According to the "Main Guidelines of the Uniform State Monetary Policy for 2003" adopted by the Bank of Russia and the RF Government and approved by the RF State Duma, reducing inflation is the main aim of monetary authorities in 2003. The document states that the Central Bank of Russia will devote its main efforts to reducing inflation in 2003 down to a rate of 10 to 12 percent. According to the CB RF's calculations, the base rate of inflation, i.e.
the indicator net of seasonal fluctuations and increases in administered prices, should be ca.
8.0 - 8.5 percent. The Bank of Russia will continue the floating rate policy. According to the CB RF's calculations, the increase in money supply (M2 aggregate) should reach from 20 to 26 percent in year 2003.
Dynamics of Money Supply and Demand and Credit Expansion of the Banking System In 2002 the growth of money supply M2 was 32.26 percent, from 1602.6 up to 2119.billion Roubles. At the same time, the narrow money base grew only 32.72 percent in 2002, and the broad money base (reserve money) by 32.73 percent. In 2002 the amount of cash (M0) increased 30.82 percent. Thus, in 2002 the real money supply (M2 aggregate) grew 14.percent. The monetization ratio (M2 / GDP) increased also up to 19.36 percent, as opposed to 17.72 percent at the end of 2001. The share of cash (M0) in M2 is ca. 36 percent.
As is obvious from Fig. 6, real money balances in year 2002 grew mainly due to the increase in cash in accounts and term deposits of individuals with banks. During 12 months, from November 2001 to November 2002, real balances in individual Rouble deposits increased 24.8 percent while real balances in corporate accounts grew only 11.9 percent5.
In our view, a comparison with December 2001 would be incorrect due to high volatility of real account balances in the December - January period related to seasonal factors.
INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru Real M2 (December 1997 = 100) Real enterprises' rouble balances in commercial banks (December 1997 = 100) Real individuals' rouble balances in commercial banks (December 1997 = 100) Source: Central Bank of RF, State Committee for Statistics of RF, IET calculations.
Fig. 6. Real Rouble Cash Balances in Years 1998 - 2002.
The structure of reserve money remained stable in 2002. The cash share fluctuated around the 60-65 percent level, while the amount of nonborrowed reserves (balances in commercial banks' correspondent accounts and deposits with the Bank of Russia) did not exceed 23 - 25 percent of the total amount of reserve money. Thus, the structure of the monetary base in 2002 was similar to the one observed in 1997, at the time when the financial market was at its best and commercial banks used available funds to the maximum.
The dynamics of M2 and reserve money demonstrate that, after reaching the post-crisis maximum in March 2002, the money multiplier decreased sharply in the spring and early summer (see Fig. 7). By the end of the 2002 summer multiplier values reduced to 1.65 - 1.67, which corresponds to the level of the middle of 2001 when this indicator remained stable throughout eight months. In our opinion, this is explained by the fact that the maximum level of economy monetization possible under the existing conditions of financial markets and banking system had been reached. In spite of growing amounts of bank lending to the economy, money multiplication chains remain rather short.
Jun Jun Jun Jun Jun Sep Sep Sep Sep Sep Dec Dec Dec Dec Dec Dec Mar Mar Mar Mar Mar RUSSIAN ECONOMY in trends and outlooks Money multiplier (M2/Reserve money) in 1998 through 2,1,1,1,1,1,1,Source: Central Bank of RF Fig. At the same time it should be noted that, from the point of view of money supply, it may be said that the situation in 2002 has the features of a "lending boom". An analysis of the structure of the asset structure of the banking system (see Fig. 8) shows that liabilities of the private sector enterprises were the only growing component, and in 2002 their share grew from 45 percent to 50 percent of total assets. The nominal growth was ca. 34.9 percent, from RUR 1389 up to 1873 billion. The increase in the share of lending occurred due to a decrease in the liabilities of the extended government (from 20 percent down to 18.5 percent) and foreign assets (from 20 percent down to 15.5 percent). The amount of own reserves remained stable throughout the period, 10 - 12 percent of total assets.
Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep July July July July July Mar Mar Mar Mar Mar Nov Nov Nov Nov Nov May May May May May INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru Total Assets of the Banking System 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Reserves Foreign assets Claims to enlarged government Claims to public non- financial enterprises Claims to private sector Source: Central Bank of RF Fig. 8. Structure of the Total Assets of the Banking System 3,Claims to private sector Capital accounts 2,1,Source: Central Bank of RF Fig. 9. Dynamics of Liabilities of Non-financial Sector Entities and Capital Accounts of the RF Banking System in 2000 - 2002.
Jul Jul Jul Jul Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep July Mar Mar Mar Mar Mar Nov Nov Nov Nov Nov May May May May May Jun Jun Jun Oct Oct Oct Feb Feb Feb Apr Apr Apr Dec Dec Dec Dec Aug Aug Aug RUSSIAN ECONOMY in trends and outlooks Total Liabilities of the Banking System (1) 40% 35% 30% 25% 20% 15% 10% Call deposits Time and savings deposits Foreign liabilities Capital accounts Total Liabilities of the Banking System (2) 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Deposits with temporarily restricted access Instruments of money market Deposits of the enlarged government Credits disbursed by monetary authorities Source: Central Bank of RF Fig. 10. Structure of Total Liabilities of the Banking System Jul Jul Jul Jul Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep July Mar Mar Mar Mar Mar Nov Nov Nov Nov Nov May May May May May Jul Jul Jul Jul Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep July Mar Mar Mar Mar Mar Nov Nov Nov Nov Nov May May May May May INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru However, in our opinion, if the current trends remain, the observed positive dynamics of lending to the non-financial sector constitutes a thread to the stability of the banking system in the medium term (up to two years). As one may see in Fig. 9, in the course of the past two and a half years liabilities of the non-financial sector (in nominal terms) grew 1.35 times quicker than capital accounts, i.e. the own reserves of the banking sector. Thus, if the said disproportion remains, the achieved rates of lending may be preserved only by increasing balances in customers' accounts and attracting funds of individuals to the banking sector.
Changes occurring in the liability structure of the banking system during the past two years (see Fig. 10) confirm the proposed thesis of disproportion in the dynamics of bank lending and bank equity. The greatest growth rates were observed in 2002 for the share of term and savings deposits (from 32 percent to 36 percent of total liabilities) and money market instruments (from 8 percent to 10.5 percent). At the same time, the share of foreign liabilities fell down to an unexampled low: 10 percent of the total liabilities.
The situation with non-payments and settlement of accounts In 2002 (January to October) the trend of non-payments diminishing in the economy persisted. The aggregated volume of accounts payable by enterprises and organisations continued growing in their nominal value, in GNP shares it got stabilized at the level of 45% (see fig. 11). Overdue payments of enterprises and organisations in GDP shares continued to decrease and by the end of October 2002 they were about 11%. The share of debts to suppliers was less than 5%. It should be noted that this commodity credit to GNP ratio corresponds to analogous ratios in developed countries. In France the volume of commercial credit (debts to suppliers or debts of buyers) in 1989 accounted for 38% of GDP, overdue debts – 17%, In Finland the ratio was 20% and 9%, in Great Britain – 20% and 12%, In Sweden – 21% and 8% correspondingly6.
In nine months of 2002 the overdue accounts payable went down by 6% (93.5 bln roubles) compared to the total accumulated amount, and the accounts receivable by 3.4% (33.bln roubles). In the corresponding periods of 2001 there was registered an increase of overdue accounts payable and receivable (by 4.3% and 13.3% correspondingly). The major decrease of overdue accounts payable happened in January 2002, which accounted for 113 bln roubles.
The major part of the decrease - 94% (106 bln roubles) – was caused by settlement of longstanding debts – payments overdue for more than 3 months. Taking into consideration that writing down of debts as financial results was not high (see table 2) one can say that the nonpayments decrease was connected with restructuring and direct settlement of debts. The largest overdue debts were settled with the budget, off-budget funds and suppliers (35, 32 and bln roubles or 11.1%, 4.3% and 22.7 of the accumulated amount correspondingly). Other types of debts increased by 44.6 bln roubles (24.6% to the level of accumulated debts).
Schaffer M.E. Do firms in transition have soft budget constraints A reconsideration of concepts and evidence // Journal of Comparative Economics, 1998, 26(1). Р. 80–103.
RUSSIAN ECONOMY in trends and outlooks Accounts payable by enterprises and organisations Overdue accounts payable Same for the 4 branches 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002** *Until 1997 the 4 branches including **Assessment (January – October 2002) Source: The State Statistics Committee of the Russian Federation, calculations by the authors.
Note: The total of overdue account payable by enterprises and organisation include overdue accounts payable and overdue debts to the bank system. The accounts payable in their turn consist of accounts payable to suppliers, debts to budgets of all levels and off-budget funds, arrears of wages and debts to other creditors. Until the State Statistics Committee of the Russian Federation published the statistics of non-payments only for four branches (industry, agriculture, transport and civil construction). Starting from 1998 the total of debts in the economy is calculated for all branches.
Fig. 11. Accumulation of non-payments in shares of GDP from 1993 until 2002.
Accounts payable (the left axis) Overdue accounts payable for all branches Overdue accounts payable for the 4 branches Overdue accounts receivable for all branches Overdue accounts receivable for the 4 branches 5 000 2 4 500 1 4 000 1 3 500 1 3 000 1 2 500 1 2 000 1 500 1 000 500 0 Source: The State Statistics Committee, calculations by the authors.
Fig. 12. Accumulation of overdue accounts payable and receivable for all branches of the economy and for the 4 branches (industry, agriculture, civil construction and transport) in current prices Debts in bln roubles Overdue debts in bln roubles 09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru The share of overdue payments in the total amount continued to decrease and by October 2002 accounted for less than 30% (it peaked in 1998 and accounted for 55% then, see fig. 13).
Table Volumes of writing down of debts of subjects of the economy with expired deadline terms as financial results Accounts payable written off at the expense of Accounts receivable written off as losses profit In % to annual In % to annual increment of increment of In % to overdue Total, mln In % to overdue Total, mln accounts accounts payable accounts roubles accounts payable roubles receivable (including the receivable (including the ones written off) ones written off) 1997 874 0.1% 0.4% 1 921 0.4% 1.5% 1998 2 777 0.2% 0.7% 7 990 1.0% 3.2% 1999 5 597 0.4% 4.3% 12 420 1.5% 19.1% 2000 6 598 0.4% 3.0% 21 955 2.4% 17.8% 2001 10 185 0.7% -774.5% 25 783 2.6% 22.1% 2002* 6 999 0.5% -8.1% 15 201 1.6% -82.2% *January – October Source: The State Statistics Committee, calculations by the authors.
The share of overdue accounts payable (in the 4 branches) The share of overdue accounts payable (in all branches) 70% 60% 50% 40% 30% 20% 10% 0% Source: The State Statistics Committee, calculations by the authors.
Fig. 13. Changes in the share of overdue accounts payable in the total of accounts payable Transition to settlements in money presupposes a higher demand for transactional balances. In all probability this is one of the factors of a stable growth of monetary aggregates in recent years. Starting in 2001 the volume of monetary aggregates has been at its maximum for the period since 1993 (see fig. 14). Another reason for this is the increase of banking credits Period 09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/05/09/01/RUSSIAN ECONOMY in trends and outlooks to the real sector, which promotes replacement of commercial credits and a decrease of nonpayments.
Differences of overdue accounts payable in the 4 branches (deflated) Monetary aggregates M2 (in real terms 200 --100 Source: The State Statistics Committee, The Central Bank, calculations by the authors.
Fig. 14. Changes in increment of overdue payments and monetary aggregates MOther types of activities 100% Housing and 90% communal services 80% Trade and public 70% catering 60% Communications 50% 40% Transport 30% 20% Agriculture 10% 0% Civil construction TOTAL OVERDUE Accounts payable Industry Source: The State Statistics Committee, calculations by the authors.
Fig. 15. Breakdown of accounts payable by branches of the economy by the results of the first half of Among branches the biggest share of the total and overdue debts has permanently belonged to the industry. While in the total of accounts payable the share of the industrial sector Debts in bln roubles (in prices as of January 1, 2000) (in prices as of January 1, 2000) Monetary aggregates M2 in bln roubles 09/03/09/03/09/03/09/03/09/03/09/03/09/03/09/03/09/03/09/INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru accounts for approximately 42%, its share in overdue debts is 47% (as of October 2002).
Similarly, the housing and communal services sector and agriculture have a bigger share in overdue accounts payable, than in the total. Overdue debts are 66% of accounts payable in agriculture and 59% in the housing and communal services sector. On the whole in Russia this figure is 30%.
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