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On August 26, come into force new sanctions of the USA against Russia. Russian Finance Minister Anton Siluanov said that the Russian economy has successfully adapted to the sanctions and they are no longer afraid. However, the currency market had a different opinion: the dollar and the Euro for the first half of August, climbed more than 2 rubles. Who to trust: the market or the Minister? How terrible the new sanctions and what they will cost the Russians? And where at the end of the year will be the ruble?
now, on the 26th of August, takes effect the second package of sanctions of the USA against Russia in the case Skrobala. The reason for their introduction said, is that Moscow has provided the assurances required by American law "On control of chemical and biological weapons." The first package entered into force a year earlier — 27 Aug 2018. Let's clarify the essence of the new sanctions.
"In the framework of these restrictions is expected to ban U.S. banks to make any loans to the government of the Russian Federation, with the term "government" in documents refers to the Executive authority and any Department, Agency and legal entity controlled by or acting on behalf of the government of the Russian Federation, as well as preventing the issuance or renewal of any loan, financial or technical assistance of the Russian Federation from international financial institutions", lists the head of the corporate legal unit, Advisor to the President of the European legal service Mr ANNIKOV.
By "sovereign debt", which now will be subject to sanctions, us financial authorities have in mind the instruments denominated in rubles. So the restrictions are:
bonds of the Bank of Russia, Federal Treasury of the Russian Federation and any other agencies and entities associated with them, when the valid term of repayment more than 14 days; a new currency swaps with the participation of the Central Bank of the Russian Federation, national welfare Fund, the Federal Treasury and any other agencies and entities associated with them (not more than 14 days); any other financial instruments with a maturity of more than 14 days, which will be referred to the sovereign debt of the Russian Federation by the decision of the President of the United States.
I Wonder what the sanctions did not get Federal loan bonds (OFZ) denominated in rubles. Despite the fact that foreign funds often invest in them.
How much Russia will lose? To give an exact amount right now will not work, because the restrictions will apply to new placements, but given the statistics of past borrowing, it is possible to make some assumptions.
At first glance, the losses are small...
"Under the sanctions fall the new OFZ, nominated in rubles. This type of bond is not issued regularly, not every year, their volume is 1.5— $ 3 billion — explains Exante managing partner Alexey Kirienko. — For comparison: since the beginning of this year, the Ministry of Finance placed OFZ bonds on the $ 22 billion, of which 4.5 billion was accounted for by loans in dollars and Euro".
Total external public debt of Russia is 55.6 billion. Moreover, only 8% of this amount held by us residents, said Vladimir ANNIKOV. According to his calculations, the potential volume of the Russian losses from sanctions can range from 400 million to 600 million dollars a year.
In the total amount of debt, this figure seems insignificant. The more that foreign investors can purchase ruble-denominated OFZ. What they are doing, actively and with great pleasure. Just look at their share of the OFZ: it grew from 24.4% in November 2018 to 30.8% on 1 July 2019. Moreover, the interest of foreigners to Russian debt is high. "At the latest offerings the demand exceeded supply by 50%, and in the beginning of the year — at times, that is, the absence of Americans will be theoretically invisible", — said Vladimir ANNIKOV.
...and we seem to be an island of stability
Immediately after the announcement of the new sanctions Anton Siluanov said that the Russian economy has shown its resilience to sanctions, so this time will be able to adapt quickly due to the "flexible design of macroeconomic and prudent fiscal policy." "Regarding the public debt and corporate debt, we are confident that our financial system can satisfy the needs and budget of enterprises in borrowed resources," he added.
Look at the evidence. Russia's foreign debt is less than 15% of GDP — is very comfortable on international standards level. Russia reserves of 520 billion dollars, which is almost an order of magnitude larger than the size of external debt. And that's not all. "Russia to at least reduce investments in U.S. Treasury bonds: with $ 100 billion to 14 billion, says senior analyst QBF Oleg Bogdanov. The budget surplus allows the government to accumulate substantial funds to implement its major programmes. Operates a fiscal rule, which ensures financial stability at any price of oil. So it is possible to agree with the Minister of Finance of the Russian financial system has become sustainable and independent from external influences."
"Siluanov rights, and the financial system really brings a positive change — agrees managing capital On Capital Sergei Smith and as proof cites a situation last year. — Last year, the price of oil fell from 64 USD to 45 — 30 percent, and the budget managed to bring in surplus".
it would Seem, in truth, if in the first years of sanctions, there have been concerns in the stability of the system, but now the situation has changed dramatically. But there is a caveat...
Quote Delayed threat
Russia's external debt is really small, but over the last six years, it increased almost two times. "In 2013, it was 7.5% of GDP, and this year reached 13.5 percent of GDP, outstripping the growth of GDP, — said the expert of the Moscow branch of "Support of Russia" in the banking and Finance Vladimir Grigoriev. — It is clear that Russia depends on external borrowing. It is clear that the government takes money in debt when you do not have sufficient own resources".
Therefore, according to the expert, any restrictions on the use of external means will be of a painful character. "This is not only because U.S. banks will no longer participate in the primary placement of debt securities of the Russian Federation — continues Vladimir Grigoriev. — It is quite possible, which will limit its activity in this segment and a number of banks from Western Europe and Japan. The fact that most of the major banks present in the U.S. market is considered as one of the most important and do not want to encounter any trouble."
it would Indeed be strange if the United States imposed on Russia absolutely senseless sanctions. Mr ANNIKOV lists that will change after the entry into force of the second set:
Russia's reputation as a Issuer: the non-participation of Americans entails an automatic reduction of the number of other investors, that is, the demand for new debt will become less risky and more. The cost of borrowing: it will have to borrow at higher rates to compensate for investment risk. Moreover, the cost of borrowing on the foreign market can rise and for private companies. "It is obvious that no private, even a very large company can not be isolated from the economic condition of the state, resident of which it is," adds Vladimir Grigoriev. Negative lobby in the international financial institutions (IMF, world Bank, etc.).
But most importantly, a new round of sanctions will have not only point, but also systemic effects, further increasing the negative effect that is having on our country years of the current confrontation.
"Increased isolation leads to a set of negative factors: suppresses the growth potential of the Russian economy, making the ruble more volatile, reduces the investment attractiveness, but also suppresses endogenous activity of population, — says Alexey Kirienko. — With each new round of sanctions to achieve the same growth rate becomes more difficult. The new norm — weak GDP growth at 1-2% per year, compared with 7% in the beginning".
Another area that is under attack as a result of sanctions, is foreign direct investment. "Sanctions potentially reduce the amount of inflow of currency to Russia and indirectly can affect corporate accommodation, — believes the managing partner of advocates' Bureau "of Bichenov and partners" and member of the expert Council of the Committee of the chamber of Commerce of the Russian Federation on security of business activities of Alim Bishenov. — The dynamics of foreign direct investment reflects the mood of the business. Russia's economy is unpredictable. In our country the main symptoms for foreign investors serve as a negative investment climate, low growth potential, complex political processes are unpredictable reforms and tough administrative obstacles".
Summing up, Mr ANNIKOV notes the following systemic implications of another round of sanctions:
the outflow of foreign capital; increase taxes and especially non-tax payments; growth of inflation and decrease the real value of the ruble; the decline of the national currency (despite its excessive underestimation).
On the last point I would like to elaborate. How much effect on the ruble the new restrictions? The fall of the Russian currency, which we have seen since the announcement of the sanctions will stop or will continue? What will be the rate for the year?
Someone with gorochki down
"in the Autumn and the end of the year, indeed, we can expect the weakening of the ruble, — says Oleg Bogdanov. — Target levels to the US dollar 67-68 rubles." But the main factors of the weakening of the Russian currency he calls a trade war between the US and China, a possible decline in oil prices and purchases of foreign currency for the Ministry of Finance in the budgetary rules.
Trade wars and waiting for the financial crisis create in the markets increased volatility. The sanctions in this case can greatly worsen the situation of the Russian currency, having played in "falling push".
"the Ruble is very weak, — says Alexey Kirienko. — The trouble never comes alone, and with a new batch of sanctions, the ruble has also received sharply increased the volatility of financial markets, which the sanctions would cause the decline of interest in the ruble. The ruble has risen sharply since the beginning of the year, but it can give these gains for the remaining five months, returning the dollar closer to the mark of 70 rubles and euros to rubles 77-80".
Have to learn to live under sanctions
the Problem with sanctions is that you get used to them. And in Russia, and the United States, and the rest of the world. Sanctions turn into a just U.S. foreign policy towards Russia, with long-term policy. Banks.ru already wrote about the fact that the sanctions regime could become a new reality, to remain with us forever, at least for a long time.
as an example, the famous amendment of Jackson — Vanik. This amendment to the trade act States that restrict trade with certain countries. It was introduced in 1974 in response to the fact that the Soviet Union prevented emigration, and abolished only at the end of 2012, 21 years after the collapse of the Soviet Union, when no restrictions on travel have been long gone: all who wanted, have left, returned and left again.
this means that we need to develop an efficient economy that will grow even in the face of constant sanctions. Yet this, unfortunately, does not work. But sanctions have become a convenient explanation for all the economic failures.
"the Russian state has time to prepare for another American sanctions, which are expected in late 2020, if you agree with the most authoritative experts on political Affairs, the United States and assess the trend, however, is still largely not built an effective work within the framework of interdepartmental interaction of state institutions to overcome the effect of sanctions and the establishment of the path of "rapid development", — says Vladimir ANNIKOV. In particular, the economy is not "economic blood". Yes, the Central Bank lowers the rate, but the decline in the real value of the ruble, the effect may not be positive, it is obvious that you should use not only and not so much interest mitigation".
And in order to attract foreign direct investment in the current difficult conditions, Alim of Bichenov considers it necessary to change the approach to tax policy. "In 2018 the practice of consideration of tax disputes in arbitration courts confirmed the trend from year to year the share of the winnings by claims companies to the tax authorities reduced, — said the expert. — Representatives of the business community say about the criminalization of tax disputes, the use of the elements of crime of tax crimes as an alternative tool for enforcement of tax revenues. And I clearly understand that the problems of tax safety now take the forefront. Therefore, Russian economic miracle to not wait."
Milena BAKHVALOVA, Banki.ru
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