1. Russias Response to the Financial Crisis Pekka Sutela 4 May 2010

2. A Safe Haven Lost? Russia, like many resource-dependent countries, had learned and accumulated large reserve funds. This was originally at least partly controversial, but the fiscal conservatives now see themselves vindicated. Russia will return to reserves accumulation when circumstances allow. Russian leadership distrusted global economic arrangements, and complained to guests about a forthcoming crisis they would have to pay for. By early 2008, risks of growth boom based on the combination of high export prices and ample availability of global liquidity were pointed out in Russian economic discussion (e.g. Mau, Voprosy ekonomiki 2008:2) The 2006-2008 preparation of the 2020 program was all about alternatives to perceived excessive resource dependence First policy measures in Fall 2008 did not look improvised

3. So why the talk of a safe haven? Politicians are not in the business of doom-saying Shifting blame to where it belonged Grounds why a pure financial crisis might handle Russia softly – Small financial sector; meagre role in investment finance – Little foreign debt, esp. relative to reserves – Strong public sector financial position and quite good creditworthiness with numerous past upgrades – Households with no financial wealth, little debt – Labor markets expected to be very flexible

4. Why was the drop so drastic? Some of the standard explanations deficient – Bad institutions? Yes, but some with worse ones thrived; others with better ones suffered – Resource dependence? Yes, but on the average those fared better than others – Bad policies? With few exceptions those where the standard ones For a medium income level country, Russia is tradewise exceptionally open; For a resource dependent country, it has a large population Financial dependence proved important – Debt small, but short and grew fast – Dependence of intermediation on foreign funding drastic – The dual financial system – Part of a more general pattern: in crisis ownership less important than the source of funding

5. Russias anti-crisis policies in comparison Basically similar to those in other countries – And consequently praised by outsiders. IMF 8 Dec 2009: The Russian authorities have continued to manage the fallout of the global financial crisis well Comparing size of packets makes little sense – Apples and carrots Russia had its peculiarities – The incredible succeeding stepwise devaluation – How, starting with high inflation, to avoid stagflation – Emphasis on monotowns, pensions, minimum wages: crisis fighting as a social policy measure – Structure of the banking system left no alternative to favoring state-controlled banks as liquidity channels