A growth in oil prices, beside increasing export proceeds, also results in increasing revenues of budgets at all levels of the budgetary system. This growth in revenues includes both the increase in export duties rates per se, and increases in the revenues generated by major taxes due to the general revival of business activity initiated by increases in proceeds and profits of export oriented industries. On the one hand, taking into account the considerations discussed above, accumulation of surplus on the accounts of the RF Finance Ministry with the Federal Treasury may be used as a means of sterilization of purchases of foreign currency on the part of the Central Bank. On the other hand, a portion of the budget surplus is converted into foreign currency, thus creating additional demand for foreign exchange on the forex market, and may be used for repayment or repurchase of the foreign debt, thus increasing the adverse current balance of capital flows.
Fig. 5 presents the dynamics of the scale of sterilization, i.e. an increase in reserves not followed by an increase in the monetary base, and changes in the balances on accounts of the government with monetary authorities.
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99 00 01 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 99 00 01 Прирост рез ервов сверх прирост а д енежной баз ы (раз мер ст ерилиз уемой ) б Из менение депоз ит ов орг анов г осударст венног о б Jan.
99 Mar. 99 May 99 Jul. 99 Sep. 99 Nov. 99 Jan. 00 Mar. 00 May 00 Jul. 00 Sep. 00 Nov. 00 Jan. 01 Mar. 01 May 01 Jul. 01 Sep. Nov. 01 Jan. 02 Mar. 02 May 02 Jul. 02 Sep. 02 Nov. Increase in reserves exceeding increase in the monetary base (size of the sterilized intervention), Rub. billion Changes in deposits of the Government, Rub. billion Source: RF Central Bank, author’s calculations.
Fig. 5. Dynamics of sterilization of purchase of foreign exchange on the part of the RF Central Bank, changes in deposits of the Government with monetary authorities in 1999 through The above Figure in fact points out that the sterilized portion of interventions, i.e. that not resulting in an increase in the monetary base significantly corresponds to fluctuations of balances on accounts of the budgetary system. This means that the growth in exports observed simultaneously with the growth in oil prices and the increase in gold and foreign exchange reserves were accompanied by growing revenues of the budgetary system and accumulation of surplus, which to a considerable degree permitted to sterilize purchases of foreign currency carried out by the RF Central Bank. The not sterilized portion of interventions resulted in the increase in the monetary base thus creating monetary prerequisites for inflation, what in turn (in the case of slowly changing nominal exchange rate) resulted in real Ruble appreciation thus creating incentives for growth in imports and decline in the net inflow of foreign currency in the country at the expense of foreign trade.
The results of the empirical analysis. In the framework of the study conducted by IET, there were obtained the following results of the empirical analysis of the aforesaid relationships:
1. There exists a stable relationship between the amount of exports and world oil prices both in the long term (cointegration relationship) and short term (relationship in increases) perspectives. An increase in world oil prices by 1 US $ per barrel results in an increase in exports by about US $ 200 million.
2. There exists a rather stable relationship between imports and the real exchange rate both in the long term and short term periods (growth in the index of real appreciation by 20 % in comparison with the values registered in early 1999 results in an increase in imports by about US $ 1 billion). At the same time, besides the real exchange rate, the increase in industrial output (as a factor characterizing demand) also affects the increase in imports – as the index of industrial output increases by 1 (January of 1993 = 100), the growth in imports makes about US $ 87 million.
3. A key factor of increase in the monetary base is the growth in gold and foreign exchange reserves, at the same time, in spite of partial sterilization of interventions, the growth in the monetary base in the case of purchase of foreign currency makes on the average about 28 % of the increase in reserves (in Rubles).
4. Interventions are sterilized in the course of purchase of reserves by the Central bank, the major instrument of sterilization is the accumulation of a portion of funds on accounts with the Federal Treasury. Correlation between changes in deposits and reserves indicates some coordination of actions of the Central Bank and the RF Finance Ministry. Operations with securities in the Central Bank assets are not used for sterilization.
5. An avenue of utilization of funds on accounts with the Federal Treasury is the servicing and repayment of the foreign debt. Authorized agents of the RF Finance Ministry in the course of purchase of foreign currency necessary to payments relating to the foreign debt increase the monetary base and demand for foreign exchange on the currency market in addition to the RF Central Bank actions.
6. The results of the test for cointegration indicate a relationship between the nominal exchange rate and gold and foreign exchange reserves, at the same time, the increase in the nominal exchange rate by 1 Ruble per US $ (Ruble depreciation) results in the increase in international reserves by US $ 5 to US $ 5.5 billion. It is also necessary to point out that this relationship exists across the whole range of world oil prices affecting the inflow of foreign currency in the RF over the whole period under observation.
7. In the short term period (monthly data) there is observed a negative relationship between the increase in gold and foreign exchange reserves of the RF Central Bank and increase in the exchange rate, while as concerns daily data, the relationship is insignificant. It appears to indicate that the Central Bank increased the reserves in the case there was observed a trend towards the nominal Ruble appreciation, at the same time seeking to stabilize the nominal exchange rate and not allow it to significantly appreciate or depreciate, probably compensating excessive demand for or supply of foreign exchange and the daily rate fluctuations, although not causing additional fluctuations of the rate resulting from interventions.
8. The test of profitability of interventions also fits the hypothesis about the gradual accumulation of reserves in the framework of relatively stable nominal exchange rate – the hypothesis that interventions were not intended to derive speculative profits because of rate fluctuations is not refuted.
On the whole, this analysis of the dynamics of key indicators of the balance of payments, forex market, and monetary policy demonstrated that in spite of limited capacity to sterilize the increase in money supply in the case of accumulation of gold and foreign exchange reserves, the RF Central Bank carried out significant sterilization – the increase in reserves (in Rubles) was significantly above the increase in the monetary base. At the same time, the sterilized portion of interventions, i.e. that not resulting in the increase in the monetary base, significantly corresponded to the fluctuations of the balances on accounts of the budgetary system with the monetary authorities. It means that the growth in exports observed simultaneously with the growth in oil prices and the increase in gold and foreign exchange reserves were accompanied by growing revenues of the budgetary system and accumulation of surplus, which to a considerable degree permitted to sterilize purchases of foreign currency carried out by the RF Central Bank. The not sterilized portion of interventions resulted in the increase in the monetary base thus creating monetary prerequisites for inflation, what in turn (in the case of slowly changing nominal exchange rate) resulted in real Ruble appreciation thus creating incentives for growth in imports and decline in the net inflow of foreign currency in the country at the expense of foreign trade.
P. A. Kadochnikov The Real Sector: Factors and Trends In the 1st quarter of 2003, according to the preliminary estimates, the increase in gross domestic product made 6.4 %. Economic growth was supported by persisting positive dynamics of production across practically all sectors of the economy. The output of products and services of the base industries increased by 6.7 % in comparison with the figures registered in January through March of 2002. The accumulated potential of development determined successful adaptation to changing conditions of the external economic situation, dynamics of the real Ruble exchange rate, costs relating to wages and salaries and payments for products and services of natural monopolies.
A specific feature of the 1st quarter of 2003 was the changes in proportions of final consumption and the investment component. In 2001 through 2003 there are observed indications of a socially oriented growth determined by the outpacing growth in consumption in comparison with GDP. The persisting intensive dynamics of growth in final household consumption were supported by increasing household incomes. In the 1st quarter, the growth in real disposable household incomes made 116.0 % as compared with the figures registered in the respective period of the preceding year, while real wages and salaries increased by 110 %.
The real amount of gross pensions was maintained at the same level, since the rise in pensions in Russia has started since April 1, 2003.
The major factor behind the growth in real incomes and consumption was the intensive increase in real wages and salaries. A specific feature of this process is the widening gap between the dynamics of real wages and salaries and productivity of labor. This development results in redistribution of added value from enterprises to the population. The problem is aggravated by increasing differentiation of the sectors of the economy and extracting and manufacturing industries in terms of remuneration of labor. As a result, there is observed a decrease in the factor remuneration of labor in manufacturing industries and the sector of services. Taking into account the fact that almost 90 % of the economically active population is employed in the manufacturing industry and the sector of services, while wages and salaries of employees form over 75 % of the cash household incomes, the low effective demand on the part of these citizens is a serious factor constraining the rates of economic growth. In the economy, there is observed a growth in production costs and, accordingly, decreasing profitability of the real sector of the economy. The reaction of supply to this situation is reflected via decelerating growth of domestic production of consumer goods in comparison with final demand and accelerated increase in imports. These developments confirm the conclusion about deterioration of the generating influence of consumer demand on the dynamics of production in comparison with the levels registered in the respective period of the preceding year.
---GDP Final household consumption Investment in fixed assets Fig. 1. Changes in GDP dynamics as broken down by the components in 1999 through 2003, in % of the respective period of the preceding year 2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 4кв 2кв 3кв 4кв 1кв/1кв\1кв\1кв\1кв\The determining factor of the increase in GDP was the renewed growth in industrial output. In February through March of this year, the trend towards a decline in industrial output registered in the 4th quarter of 2002 and in January of 2003 was overcome. In the 1st quarter of 2003, the increase in industrial output made 6.0 % in comparison with this indicator registered in the respective period of the preceding year.
The dynamics of industrial output in the 1st quarter of 2003 were determined by the widening gap between the rates of growth in extracting and manufacturing industries. Favorable changes of the business situation on the world markets of hydrocarbon and raw materials further accelerated industrial growth. The rates of increase in production of export oriented industries in the 1st quarter of 2003 made 109.9 % in comparison with 103.8 % registered in the respective period of the preceding year. This year, among the most dynamically developing industries were fuel industry (109.9 %), ferrous (111.1 %) and non-ferrous (109.%) metallurgy. The growing role of extracting industries and industries engaged in the initial processing of raw materials has determined the nature of structural shifts.
While in the first six months of 2002 the dynamics of industrial growth were determined by the outpacing rates of production of consumer goods in comparison with export oriented and investment complexes, in the beginning of this year the situation changed. In January through March of 2003, the index of production across industries of the consumer complex made 102.2 % as compared with 106 % registered in the respective period of 2002. The investment industries are also characterized by rather moderate dynamics: the increase in production of mechanical engineering made 3.9 %, while in the industry of construction materials it made 3.5 %. As compared with the figures registered in the 1st quarter of 2002, the increase in production in the consumer complex at large grew by almost 2.5 p.p. and made 3.7 %. In February through March of this year, in mechanical engineering and the industry of construction materials there was registered an intensive growth in production, which fully corresponds to the recovery of positive dynamics of increase in investment in fixed assets. However, at the same time the dynamics of output of capital goods significantly lagged behind the growth in investment in fixed assets. The share of imports on the market of investment goods expands. While in 2002, according to the data provided by the State Customs Committee, the Russia’s imports of technological equipment increased by 30 %, in the first months of this year this increase made already 27.3 %.
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