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Table The Annual Price Rise Rates for Some Kinds of Goods and Services in 20072010 (as% December/ to December of the preceding year) 2007 2008 2009 2010 2007CPI 11.9 13.3 8.8 8.8 50.Food stuffs 15.6 16.5 6.1 12.9 61.Grits and beans 24.7 25.8 2.5 58.8 142.Butter 40.3 10.5 7.9 23.3 106.Sunflower- oil 52.3 22.1 19.8 27.6 90.Pasta 23.6 33.8 1.6 4.7 75.Milk and dairy products 30.4 12.2 2.3 16.7 74.Bread and bakery 22.4 25.9 2.4 7.6 69.Meat and poultry 8.4 22.2 5.0 5.3 46.Fish and seafood 9.0 15.1 10.6 4.8 45.Non-food goods 6.5 8.0 9.7 5.0 32.Construction materials 16.2 11.3 2.1 4.6 38.Gasoline 8.5 1.2 8.0 6.5 26.Services 13.3 15.9 11.6 8.1 58.Housing and utilities 14.0 16.4 19.6 13.0 79.Preschool education services 11.8 20.7 16.2 7.7 68.Sanatorium and rehabilitation services 15.6 21.2 9.5 5.4 61.Passenger transportation services 13.6 22.5 6.5 8.7 61.Cultural institutions services 14.5 15.5 11.3 8.6 59.Source: Russian Statistical Service.

In conclusion, let us compare the consumer price rise rates in the RF with those in other CIS Countries (Table 4).

Section 2.

Monetary-Credit and Budgetary Spheres Table Consumer Price Indices in the CIS Countries in 2000-2010, % versus Relevant Period of Preceding year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* Azerbaijan 2 2 3 2 7 10 8 17 21 1 5,Armenia -1 3 1 5 7 1 3 4 9 3 7,Belarus 169 61 43 28 18 10 7 8 15 13 Kazakhstan 13 8 6 6 7 8 9 11 17 7 Kyrgyzstan 19 7 2 3 4 4 6 10 25 7 4,Moldova 31 10 5 12 12 12 13 12 13 0 7,Russia 20 22 16 14 11 13 10 9 14 12 6,Tajikistan 24 37 10 17 7 8 12 21 20 6 5,Ukraine 28 12 1 5 9 14 9 13 25 16 9,*Data for January-September.

Source: The CIS Intergovernmental Statistics Committee (http://www.cisstat.org/).

Inflationary processes in the CIS countries in the recovery period after the economic crisis were determined mainly by two groups of factors. On the one hand, in many countries, the crisis led to depreciation of the national currency, which in early 2009 contributed to higher prices by raising import prices and inflationary expectations. In early 2010, there was an effect of a low base, stimulated some moderation in inflation. In addition, economic recovery in the most CIS countries is still rather slow, which imposes constraints on inflation from aggregate demand.

On the other hand, in 2009-2010 the monetary supply was growing. In addition, the resumption of increasing consumer demand also increases the inflationary pressure. As a result, the combination of the above factors determines the rate of price growth in the CIS countries.

In the Russian context recovery in prices for the Russian main export goods (despite the outflow of private capital), a negative supply shock, as well as financing the budget deficit at the expense of the Reserve Fund have caused inflation in the second half of the year. Due to the low inflation in the first half of 2010, in general, CPI remained at the level of 2009 However, in case of continuation of these trends, inflation up to 2011 may not show further decrease and remain at 8-9%.

2.1.3. The State of the Balance of Payments1 and Foreign Currency Market Balance of payments stability of the Russian Federation in 2010 was ensured at the expense of exports, especially fuel and energy complex products. Global economic recovery after the crisis, as well as the preservation of mitigated monetary and credit policy in the US and the EU have inspired growth in commodity prices, resulting in the growth of fuel and energy exports from Russia by the year-end by 32% as compared with the previous year. At the same time, the outflow of capital from the country within the year was much greater than expected by the Government and the Bank of Russia, which reflects the high risks of investing in the Russian economy. In view of combination of the above factors, the balance of payments appears to be quite stable, but in the medium term such stability of the balance of payments would be in danger as a result of the rapid growth of imports in Russia compared to The analysis of the balance of payments was conducted on the basis of the RF Central Banks preliminary data:http://cbr.ru/statistics/credit_statistics/print.aspfile=bal_of_payments_est.htm RUSSIAN ECONOMY IN trends and outlooks exports from the country, and continued growth of the balance of account deficit of operations with capital and financial instruments.

According to the published by the Bank of Russia preliminary assessment of the balance of payments of the Russian Federation in 2010, positive current account balance amounted to 72.6 billion dollars, i.e., increased by 47,1% as compared with 2009 (Table 5). Herewith, trade balance surplus grew by 33.7% (from 111.6 billion to 149.2 billion dollars), while exports of goods increased by 31.2% (from 303.4 billion to 398 billion US dollars), and imports of goods increased by 29.7% (from 191.8 billion to 248.8 billion dollars). The share of exports of oil and natural gas amounted to 63.3% in the total value of exports, having increased by 0.4 percentage points as compared with 2009 (Fig. 4). Therefore, as in previous years, the main factor determining the scope of the balance of current account, was the balance of trade, which, in turn, largely depends on the changes of energy prices and other major Russian export commodities in the global markets. The data presented in Fig. 5, shows that the relationship between oil prices and the trade balance of Russia, observed in 2002-2009, was demonstrated within 2010 as well.

500 0 Exports Share of oil, oil products and gas in exports Source: RF Central Bank.

Fig. 4. The Dynamics of Commodities Export and the Share of Fuel and Energy Complex Products in 1999-Deficit in the balance of services reached 27.3 billion dollars and increased (in absolute value) compared with 2009 by 37.3%. Exports of services amounted to 44.1 billion dollars, an increase against the previous year by 2.6 billion dollars (+6.1%). Imports of services for has increased by 16.2% and reached 71.4 billion dollars. Balance of labor compensations in 2010 has increased in absolute value and amounted to -9.2 billion dollars (in 2009 it made 8.6 billion dollars). Deficit of balance of investment revenue in 2010 as compared with increased by 6.9% and reached 36 billion dollars. Investment gains due rose from 30.7 billion to 32.8 billion dollars, which is based on a significant decline in non-financial companies revenues (from 15.1 billion to 20 billion dollars). The rise of income receivable was due to % USD mn Section 2.

Monetary-Credit and Budgetary Spheres the global economic recovery and growth of investment abroad. Increased revenues receivable by non-financial enterprises from 46.6 billion to 56.4 billion dollars has identified the growth of general income receivable from 61.5 billion to 68.8 billion dollars.

The balance of current transfers1 in 2010 accounted for -4.1 bn US dollars, having decreased by 8.8% as compared with 2009.

Table Main Items of the Balance of Payments and the Dynamic of External Debt in 20082010 (USD bn.) 2008 2009 Balance Item I Q. II Q. III Q. IV Q. Year I Q. II Q. III Q. IV Q. Year I Q. II Q. III Q. IV Q.* Year* Current account 38.7 26.8 29.6 8.5 103.7 9.7 8.2 15.4 16.1 49.4 33.3 19 6 14.3 72.Capital and 20.5 35.2 15.9 130 131.3 32.4 3.1 27 12.1 44.3 11.2 8.1 6 21.4 30.financial instruments accountChange in 12.1 64.9 8.9 124.8 38.9 30.5 14.2 9.1 28.8 3.4 16.6 26.1 2.7 8.6 36.forex reserves ( + -decline of reserves, growth in reserves) Net mistakes 6.1 2.9 4.7 3.3 11.3 7.8 2.9 2.6 0.6 1.7 5.5 1.1 2.7 1.5 5.and omissions Change in 19.1 51.5 6.3 60.3 16.6 34.2 19.6 7.9 6.7 13.3 3.5 7.3 19.1 7.4 15.external debt of RF ( + growth in debt, - decrease of debt) Change in the 0.2 1.5 2.0 3.7 7.1 2.4 4.1 9.4 2.5 13.7 2.4 3.8 0.3 0.2 0.external public debt of RF Change in the 19.0 53.0 8.4 56.6 23.7 31.8 15.5 1.5 9.2 27.0 1.1 11.1 19.4 7.6 14.external debt of the private sector in RF * Preliminary estimates.

Source: The Bank of Russia.

Thus, it was high prices for major Russian exports that were behind a huge positive balance of current accounts of the Russian balance of payments in 2010. Let us note that at the end of the year, the debt of has resumed its growth again (see Table 5). As to foreign debt, it has changed slightly for the year, having increased only by 0.9 billion dollars. In the medium term, one can expect recovery rates of external debt growth, both, in private and public sector of economy, due to the lack and high cost of financial resources domestically, as well as the continuing budget deficit.

According to the RF Central bank, the current transfers bolster the level of disposable income and consumption of the recipients goods and services and decrease the donors disposable income and possibilities for consumption, for instance, humanitarian aid in the form of consumer goods and services. The current transfers are reflected in current accounts. Transfers other than current are conceived of as capital ones. They lead to a change in the volume of the donor or recipients assets or liabilities and are reflected in capital accounts. In the event the donor and the recipient are non-residents to each other, the capital transfer engenders changes in the level of national wealth of the economies they represent. Examples of capital transfers are a free-of-cost transfer of property rights for capital assets or debt forgiveness.

Less foreign currency reserves.

RUSSIAN ECONOMY IN trends and outlooks 850% Balance of trade Oil Price Index (Q I 2005 = 100%, right axis) 750% 650% 550% 450% 350% 250% 150% 50% -50% 2005 2006 2007 2008 2009 Source: the RF Central Bank, IEP estimates.

Fig. 5. RF Balance of Trade and the World Oil Price Index in 2005-In 2010, the balance of operations with capital account and financial instruments has significantly declined in absolute terms, amounting to USD -30.5 billion. The balance of capital transfers in 2010, amounted to USD 0.2 billion. Therefore, in 2010 the deficit of financial account amounted to USD -30.7 billion.

Increase of liabilities of the Russian economic agents against foreign economic agents as per the year results totaled to 36.6 billion dollars, which is 5.5 times more than in the previous year (6.6 billion dollars).

Like in 2009, the federal administrative bodies likewise became net payers in relation to non-residents. Their external liabilities have grown by USD 3.6 bn, resulting from repayment of Russias external public debt.

Their external liabilities rose by 3.6 billion dollars, which resulted from sales of the newly issued debt securities of the Government of Russia by non-residents. The balance of external liabilities across the RF Subjects remained unchanged. Reduction of monetary regulation authorities' commitments in 2010 reached 2.1 billion dollars.

The resumption of the global economy growth after the financial crisis, demonstrated, among other things, in gradual recovery of the global capital markets and the growing interest of investors to risk by maintaining low interest rates in developed countries has resulted in the fact that the banking sector of the Russian Federation obligations to non-residents once again began to grow, increasing within the year to 18.1 billion dollars. At the same time, investUSD, bn 53 51 49 46 39 39 37 37 36 35 33 34340,32 31 31 30 30 29 28 27 24 24 24 18 Quarter I Quarter I Quarter I Quarter I Quarter I Quarter I Quarter II Quarter II Quarter II Quarter II Quarter II Quarter II Quarter III Quarter III Quarter III Quarter III Quarter III Quarter IV Quarter IV Quarter IV Quarter IV Quarter IV Quarter IV Quarter III Section 2.

Monetary-Credit and Budgetary Spheres ments of economic agents of other countries in the non-financial sector of Russia accounted to only 16.4 billion dollars as compared with 34.4 billion dollars in 2009. Therefore, nonresident investments in non-financial sector of 2010 decreased compared to 2009, despite the resumption of economic growth in Russia. Consequently, foreign investors consider investing in Russia quite risky at the current level of profitability. Direct investments in non-financial sector accounted for USD 28.6 billion over 2010, as compared with 30.3 billion dollars in 2009, and the growth of portfolio investments has expressly declined by 1.6 billion dollars, as compared with the growth of 2 billion dollars a year earlier. The volume of non-financial sector under the debt on loans to non-residents declined in 2010 by USD 10 billion as a result of earlier received credits redemption.

Foreign assets of residents (liabilities of foreign economic agents to the Russian ones) increased within 2010 by 67.2 billion dollars (against 39 billion dollars within 2009).

Herewith, foreign assets of the federal government and monetary-credit regulation authorities have practically unchanged, and banks rose by 6.7 billion dollars.

Export of capital from the sector non-financial enterprises and households, as compared with 2009, has decreased by 1.2% and amounted to 60.3 billion dollars. Herewith, it is important to note that significant changes have occurred in the dynamics of the article "cash in foreign currency", which indicates, that in 2010 the export of foreign currency from Russia amounted to 14.4 billion dollars as compared with 4.1 billion dollars in 2009 Therefore, due to the stability of the national currency and foreign currency savings of population, converted into rubles, made during the fall of the ruble in winter of 2008/2009, the public and nonfinancial sector reduced their investments in foreign currency.

The situation in the foreign exchange market of the Russian Federation in 2010 was determined by the inflow of currency into the country via the current account operations, the outflow of capital account and financial instruments and the actions of the RF Central Bank.

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