Note: NDA – net domestic assets. NIR– net internationalreserves.
Sources: The state Statistics Committee ofRussia, The Central Bank, Russian Commodities Exchange (RTS), informationagency “FinMarket”, RECEP, International financial statistics.
1.2. Balance of Payment
In this chapter we will examine the statusof the balance of payment in 2001 and major change trends for its indices. Inshould be noted that trends of key items of the balance of payments drasticallychanged in the past year as compared to 1999 and 2000. First of all currentoperations payment balance stopped growing, bringing a corresponding growth ofdeficit of capital and financial instruments operations account. During theyear as a whole the balance of current payments reduced practically by half: inthe first quarter its figure amounted to 11.5 billion dollars, in the fourthquarter of 2001 according to estimates of the Bank of Russia the balance ofcurrent payments was reduced to the level of 5.7 billion dollars. As before themajor factor that determined the balance of current payments was the balance oftrade, which in its turn was chiefly defined by changes in prices for energycarriers and other major commodities that Russia sells on the world market.Figure 1 shows the dependence of Russia’s trade balance on world oil pricesthat manifested itself in 1995 – 2000 and was clearly visible also in 200115
It should be noted that decrease of thebalance of trade happened both because of reduction of Russian exports and dueto higher cost of imports to the Russian Federation. The trade balance ofRussian in the fourth quarter of 2001 equalled to 9.2 billion dollars, which is7 billion less than in the analogous period of the previous year. While exportof goods went down from 29.5 billion dollars to 24.4 billion dollars, importsincreased from 13.4 billion dollars to 15.3 billion dollars.
Besides a reduction of trade balance during2001 the payment balance of current operations was considerable influenced bythe “nonfactorial services” item values. Its negative value (i.e. importsexcess over exports) grew by nearly 3 billion dollars and this change wassolely caused by the growth of import of services.
Viewingthe payment balance change trends by its different components one may see thatin spite of the fact that the black ink part of the balance of trade was beingreduced foreign currency assets of residents in 2001 were growing mainly due toexports excess over imports. In other words, it was due to the income side ofthe trade balance that all payments to non-residents were performed to financeoperations that were not connected with imports and exports, as well as changesin foreign assets and commitments of residents. Here we deal first of all withfinancing the red ink part of payments for labour and capital services (paymentof wages and salaries to non-residents and repayment of debts), makingportfolio investments abroad, increasing foreign assets of Russian residentsand payments to reduce Russian residents’ debts to non-residents. Meanwhile,attention should be drawn to flow-out of capital transfers by non-residents ofRussia in the third quarter of 2001. As compared to the previous quarters whencapital transfers by non-residents varied between 200 and 600 million dollarsper quarter, the balance of the above mentioned transfers in July – September 2001 was 10.3 milliondollars. According to the Bank of Russia this sum of capital transfers was aresult of an irregular operation of a gratuitous writing down (remission) offoreign debts of the world’s poorest countries to Russia in part of their commitments to theformer USSR within the framework of the Paris Club of Creditors for a total sumof 9.9 billion dollars. The above sum is a cumulative result of a longnegotiation process, which was finally legalized in the third quarter of2001.16.
If we view the aggregated figures of thebalance of payment of Russia in 2001 the balance situation of Russian assetscan be described in the following terms: due to trade operation withnon-residents Russian foreign currency assets grew by 49.5 billion dollars (thebalance of trade in January – December of 2001). Besides, sources of Russian foreign assetsincrement were direct investments in Russian (2.9 billion dollars), portfolioinvestments attracted by non-financial enterprises (500 million dollars),acquisition of credits by state governmental bodies against their security (960million dollars), credits acquired by Russian banks and loans taken bynon-financial enterprises, deposits and loans (3.7 billion dollars) as well asreinvestment of returns on securities issued by federal state administrativebodies and accumulation by them of past-due debts (3.4 billiondollars).
The abovementioned increment of foreignassets was balanced by changes in the following items: net imports ofnon-factorial services (10.5 billion dollars), payment of dividend on directand portfolio investments to Russia (5 billion dollars), payment of securitydebts by federal authorities and repurchase of these securities on thesecondary market (5.2 billion dollars), repayment of the IMF credit by theCentral Bank of the Russian Federation (2.8 billion dollars), direct andportfolio investments abroad (3.1 billion dollars), other investments inforeign assets for a total sum of 10 billion dollars (increment of balance onforeign accounts and deposits, granting of trade credits and advances, increaseof post-due debts by non-residents and debts made by non-residents in form ofdelayed export revenues and existing advances), as well as accumulation ofreserve assets (8.2 billion dollars). Besides, in the third quarter 2001 in the“capital transfers” item there were performed transactions for a total sum of10 billion dollars by non-residents, the red ink side of the “pure mistakes andomissions” item was equal to 8.5 billion dollars.
Thus, in spite of the fact that the blackink side of the balance of trade and current operations was decreasing,2001witnessed a ratio of assets and commitments typical of the previous twoyears: increment of foreign assets due to bigger balance of the balance oftrade in the absence of considerable loans was the source of repayment of debtsto non-residents that had been accumulated in previous years and the source toincrease Russian assets abroad and other forms of capital flow-out.
Among operations that were mainly financedby means of the trade balance sufficiency (surplus) one should not only note adecrease of debts to non-residents, but also an increment of foreign assets ofRussian residents which in several years has been actively used for applicationof funds received as a result of a favourable balance of current operations:when the net decrease of Russian debts to non-residents by results of the yearequalled to 1.9 billion dollars, net assets of Russian residents abroad grew by5.2 billion dollars (at the same time assets of state governmental bodiesdecreases by 8.1 billion dollars, but foreign assets of banks and non-financialenterprises grew by 13.3 billion dollars). Main types of Russian assets abroadthat grew most rapidly in 2001 were balances on current accounts and deposits(increment here reached the level of 2.6 billion dollars), increase of post-dueexport revenues and existing advances (total of 6.7 billion dollars) and directand portfolio investments (3.1 billion dollars).
In connection with increase of Russianassets abroad one should also mention the problem of outflow of capital fromRussia. As is well known, parts of funds of residents placed abroad in suchtypes of assets as post-due debts, post-due export revenues and outstandingimports advances as well as parts of funds shown in the balance under the item“Pure mistakes and omissions” can be labelled as nonregistered export ofcapital. In this connection one can assume that when the balance of thementioned items becomes persistently outstanding for a prolonged period of timeit can testify to the dynamics of nonregistered export of capital from Russia.In 2001 if one accepts the abovementioned figures, nonregistered export of capital from thecountry went down slightly: in 2000 the total sum under the “pure mistakes andomissions” item amounted to 10.3 billion dollars, by the results of 2001 thefigure was 8.5 billion dollars. An analogous situation is revealed when weanalyse totals of pure mistakes and omissions, post-due debts and outstanding export revenues: the figurefor 2001 is estimated at the level of –9.9 billion dollars (due to adecrease of post-due debts of non-residents to residents), compared to the previous yearwhen this sum was –21.8 billion dollars. In connections with the above estimates oneshould accentuate in the first place that the analysed figures can only be viewed asindirect indicators of dynamics, not as absolute volumes of illegal outflow ofcapital, secondly, that increase of both post-due debts and pure mistakes and omissions could havehappened in consequenceof a drastic increase of export values which quite naturally could entail aproportional growth of outstanding return of export revenues and higherstatistical deviations in making calculations of basic balance figures.
In making an analysis of the balance ofpayment of Russia in 2001 one should pay attention to the fact that just likein the previous year the favourable balance of trade was that substantial thatthough big payments to reduce Russian commitments to non-residents were made and Russian assetsabroad grew rapidly,reserve assets grew simultaneously: in twelve months of 2001 they grew by 8.2billion dollars (a maximum increments of 5.2 billion dollars was registered inthe second quarter, meanwhile in the fourth quarter the reserve assetsdecreased by 1.4 billion dollars). Nevertheless, reserve assets turned out togrow practically two times as slow as in the same period of 2000, when gold andforeign currency reserves grew by 16 billion dollars.
Speaking about future trends of thebalance of payment, there are grounds to suppose that in 2002 the situation forthe Russian balance of payment will be somewhat worse than in year 2000. Forthe first, judging by the already mentioned interrelation between the balance of trade and world oilprices one can assume that increase of foreign assets by residents from thistype of export will be proportionally lower. If we take as a starting point theprognosis according towhich world oil prices will be at a level slightly higher than the one in thefourth quarter of 2001, other things being equal, a favourable balance of tradecan decrease to the levelof 35-40 billion dollars annualised. Though it is worth noting that the balanceof payment will be also influenced by other factors, such as the nominal and realrouble exchange rate, inflation rate, prices on other groups of commodities andgoods of Russian export, imports growing rates etc.
Secondly, it is necessary to take inconsideration foreign creditors’ claims about repayment of Russia’s debts. According to theFederal Law on the budget of 2002, expenses of the Russian Federation to coverand service its foreign debts will amount to 14.2 billion dollars. This amountis slightly smaller than the actual payments in 2001, to pay off and to service debts of state thegovernment and the Central Bank of the Russian Federation channelized approximately 17 billion dollars(not counting the 1.8 billion dollars, spent to take out Russian bonds on thesecondary market). Inthis situation one can presuppose that in 2002 Russian authorities like inprevious years will be able to settle and service debts due to comparativelyhigh values of the favourable balance of trade. In addition to that one should note thatthe trend of slower growth of the real rouble exchange rate can have a positiveeffect on the Russian balance of payment, which will allow just like in theprevious year to make forward payments to settle and service Russian foreign state debts.
Balance of Payment of the RussianFederation in 2000 – 2001 (in billion US dollars)
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