the official said. True, introducing anti-market restrictions would be rather embarrassing immediately after the liberal speech in Davos.
Konstantin Ivanov