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Accordingly, differentiation of income as per population groups will be re duced: the share of income of the first group of population (20 per cent of popula tion with the lowest income) will grow from 5.4 per cent to 5.7 per cent. However, despite the increased budget expenditures, the share of population with the in It is assumed in the framework of the Model, that the minimum living standard is varied in propor tion to GDP per capita, though it is generally incorrect. Under conditions of high oil prices and ex cessive regulated tariffs GDP deflator should be higher than the minimum living standard growth rates. Therefore, our estimates of reduced share of population with minimum income level are rather pessimistic.

Section Monetary and budgetary spheres come lower than the minimum living standard will be also increased from 15.8 per cent to 17.0 per cent.

Federal budget surplus will be relevantly reduced by 2011 to 1.0 per cent of GDP, the aggregate RUR growth in real terms will reach 39 per cent (+52 per cent versus the pre crisis period of 1998), the amount of Stabilization Fund will not go beyond 17 per cent of GDP.

Compared with the inertia model, achievement of lower inflation rates by 2011, (up to 4per cent as per Model III) without budget expansion will require sur plus sterilization of monetary supply in the amount of RUR 200 bln per year. That level of sterilization can be reached with the help of Stabilization Fund assets and additional monetary instruments of the Central Bank policy, described above. The aggregate CPI within the five years will not exceed 35 per cent. Herewith, due to slower growth RUR rate in real terms (not over 30 per cent), the aggregate growth of GDP within the five years will be not higher than under Model I.

Like in the first Model, the trend is kept up to stronger differentiation of in come by population groups and higher living standard, which will result in in creased share of income of the first group population (20 per cent with the lowest income) from 5.4 per cent to 4.8 per cent by 2011 and the share of population with the income lower than the minimum living standard will be increased from 15.8 per cent to 11.0 per cent.

In Model IV, where the nominal RUR strengthening is foreseen, changes in the dynamics of macroeconomic indicators are more expressed. Thus, at the sus tained volume of Central Bank reserves at the level of the end of 2006 (approxi mately USD 300 bln), the nominal RUR rate by the end of 2007 will be strengthened to RUR 18 for USD 1 (by 3035 per cent within a year), which will result in trading account balance deficit at the turn of 20072008. The growth of RUR in real terms within 20072011 will make up to 45 per cent (5560 per cent versus July 1998).

Accordingly, the aggregate growth of the RF GDP in real terms will not exceed 11.5 per cent within five years, and the trading account balance deficit can reach USD 3540 bln by 2011 (about 15 per cent of exports). At the same time, in view of moderate scale of foreign currency acquisition and monetary emission, the yearly rate of money supply growth will be reduced to 4.55 per cent, which will result in reduction of inflation yearly growth rate to nearly 4 per cent per year (not over per cent within five years).

Thereafter, differentiation of income as per population groups will be slowed down: the share of income of the first group of population (20 per cent of popula tion with the lowest income) will get down from 5.4 per cent to 5.2 per cent. How ever, the share of population with the income lower than the minimum living stan dard will be stay rather high, not lower than 15.0 per cent.

According to Model IV, the volume of the Stabilization Fund will reach 20per cent of GDP by 2011.

Therefore, the analysis of four Models in the situation with high oil prices brings us to the following conclusions in terms of consequences of alternative measures of economic policy.

RUSSIAN ECONOMY IN trends and outlooks Under the terms of inertia Model rather high economic indicators are demon strated. The rates of real GDP growth are the highest among other models, and in our opinion, the inflation is within reasonable limits. RUR growth rate in real terms results in decreased balance of trading account, but in the background of sus tained average growth of GDP there created favorable conditions for external capi tal inflow and expansion of natural resource sector of the economy.

The Model, where extended budget expenditures are foreseen, demon strates, in fact, according to the estimates, insignificant differences in macroeco nomic indicators from those ones of the basic model. It can be explained by rela tively moderate scale of extra expenditures and suspended budget expansion under stabilized oil prices at the level of USD 45 per barrel.. Nevertheless, the esti mates evidently demonstrate, that with such scale of downgrading of rigid budget policy the government actions provide negative impact over the economy in gen eral.

Comparative analysis of the two versions of economic policy under high oil prices (which differ by extra sterilization and admitted increase of RUR exchange rate in nominal terms) shows, that the first version is preferable. The level of addi tional sterilization is not excessive as compared with the inertia model, and in view of additional measures, mentioned above, the sterilization volume could have been even higher. In other words, under this model lower inflation level could be achieved, comparable with the level of the model, where strengthening of RUR ex change rate in nominal terms is foreseen. However, in the fourth model such low inflation level is achieved through downgrading of economic growth rates.

Model V (where gradual decrease of oil prices is considered) outwardly dem onstrates the dependence of the RF economy on oil prices. In fact, there is a threat of a crisis, even regardless the drastic qualitative changes in expectations and be havior of economic agents in case of oil prices downfall.

According to the estimates, under such model, when oil prices are getting down, the aggregate growth of real GDP within five years (20072011) will make no more than 6 per cent, whereas in 20102011 the yearly rates of real GDP growth will be in deficit (up to 2.0 per cent). In 2011 GDP will not exceed USD 900 bln (as per currently effective exchange rate), i.e., nearly 40 per cent less than in the first model.

Federal budget revenues will be decreased lower than by 14.5 per cent, so that the deficit of the federal budget is expected already by 2008 (under oil prices at the level of USD 30 per barrel). In such a case Stabilization Fund assets will be totally expired by 2010 at the background of federal budget deficit in the amount of at least 4.5 per cent of GDP in 20102011.

In the framework of that model we assumed, that the RF Central Bank policy will be restricted to gradual RUR devaluation through foreign currency interven tions. It is evident, that such policy is hard to be implemented due to potential at tacks at rouble. However, regardless expectations of economic agents, according to the estimates, by the end of 2011 RUR will be devaluated 1.5 fold as compared with 2005 and reach more than RUR 40 per USD 1, which will run the Central Bank Section Monetary and budgetary spheres in the expense of USD 200 bln of gold and foreign currency reserves (with the balance of gold and foreign currency reserves by the end of 2011, not exceeding USD 110 bln).

Within five years the effective RUR exchange rate in real terms will get down by approximately 89 per cent, but due to oil prices decline there will occur a deficit in the trading account balance.

As far as an option of surplus recovery of budget deficit and monetary emis sion in the economy in the critical situation are not considered in the framework of the model, the growth rates of money supply will practically reach zero, GDP mone tization will drop down to 3031 per cent. Nevertheless, in the background of ex change rate impact on prices, there will be no adequate reduction of inflation rates.

The accumulated index of consumer prices within five years will reach nearly 40 per cent, and in 2011 the trend to lower inflation rate will be broken, prices will grow faster than in 2010.

As mentioned before, Model six, where the Central Bank restrains from the control over the exchange rate in the background of oil prices downfall, is rather conventional. Practically, in view of qualitative changes in behavior of market par ticipants and clear political prospects of such events to financial authorities, such situation is hardly possible.

According to our estimates, in the situation of stable position of other market participants, in the background of preset downgrading of prices for energy sources, the yearly decrease of nominal RUR exchange rate versus USD will ex ceed 25 per cent, within total period under review RUR will be devaluated approxi mately by 40 per cent, i.e., less than in the model, where gradual oil prices decline is foreseen.

Under the negative impact of the collapse, the rates of GDP growth in real terms will come to negative value already by 2008 and remain at that level within the total period (aggregate GDP decrease will not exceed one per cent within five years), but already in 2011, due to imports restructuring and adaptation of the economy to low oil prices, there will be observed a trend to rehabilitation of GDP growth rates. Remarkably, export surplus balance will be sustained within all those years.

The worst impact of oil prices downfall will be provided on budgetary sphere:

Stabilization Fund assets will be expired already by the end of the third year upon prices landslide (in 2009), while the budget deficit will be within 5.05.5 per cent of GDP (with no regard to prepositions of reduced expenditures of federal budget, required in that situation).

In that model we do not make assumptions of surplus emission addressed at recovery of the federal budget deficit, and relatively, the rates of money supply growth are lower than in Model five. Rigid monetary and credit policy allows to re duce the impact of the declined exchange rate on the prices, and in 2011 the infla tion get down to 4.5 per cent.

In terms of living standard of population, according to out estimates, that model makes for maintenance of the situation to a large extent. Thus, the share of RUSSIAN ECONOMY IN trends and outlooks population of the first group (20 per cent of population with lower income) will stay practically at the sale level (about 5.4 per cent) and the share of those, whose in come is below the living standard, will be increased up to 16.7 per cent.

An alternative to the policy of nominal devaluation is the policy of keeping up the RUR exchange rate at a fixed level (Model VII). According to the estimates within the framework of that model, gold and foreign currency reserves will be suf ficient to keep up the exchange rate for four years, in case the RUR rate is main tained at the level of RUR 27 for USD 1, and by the beginning of 2011 those re serves will be expired. Nevertheless, as mentioned above, quantitative results, obtained for that model, are rather conventional, as in practice the policy of keep ing up the fixed RUR rate in the situation of oil prices downfall means, that RUR will be inevitably attacked within the first year, and gold and foreign currency reserves will be expired faster, than is forecasted by the model estimates.

Moreover, the level of living standard decline is also underestimated within the model. According to the model estimates, the share of monetary income of the first group (20 per cent of population with the lowest income) will be somewhat in creased from 5.4 per cent to 5.7 per cent, while the share of those whose income is below the living standard, will grow from 15.8 per cent to 18.3 per cent.

Comparative analysis of the results of three crisis models brings us to the fol lowing conclusions in terms of their consequences.

In the situation, when oil prices are getting down, there is no chance to avoid a severe decline of growth rates and stagnation in economy. However, there is a chance for Russia to avoid the crisis, comparable with the situation of the second part of 1998.

The minimum losses for economy will take place, if in case of oil prices down fall the choice is made in favor of policy of nominal RUR devaluation, though politi cal limitations should be taken into regard in implementation of such policy option.

Moreover, in this case one can expect a trend to economic growth due to the effect of import restructuring in the background of national currency downgrading, like in the IV quarter of 19981999.

Alongside with that, it should be noted that preset conditions for critical situa tions were rather rigid in terms of time frames. Thus, we were considering the case of low oil prices within three four years in a row.

There is a low probability for a steep (two fold) downfall of oil prices within one year. Therefore, the fifth model is most likely in terms of oil prices dynamics, and apparently, economic policy measures will be applied within the framework of that model. Accordingly, releasing of RUR rate by the Bank of Russia under the higher, though declining, oil prices, when the economy is rather sound, reduces impartial difficulties of practical implementation of such policy.

It should be also noted, that the model might overestimate the dependence of Russia on oil prices, as for a number of preceding years an important factor of eco nomic growth were investments, and in the first turn, the model reflects interrela tions between the dynamics of natural resources prices and the economic growth of Russia.

Section Monetary and budgetary spheres * * * Analysis of various optional models of economic development in Russia in the situations with high and low energy sources prices allows to chose those policy measures, which will ensure the best results in economic development in both situations.

The best policy in the situation with high oil prices is the highest sterilization of Central Bank interventions in foreign currency markets in line with accumulation of gold and foreign currency reserves. The basic disadvantage f such policy is that positive results of its implementation are observed in a long and medium term prospective, whereas all difficulties of rigid monetary policy, implemented by finan cial authorities, are experienced immediately.

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