...Recently, a pro-Kremlin youth group staged a mock panhandling to
benefit the United States currency. They held out hats for passers-by to
make donations - "raising money for the dollar's ticket back home,"
their signs read...
http://www.nytimes.com/2007/08/08/business/worldbusiness/08ruble.html?_r
=1&oref=slogin&pagewanted=print
August 8, 2007
The Almighty Ruble
By ANDREW E. KRAMER
MOSCOW, Aug. 6 - The ruble got no respect.
During the cold war, it symbolized the backward Soviet economy. After
the U.S.S.R. collapsed, it was an avatar of instability. Even plumbers
in Moscow often preferred to be paid in bottles of vodka rather than
rubles - the bottles did not lose their value.
No more. Lifted by high oil prices and a wave of foreign investment, the
once humble ruble is showing its muscle, and fueling a consumer boom.
After gaining 20 percent in value against the dollar in the last few
years, the ruble is even starting to displace the greenback as Russians'
currency of choice for both saving and spending.
As the ruble increases in value - not just against the dollar, but
against brawnier currencies, too, like the euro - imported goods are
becoming cheaper for Russian consumers. Now ruble notes, once handed
over by the fistful for a loaf of bread, are being used to purchase
Mercedeses, flat-screen televisions and European beach vacations.
Of course, the party could be short-lived. Russia takes in roughly $530
million a day from oil, its most lucrative export. If the price of oil
declines, so will the ruble. And even if the price of oil does not fall,
an oil-fueled boom brings dangers of its own. In many countries, an
over-reliance on petrodollars has led to underinvestment in businesses
outside oil and gas, and a subsequent withering of other domestic
industries.
To deal with such downsides of the ruble's rise, Russia is salting away
oil money in a rainy day fund, called the Stabilization Fund, which
holds more than $120 billion. In January, Moscow will split it into two
funds: the Reserve Fund and the Fund of National Prosperity, the latter
intended for state investments.
Together with the Central Bank of Russia's foreign reserves, Russian
authorities have a currency reserve of $413 billion, the largest per
capita foreign currency reserve of any major economy, including China's.
In an oil downturn, authorities could spend that reserve to protect the
ruble.
In the meantime, the reserve adds an aura of stability to the economy
for investors.
"Excluding a couple of oil countries where the money belongs to the
local ruling family, which is something different, Russia has surpassed
all the newly industrializing Asian countries," in foreign currency
reserves, Kenneth S. Rogoff, an economics professor at Harvard, said in
a telephone interview.
Analysts say Russia's underlying fundamentals are good, too.
First, oil exports are not the sole source of the ruble's rise. That was
the case before 2007, but now foreign investment has become a
significant factor. Private capital flows into Russia increased roughly
360 percent in the first six months of this year, compared with the same
period last year. Only about 30 percent is attributable to oil and other
extractive industries, according to the State Statistics Committee.
Analysts also point to what they call Russia's sound macroeconomics.
President Vladimir V. Putin 's government has managed inflation, though
certainly not eliminated it. And through its tight control over politics
and society, the regime has kept demands for social spending in check -
a leadership approach reminiscent of the authoritarian "Asian model" of
economic development.
But economists also say a long-term cycle of economic depression and
recovery is bolstering the ruble, at least for now. Starting in 1990,
the year the Soviet Union collapsed, Russia's economy contracted by as
much as 40 percent. This year, for the first time since, Russia's gross
domestic product returned to 1990 levels: factories, oil pipelines,
roads, ports and other facilities that once were idled are operating
near full capacity.
In the decade from January 1993 to Dec. 31, 2002, the ruble's lowest
point, the dollar appreciated 7,664 percent against the ruble, rising to
31.96 rubles to the dollar. On Tuesday, one dollar bought 25.47 rubles,
a 20 percent appreciation for the ruble.
Even more important, as measured by purchasing power parity, a gauge of
a currency's value based on the goods it can buy, a dollar should buy
roughly 15 rubles today, according to a report Merrill Lynch issued in
July. By that measure, the ruble remains the world's second-most
undervalued major currency, behind only the Chinese yuan, whose value
has given policy makers in Washington headaches.
Indeed, the ruble would be even more valuable today if not for the
Russian central bank intervening to keep it from rising more.
Through much of the 1990s, Russia suffered the opposite problem. Then
the ruble, shunned by locals and tourists alike, was propped up by
Western lending. It collapsed in 1998, on the heels of the Asian
economic crisis. Russians' life savings evaporated and poverty became
widespread.
In just one example, the theft of manhole covers became a major problem.
Russians were stealing them to sell for scrap metal.
All that is different now. The current consumer boom has sparked renewed
interest in Russia from companies like Wal-Mart and Starbucks . Indeed,
shares in grocery stores, electronic retailers and other consumer-sector
companies are outperforming Russian oil companies on the Moscow stock
exchange.
Russian banks offer accounts in rubles, dollars or euros. Of the three,
ruble accounts are attracting the most funds. Ruble-denominated personal
savings accounts rose 6.8 percent in the first quarter of 2007, while
foreign currency accounts were level, according to a report by Goldman
Sachs .
That has led to some, perhaps predictable, gloating. Recently, a
pro-Kremlin youth group staged a mock panhandling to benefit the United
States currency. They held out hats for passers-by to make donations -
"raising money for the dollar's ticket back home," their signs read.
But there are limits as to how far a currency can carry a country. Real
economic growth, economists say, will depend on continuing foreign
investment. Without it, Russian consumption of imported goods will
outpace earnings from oil by 2010, according to Russia's finance
minister, Aleksei L. Kudrin.
If that happens, Russia's economy will depend on foreign investment to
maintain the strong ruble and the rising living standards associated
with it - much as the United States does, but without the same record of
stability.
Last summer, authorities eliminated all restrictions on ruble trading,
making the currency fully convertible and easing the way for the capital
inflow needed to meet the demand. In the first six months of this year,
net private capital inflow into Russia was $67.1 billion - more than
during the entire first decade after the collapse of the Soviet Union.
In the same period last year, capital inflow was $14.5 billion.
While threats of nationalization persist in the oil sector, investors
have largely decided that they are acceptable considering the money to
be made.
In another recent sign of the ruble's strength, a particularly Russian
enterprise has just become more expensive.
Russia has raised the price for a tourist flight to the International
Space Station aboard a Russian rocket. What cost Dennis A. Tito, the
first space tourist, $20 million in 2001, this year cost the former
Microsoft executive Charles Simonyi $25 million. Citing the strong
ruble, Russian space agency officials say they will increase that fee to
$30 million.
|
