Ruble swings against dollar, putting pressure on Russia's Putin
Ruble stabilizes in Russian crisis, but Putin and Kremlin remain at risk
(about 11 hours later)
MOSCOW — Russian authorities took strong action to stabilize the country’s currency on Wednesday, a day after the worst swings since Russia’s 1998 financial wipeout threatened the stability that has been the backbone of President Vladimir Putin’s 15 years in power.
MOSCOW — Russia’s leaders took drastic action Wednesday to combat the worst threat to financial stability in President Vladimir Putin’s 15 years in power, calling in the nation’s economic and security elite and by day’s end erasing the ruble’s losses for the week.
Officials said they were fighting a “bacchanalia” that led the ruble to lose 17 percent against the U.S. dollar in the first two days of this week. The rapid evaporation of the value of Russians’ savings brought to mind bad memories of Russia’s default. Putin took office in the aftermath and solidified his control of the nation with the promise that it would never happen again.
The efforts eased the most immediate dangers to Russia’s economy. But the nation still appeared to be heading into uncharted territory, with the rising living standards that have formed the backbone of Putin’s rule receding into memory. Even if the ruble holds steady, Russia faces a recession, steep inflation and a constrained economic future, officials say — a perilous combination that Putin has long been able to avoid.
Russian newspapers warned Wednesday in editorials that the country was steps away from a full-blown bank run. “The central bank has buried the ruble” was the headline on the front of Moscow’s Nezavisimaya Gazeta.
In a sign that the Kremlin viewed the crisis not just as an economic threat but as a danger to Russia’s fundamental security, the Russian Security Council said Wednesday that it had drawn up a response plan and given it to Putin to review. The head of the council, Nikolai Patrushev, a former head of the successor agency to the KGB, did not disclose details. The body usually focuses on matters of war and peace, and it is highly unusual for it to become involved in economic policymaking.
But the ruble itself was more stable Wednesday after some gyrations when the market opened, gaining 3 percent against the dollar in afternoon trading and making up much of what it lost Tuesday. Analysts said the market bore heavy signs of government intervention to stabilize the ruble.
“The government and central bank have begun working seriously on stopping this bacchanalia on the currency market,” Putin aide Andrei Belousov told Russian news agencies after Prime Minister Dmitry Medvedev convened an emergency meeting of top economic officials and the heads of major energy companies.
“The government and central bank have begun working seriously on stopping this bacchanalia on the currency market,” Putin aide Andrei Belousov told Russian news agencies after Prime Minister Dmitry Medvedev convened an emergency meeting of top economic officials and the heads of major energy companies.
Putin himself has held back from commenting on the dimming economy this week, saving his thoughts for a Thursday end-of-year news conference.
The measures came a day ahead of Putin’s end-of-year news conference, when Russians will look to him for plans to deal with a looming recession, spiking inflation and a fall in the value of wages. The event was being heavily promoted on Russian state television Wednesday in a 40-second trailer with images of Russian triumph against the perils of the world.
The currency turbulence has upended Putin’s carefully constructed economic system, which for his 15 years in power has offered relative prosperity and stability to voters in exchange for a passive political scene.
Putin’s press secretary on Wednesday promised “a number of measures” in coming days to fight the crisis.
The situation led car makers and others to suspend sales until they could decide how much to charge. As of Wednesday, Apple’s online store in Russia was still out of service. A day earlier, lucky customers at their physical stores in Moscow could buy iPhones and computers at steep discounts.
“In 2008, if you remember, Putin came out and said, ‘This is a crisis, I am assuming responsibility and everything will turn out right,’ ” spokesman Dmitry Peskov told the state-run Rossiya 24 television channel.
Russia’s Finance Ministry also announced that it will join the Central Bank in selling off reserves of foreign currency to help prop up the ruble. Medvedev promised Wednesday that Russia would steer clear of making any “extremely harsh regulations” to bring the ruble rate to heel, and that the government’s moves would “be founded on market mechanisms.”
The Russian central bank and Finance Ministry helped fuel a soaring ruble that on Wednesday took back nearly the full 17 percent it had lost against the dollar earlier in the week. Both agencies said they would sell reserves to bolster the currency, and the central bank unveiled a package of measures to soften the impact on banks of sanctions and the ruble’s devaluation.
His press service later said that he had “instructed the heads of companies that the main task is to rhythmically and stably sell currency to avoid spikes in the ruble’s exchange rate,” Interfax reported. The light policy intervention suggested that the Russian government was increasingly willing to exert control over how private businesses handle their money.
The measures offered reassurance to nervous Russians who a day earlier had rushed to switch their savings into dollars.
“Everyone recognizes that the ruble is undervalued right now,” Medvedev said.
Russian leaders also have sounded somewhat more conciliatory toward Ukraine in recent days, perhaps in a bid to ease sanctions. The measures were imposed after the Kremlin annexed the Crimean Peninsula in March and then helped to fuel a pro-Russian rebellion in eastern Ukraine.
Some Russian lawmakers urged citizens to tough it out.
The ruble settled Wednesday near 61 to the dollar, a relief from Tuesday when it had spiked as high as 80 but still far above 33, its level at the start of the year. The weakened currency drives up prices, makes it harder for companies to repay loans that were taken out in dollars or euros, and waters down Russians’ savings.
“One should suppress emotions and not create panic,” said the head of Russia’s upper house of Parliament, Valentina Matvienko. The currency’s swings were like “bad weather that will pass,” she said.
The rapid depreciation of the ruble stirred bad memories of Russia’s 1998 default. Putin took office in the aftermath and solidified his control of the nation with the promise that such a crisis would never occur again.
Although the ruble’s value was more stable Wednesday than in previous days, the situation remained fragile, and many investors still seemed to have lost trust in the country’s basic institutions. Shortly after midnight Tuesday, the Russian central bank imposed a steep interest rate hike in attempts to stem the currency losses — to little initial effect.
But many Russian newspapers that are usually reliably pro-Kremlin warned Wednesday in editorials that the country was steps away from a full-blown bank run. “The central bank has buried the ruble” was a headline on the front of Moscow’s Nezavisimaya Gazeta.
At one point Tuesday, a dollar could buy 79 rubles, an extraordinary level for a currency that stood at 33 rubles to the dollar in January and held mostly steady for much of the year. By midday Wednesday, the currency stood at 66 rubles to the dollar.
The turmoil this week was scoring a direct hit on the urban middle class, which has greatly prospered under Putin. Several carmakers temporarily suspended sales in Russia until they could determine what prices would protect them against losses. Apple’s online store in Russia remained offline Wednesday for the second day in a row.
Tuesday’s sharp interest rate increase — from 10.5 percent to 17 percent — promised to throw Russia’s economy into a deep recession next year, and it was a sign that Russian policymakers feel they have few options left to fight the crisis.
But the overall economic mood remained pessimistic. Many here said they had abandoned or curtailed plans for European winter travel, which became a beloved ritual during the Putin years and had been accessible even to the lower middle class.
On Tuesday, top economic officials said, in effect, that Russians would simply have to get used to worsened living standards.
Russians have effectively taken a 50 percent pay cut in euro terms in the space of a year, making large swaths of Europe once again inaccessible to them and dimming support for the Russian government.
Deputy Prime Minister Olga Golodets said poverty would “inevitably rise” because of inflation. Elvira Nabiullina, president of the Central Bank, said that “these new conditions demand a change in behavior,” one that involves “getting rid of expensive imported goods” and replacing them with cheaper Russian ones.
Svetlana Kudryashova, 47, a Moscow-based business consultant, said she had abandoned a two-week New Year’s vacation to Austria in favor of a shorter trip just over the border to Finland. She said she will pack all the groceries and supplies she will need, right down to toilet paper, since she can no longer afford to buy European products.
Putin has not publicly addressed the crisis in recent days, but his spokesman said that much of an annual news conference set for Thursday will be devoted to the economy.
“All these years I could afford” going to Europe, she said. “This year, I think I can afford it, but I just don’t know how I will live the rest of my life after the trip.”
The central bank tactics have revived memories of Russia’s 1998 financial meltdown, when the nation defaulted on debts and hyperinflation wiped out a generation’s savings. Buoyed by rising oil prices, Putin devoted much of his early years to building institutions that would preserve economic stability.
One analyst said that the years of prosperity fueled by rising oil prices during Putin’s first years in power were no guide to the future.
As a result, Russia still has far more crisis-fighting resources today than it did then, including the world’s fourth-largest currency reserves. They stood at $416 billion at the beginning of the month, down $80 billion this year.
“People associate that prosperity with Putin. And that’s normal,” said Grigory Golosov, a professor at the European University at St. Petersburg. “But no one really knows how that populace will react to the rapidly deteriorating economic circumstances.”
So far, Putin’s popularity remains near record highs. But pollsters warn that economic distress may challenge the high numbers.
“If the economic troubles last a long time, this will be a new situation that Putin’s regime has never been in,” said Denis Volkov at Moscow’s independent Levada polling agency.
Retailers said some Russians were rushing to buy large-ticket items such as cars and appliances before they are marked up to new exchange rates. That sparked unpleasant memories from 1998, when consumers tried to convert their savings into purchases that would hold their value. But grocery stores appeared to be fully stocked.
Russia’s economy was already in trouble before the March annexation of Ukraine’s Crimean Peninsula and subsequent support for pro-Russian rebels in eastern Ukraine. Those decisions sparked Western sanctions and the worst tensions between Russia and the West since the Cold War. The unpredictable environment has spooked investors, which the Central Bank predicts will pull$128 billion from Russia this year.
The rapidly souring economic conditions may spur Russia to be more conciliatory on Ukraine. On Tuesday, Russian Foreign Minister Sergei Lavrov reversed a call for Kiev to cede more power to Ukraine’s regions, a basic Russian demand since pro-Moscow Ukrainian President Viktor Yanukovych was toppled in February.
Secretary of State John F. Kerry praised the Russian moves on Tuesday, raising the prospect of an easing of sanctions. “There are signs of constructive choices,” Kerry told reporters in London, referring to the cease-fire.
Russia’s 1998 default helped spark a broader global crisis, hitting emerging economies. So far, fears that this crisis could spread appear muted, although neighbors such as Kazakhstan and Belarus also have experienced pressure.
Global stocks pointed lower Wednesday as oil prices continued to fall.
“We have lost trust between business and the state. It’s systemic,” said Evgeny Gontmakher, a former economic adviser to Medvedev who works at the Institute of Contemporary Development, a liberal policy organization. “It could be a big turning point, not only for the economy but for Russia.”
In recent months, the ruble has shed value hand in hand with oil prices.
But the ruble sell-off that started Monday — a day in which oil prices were flat — was sparked by worries about a complicated, opaque transaction late last week in which the central bank appeared to have printed currency to indirectly finance oil giant Rosneft, analysts said.
Rosneft, majority-owned by the Russian state, has been stung by the sanctions and the falling energy prices. Rosneft head Igor Sechin, a Putin confidant, denied Tuesday that anything untoward had occurred.
“In the last couple of days, oil has stayed completely stable and yet Russia had a total panic,” said Sergei Guriev, an economist at the Sorbonne in Paris. “This panic is triggered by the realization that the Russian government has no idea what to do.”
