Sergey Glazyev, Adviser to President of Russia for Regional Economic Integration, Doctor of Science, Economics, Academician, answers EADaily’s questions.
Mr. Glazyev, considering the current interest rate manipulations, it appears that the Central Bank cannot decide whose side it is on. A high interest rate attracts foreign speculative capital and is favorable to the banking sector. A low interest rate is in favor of business and stimulates investments. Can we say that the 10% interest rate is a kind of balance between profiteers and the real sector?
No indeed, since profitability in the real sector of economy does not exceed 10% in general. Inclusive of the bank margin and risk assessment, the interest rate for borrower-enterprises is 15%-20%. Only enterprises of the oil-and-gas and chemical and metallurgical sectors can afford such expensive loans. The others have to refuse from loans and phase out production for lack of working capital or raise prices and pass on the interest payments on consumers, if competition conditions are permitting. These two strategies together trigger stagflation the Russian economy cannot overcome for the third year already. The enterprises that took loans to invest in modernization and development have appeared in a worse situation. After the Bank of Russia increased the interest rate and toughened the lending terms, many of those enterprises either have turned bankrupt or faced forcible takeover by managers of credit organizations.
Recently the finance ministry announced that the Reserve Fund could be entirely exhausted in 2017. Is there a chance that under such circumstances, the economic authorities will have to wage a stimulating monetary policy to boost domestic demand or they just hope that the commodities prices will grow?
From the viewpoint of macroeconomics, the Reserve Fund (that is divided into two ones) is just part of the country’s currency reserves at the Bank of Russia. When the government sells part of the savings in the Reserve Fund to cover the budget deficit, the fund issues currency as if it provided direct financing of the budget. Therefore, there is no conceptual meaning in these reserve funds from the viewpoint of macroeconomics. In majority of countries, including U.S. and EU, there are no such funds. They cover budget deficit through currency issues under government responsibility. Countries having such funds use them for investment in industries and infrastructures abroad to promote their economic interest. Once, under the veil of sterilizing “surplus” money supply, agents of the Washington-based financial organizations persuaded the country’s leadership to invest the additional tax receipts from oil price hike to fund budget deficit in U.S., France, and other EU countries, instead of investing in social and economic development. As a result, we have “lost” a decade of economic development. The IMF imposed on us the so-called budget rule as an additional instrument to stabilize the budget policy through cutting spending and increasing financing of the above countries managing the Fund within their interests. So, we should refuse from these instruments, shift to budget deficit financing through domestic loans like all the other countries do.
Privatization of state-owned enterprises made headlines. Omitting all the inner reasons, will the economic effect of that procedure be justified? (It was announced that proceeds from privatizations of a range of government assets will add 138 billion to the budget 2017).
Privatization for fiscal reasons is misappropriation of state property. Theory of management says privatization is reasonable if it allows for improving the quality of management as an element of reforming relevant enterprises. Yet, in our country, managers of government enterprises behave as if it were their private property. There is no sense in speaking of efficient economic policy unless we plan development of the government sector and introduce mechanisms of manager responsibility for the results of management of government assets.
On November 1, 8 Nobel Prize winners and another 362 U.S. economists signed a letter urging not to vote for Donald Trump to avoid economic crisis. Will the Russian economy suffer if Trump is elected, considering that he intends to “return capitals into U.S.” – something that will appreciate the dollar?
It was quite strange to see U.S. economists that missed the global financial crisis and some had even triggered it with their recommendations to slam a successful businessman. They would better try to organize business in the chaos and financial turbulence caused by their recommendations that has driven the economy of U.S. and the countries depending on it into crisis and long-term stagnation. I would not like to speak of the impact of the U.S. presidential election on the rate of dollar not to let our Central Bank explain the consequences of its “floating rate” policy with my statements.
Despite the announced project to substitute import from Ukraine, it has turned out that it is not that easy to substitute essential segment of the machine building industry, including aircraft engines and some equipment for oil producing industry and the military industry that were previously procured from Ukrainian enterprises. What is the reason?
It could not be easy, since it takes decades to establish engineering schools. It is much cheaper to spend some money to have cultural and ideological influence on the Ukrainian public to neutralize the neo-Nazi propaganda organized by American agents, and to try to recreate the scientific and technical capacities that had been created by generations of Soviet people.
In 2014, the Eurasian integration project lost such an important actor as Ukraine. Is it possible to recompense that loss? Could it happen that “life makes” Ukraine return to the “Eurasian topic” someday? After all, some Kiev-based politicians openly express their regret for losing the Russian market.
A break with Russia became an economic disaster for Ukraine. Outside the economic space with Russia, the population of Ukraine is doomed to impoverished existence as labor force reserve for EU and “food for powder” for NATO. However, one should not expect Ukraine to return anywhere on its own. It lacks national sovereignty and is dependent on Brussels economically - under the Association Agreement with the EU that was forced upon Ukraine through state coup – and on Washington politically. It is inherently a territory occupied by U.S. and the power there fully belongs to the U.S. Embassy that makes appointments on all “elected” and administrative positions. The U.S. security services through their puppet neo-Nazi regime manage both the security and economic departments of Ukraine.
What about the prospects of the global economy and Russia’s role in it? Supposing that the era of domination of the financial and risk capital that started with the suspension of the golden standard is ending along with the era of the U.S. dollar. what will follow it? Will there be a new period of industrial and technological development? Has Russia any chances to take advantage of the situation and become less raw material-orientated in the hierarchy of the global economy?
There is still a chance. My new book is about it. I have entitled it “The Future Economy. Does Russia Have a Chance?”
Interviewed by Dmitry Zavorotny for EADaily