Russian Economy under Financial Crisis and Declining Oil Price

Abstract

There are three conundrums as for the relation between the Russian economy and the Sub-Prime fi nancial crisis. Firstly, it is not clear why Russia's GDP has been damaged so severely after the crisis comparing with other leading countries including China. Secondly, we have not yet found out a main process through which the American crisis reached Russia. Because Russian fi nancial institutions did not have Sub-Prime-related securities so much, it does not stand to reason that they suff ered the same kind of turbulence as British or German banks had. Thirdly, why such a basically fi nancial aff air as the Sub-Prime crisis has had a serious eff ect on economic real sectors of Russia is not easy to understand. In the case of the fi nancial crisis in 1998 the real sectors of Russia did not have close connections with its fi nancial sectors and therefore they did not receive serious damages from the fi nancial sectors. Have the connections between the real sectors and fi nancial sectors in Russia strengthened considerably in the last ten years? Among these three conundrums this article tries to answer to the last two and give a hint to the fi rst one. As for the second conundrum the author insists that foreign fi nancial institutions, which had held much Sub-Prime-related assets, withdrew their capital from Russia to compensate their losses in the crisis, which in turn brought Russian fi nancial institutions into a diffi cult situation. As for the third one it is emphasized that the real and fi nancial sectors in Russia have not yet achieved modern close relationship and that we must fi nd another factor that led to economic diffi culties of the real sectors of Russia. For example, the so-called fi nancial deepening cannot be considered to have proceeded suffi ciently in Russia if compared to Japan, England, Czech Republic, Hungary and Poland. As for the fi rst one the author suggests that decrease of "terms of trade eff ect" after the crisis, which occurred because of oil price decline, might have been one of the important factors for GDP setback. By explaining about these three conundrums the author clarifi es a special economic structure of Russia: vulnerability to foreign shocks. Keywords: Sub-Prime fi nancial crisis reserve assets of the central bank, terms of trade eff ect