战略与国际研究中心-PONARS-Policy-Memo-174_7页_213kb

Exchange Rate Policy After the Currency Crisis: Walking the Tightrope Summary

Core Content

This policy memo, authored by Vladimir Popov in November 2000, analyzes the economic recovery of Russia following the 1998 currency crisis and the subsequent exchange rate policy challenges. It highlights the unexpected nature of Russia's post-crisis economic boom, contrasting it with the typical recessionary outcomes seen in other countries. The memo also discusses the relationship between macroeconomic policy, inflation, nonpayments, and barter transactions, and the delicate balance the Russian government must maintain in its exchange rate policy.

Main Points

1. Economic Recovery After the 1998 Crisis

• Unexpected Growth: Russia's economy experienced a rapid recovery after the 1998 crisis, with GDP growth of 3.2% in 1999 and an expected 6–7% in 2000.
• Industrial Growth: Industrial output increased by 8% in 1999 and was projected to grow even faster in 2000.
• Post-Crisis Improvements: The non-monetary economy (barter and nonpayments) declined significantly after the crisis, with arrears falling from over 64% to below 30%, barter transactions dropping from 52% to 26%, and the M2 to GDP ratio rising from 15% to nearly 20%.

2. Causes of the 1998 Currency Crisis

• Exchange Rate Overvaluation: The crisis was primarily due to the overvaluation of the ruble, which led to a loss of competitiveness in the export sector and a deterioration of the current account.
• Balance-of-Payments Crash: The crisis was a "plain vanilla" balance-of-payments crash, not caused by excessive debt but by the unsustainable appreciation of the exchange rate.
• Government Default: The decision to default on both short-term and long-term debt exacerbated the crisis, though it was not necessary.

3. Macroeconomic Policy and Recovery

• Spontaneous Recovery: The economic recovery after the crisis occurred not because of specific policy actions but due to the market correction of the overvalued exchange rate.
• Prudent Policy: The Russian government and Central Bank (CBR) adopted a prudent macroeconomic policy post-crisis, which supported the recovery.
• Inflation Control: While inflation was brought down to single digits (6% in July 1998), this policy may have had unintended consequences, such as increased nonpayments and reduced output.

4. Inflation and Economic Dynamics

• Inflation Threshold: There is a threshold for inflation (around 40% annually) beyond which it negatively affects growth. However, the evidence on how inflation between 20% and 40% impacts growth is inconclusive.
• Inflation and Nonpayments: Inflation levels are inversely related to nonpayments and barter transactions. Low inflation can lead to a rise in nonpayments and barter, especially in economies with weak institutions.
• Monetization and Equilibrium: The Russian economy was in an unstable equilibrium, where low inflation led to a shift from monetary to non-monetary transactions.

5. Exchange Rate Policy Challenges

• Nominal Stability vs. Real Appreciation: Maintaining a stable nominal exchange rate can lead to real appreciation, which threatens the trade balance and economic growth.
• Risk of New Crisis: A stable exchange rate policy may lead to another balance-of-payments crisis, especially if oil prices fall or foreign reserves are insufficient.
• Need for Gradual Depreciation: A gradual depreciation of the real exchange rate can improve competitiveness and allow the money supply to expand, even at the cost of slightly higher inflation.

Key Information

• Post-Crisis Growth: Russia's economy saw a significant rebound after the 1998 crisis, with GDP and industrial output growing rapidly.
• Non-Monetary Economy Decline: The share of barter and nonpayments in the economy declined after the crisis, indicating improved economic conditions.
• Exchange Rate Overvaluation: The overvaluation of the ruble was the root cause of the 1998 crisis, not fiscal imbalances or external debt.
• Policy Constraints: The Russian government faces a tightrope between inflation control and maintaining economic growth, as both too low inflation and too high exchange rate can be detrimental.
• Recommendations:
  • Avoid bringing inflation down too low to prevent a resurgence of nonpayments and barter.
  • Avoid raising the exchange rate too much to prevent a deterioration of the trade balance.
  • Implement a flexible exchange rate policy that allows for gradual depreciation to support growth and competitiveness.

Conclusion

The 1998 currency crisis in Russia was a result of macroeconomic mismanagement and an overvalued exchange rate. While the crisis initially triggered a mini-recession, the subsequent economic recovery was largely due to the devaluation of the ruble and the resulting improvement in competitiveness. The Russian government's prudent macroeconomic policy post-crisis helped sustain this growth, but the challenge remains to maintain a balance between inflation control, exchange rate stability, and economic performance.