Externe

By LIDIA KELLY, Wakk Street Journal, 22/12/2008

MOSCOW -- The World Bank called on Russia to abandon the ruble's managed exchange-rate policy in order to moderate capital outflow, which is set to reach at least $100 billion this year, and safeguard the country's massive monetary reserves.

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A Russian man stands near a currency exchange point in Moscow earlier this month. Shrinking revenue, which has been falling in lockstep with the more than 70% drop in oil prices since summer, has put enormous downward pressure on the ruble.

The recommendation, the World Bank's firmest on the subject yet, capped a week of economic data making it seem more likely Russia will fall from robust growth to recession.

Zeljko Bogetic, the World Bank's lead economist for Russia, said that an average price of $30 a barrel of oil over the next two years would be ruinous for an economy that relies hugely on revenue from crude exports. Shrinking revenue, which has been falling in lockstep with the more than 70% drop in oil prices since summer, has put enormous downward pressure on the ruble, which economists consider a commodity currency. This, in turn has led Moscow to try to keep the currency from sliding and avoid widespread fears that another 1998 crash is looming.

"It's possible even to envisage Russia's return from a creditor to international organizations to a borrower," Mr. Bogetic said.

Many forecasts for Russia's economic development assume crude oil averaging $50 a barrel next year -- almost 50% more than current prices. Friday, official data showed that the ripple effect from falling oil prices has been spreading to ordinary Russians.

Consumers are holding back, dragging November retail sales down 3.4% on the month, while unemployment rose 400,000 to hit 6.6%, the highest in 18 months.

Meanwhile, monetary authorities have remained determined to defend the ruble and dip frequently into the country's amassed oil wealth. As a result, Russia's gold and foreign reserves have shrunk by more than $160 billion since August.
"We've seen the monetary reserves dwindle as a result of the central bank's policy," Mr. Bogetic said. "We also see now that the policy is increasingly less sustainable."

Since 2005, the central bank has kept the ruble's exchange rate in a tight band against a basket of 55% dollars and 45% euros. Authorities have allowed the ruble to weaken 8% since early November and more than 13% since August by gradually widening its trading band, but many economists view the currency as still 15% to 20% overpriced.

Many economic forecasts call for no growth in gross domestic product over the next couple quarters and no more than 3% for the whole year.