Bank of FinlandInstitute for Economies in Transition, BOFIT

Review of Economies in TransitionIdäntalouksien katsauksia

Tuula Rytilä

Monetary Policy in Russia

Reprint in PDF format 2002

21.10.19941994 • No. 10

ISSN 1235-7405Reprint in PDF format 2002

Bank of FinlandInstitute for Economies in Transition (BOFIT)

PO Box 160FIN-00101 Helsinki

Phone: +358 9 183 2268Fax: +358 9 183 2294

bofit@bof.fiwww.bof.fi/bofit

The opinions expressed in this paper are those of the authors and do not necessarily reflectthe views of the Bank of Finland.

TuuIa RytiHi

Monetary Policy in Russia

1 Introduction

The primary objectives of a country's economic policy usually include stable economic growth, a high level of employment and monetary stability. The central bank contributes to the achievement of these objectives mainly through its ability to affect the money supply and to influence interest rates. The main functions of a central bank are generally divided into conducting monetary policy and supervi­sing and developing financial and payment systems. The basic theme of central banking policies is stability - stability in the purchasing power of the currency and stability in the functioning of the financial system.

Price stability, ie low inflation, is a generally accepted final objective of monetary policy and is viewed as a prerequisite for stable economic growth. The history of Russian economic reforms since January 1992 witnesses quite notable fluctuations in prices and persistent high inflation. Towards the end of 1993, the commitment to tight monetary policy seems to be more anonymously shared among the Russian authorities. The monetary policy operations and instruments of the Central Bank of Russia (CBR) are becoming more like those of Western central banks.

The stability of the banking and financial system is another prerequisite for economic growth. Successful reform in the commercial banking sector requires parallel reform in the central banking system. During transition, the central bank should move from directly financing government deficits to providing mechanisms to increase or decrease liquidity in the banking system. The Central Bank of Russia is the highest supervisory body for commercial banking activities. Therefore, the CBR plays a crucial role in developing the Russian financial infrastructure.

This paper analyzes Russian central bank policy since 1992. The second section of the paper examines the developments of the legal base and the principle functions of the CBR. Sections three and four focus on the CBR's task of conduc­ting monetary policy. The third section analyzes the monetary policy objectives and instruments of the CBR and examines Russia's foreign exchange policy. The fourth section focuses on the environment in which the CBR functions. The fifth section describes Russian monetary policy events since 1992. The sixth section turns to the CBR's supervisory task of the financial system and overviews the emerging commercial banking sector. The final section points out some possible scenarios for future central bank policy in Russia.

27

2 Developments in the Basic Functions and Legal Basis for the Central Bank of Russia

Developments in the Soviet-Russian financial system can be broken down into three sub-periods1

• First, there was the Soviet era of the planned economy, where money had only a passive role as account of unit. Gosbank was under total state control and did not its execute own monetary policy. It was a mere instrument for implementing the government's economic plan. Gosbank allocated funds from the state budget to enterprises according to five-year plans and monitored the use of these funds. State budgets were generally balanced. Gosbank fulfilled the role of a mono bank by undertaking commercial banking operations as well as carrying out the central bank's role of controlling all flows of funds. Two kinds of money co-existed: cash money and deposit money. Households could only use cash money, while enterprises had to use primarily deposit money. Enterprises could generally withdraw cash from their accounts only to pay wages. Gosbank automatically balanced enterprise accounts by transferring funds from profitable to non-profitable enterprises.

The second time period comprises the years 1987-1992. Characteristic to this period are the dissolution of the mono bank system and autonomy in Russian financial developments due to the break-up of the Soviet banking system. In January 1988, five specialized banks were created alongside Gosbank2. This was the first step towards creating a two tiered banking system. Since the enactment of the law of cooperatives in July 1988, cooperative banks and commercial banks have came into being.

Gradually, the state-owned specialized banks began to establish subsidiaries, and in October 1990 the specialized banks were converted into commercial banks. A jurisdictional power struggle between Gosbank and the Russian central bank continued until the break-up of the Soviet Union in late 1991. At that time Gosbank was merged with the CBR, to be officially dissolved shortly thereafter.

The framework laws governing Russia's banking system date back to 1990. Under these laws, Russia has a two-tiered banking system with the central bank and its subunits as the first tier and commercial banks as the second. According to the 1990 law on the CBR, the bank was accountable to the Supreme Soviet. This accountability influenced Russian thinking on central bank policy through 1992, which focused on maintaining the rouble area for the CIS countries, emphasizing the problems of the payment system and interenterprise arrears and de-emphasizing the need for an inflation objective.

The years 1993-1994 constitute a third period for the Russian financial system. There is a single currency - the rouble - and the idea of the rouble zone seems to have been abandoned. The CBR has operations similar to those of western central banks. This diminishing importance of direct central bank lending

1 For a good description of the developments in the Russian financial system up to 1993, see Fuchita et al. 1993 and Kivilahti - Kero - Tekoniemi 1993.

2 Even before 1987, three separate specialized financial institutions existed. Sberkassa took individual savings, Vneshtorgbank dealt with foreign currency operations and Stroibank provided long-term financing.

28

is increasing the reliance on the CBR's more indirect instruments. Rapid developments in the banking and financial system emphasize the need to strengthen the central bank's supervisory capacity.

As stated in the 1990 law on the Central Bank of Russia, the main tasks of the CBR are still to maintain the money supply, to pursue a uniform monetary and credit policy and to preserve the stability of the rouble. The CBR is also a major player in the development of Russia's securities markets and it issues government securities. In addition to these functions related to the conductment of monetary policy, the CBR acts as a supervisionary body. It issues licences for operating as a commercial bank and supervises commercial banks' domestic and foreign acti­vities. It is the major exchange control authority in Russia. The CBR receives deposits from commercial banks, settles payments between commercial banks and provides banks with credit. The central bank is an important force in developing the legal infrastructure for Russia's financial sector.

Financing state budget deficits continues to be one of the CBR's most import­ant functions. In Russia, budget deficits have been almost automatically financed by the central bank. These subsidized loans have traditionally been at zero or low interest.

In July 1993, drafts of revised versions of the central bank law and the law on banks and commercial banking were published in the Russian press3• New laws were not approved before the president dissolved parliament in September 1993. In July 1994, the first reading of the revised draft on the CBR law was passed in the lower house of the new parliament, the State Duma.

According to Russia's new constitution approved by referendum on December 12, 19934

, the Duma appoints and can dismiss the chairman of the CBR on a proposal by the president. The 1994 draft of the CBR law states that the CBR is accountable to the Duma, which appoints the chairman of the central bankS. There is a Duma committee on central bank monetary and credit policy by which the Duma monitors the general direction of CBR monetary and credit policies, influences the auditing procedures of the CBR and conducts preliminary discus­sions on the appointment of the bank's chairman6

. Both in 1993 and in 1994, an international auditing company has conducted an audit of the CBR for the par­liament.

The draft law on the CBR of 1994 also contains new regulations for central bank policies that would take effect in January 1996. They prohibit the central bank from granting credit to cover the state budget deficit and from buying government securities in the primary market.

3 Delavoy Mir 1.-2.7.1993.

4 Izvestiya 28.12.1993.

5 See e.g. Izvestiya 21.7.1994 or Segodna 21.7.1994. The draft law differs from the law of 1990 in that it states that the CBR is directed by a board of directors of 12 members including also inde­pendent specialists. The board members are nominated by the president and approved by the Duma. So far the board of directors has consisted of the chairman of the CBR and his deputies. The central bank has opposed this plan and the discussion will continue in October 1994, after the summer recess of the Duma.

6 Nezavisimaya Gazeta 9.2.1994.

29

There are also several additional laws governing monetary policy in Russia. The former draft law of the CBR mentions four such laws 7. Nevertheless, the legal basis for the Russian central bank and banking has long been inadequate and lags behind economic and political changes. Therefore, these activities have been largely guided by CBR instructions and presidential degrees.

Central bank independence varies among countries8. An independent central

bank is one that is free to conduct monetary policy in order to achieve its goals without interference from other governmental bodies. It can be argued that if there are well defined trade-offs on monetary policy that require political input, the central bank could be made answerable to governmene. Nevertheless, there is evidence in the literature that independent central banks have been successful in achieving low inflation rates lO

• However, no central bank works in a vacuum and co-operation between the various authorities is a prerequisite for successful monetary policies. Nor is central bank independence constant over time as the policies of a particular bank chairman may greatly affect the bank's independence.

According to Bredenkamp (1993), in today's Russia the question of central bank independence is dominated by the need for financial stabilization. It has been agreed that in a transition economy, the central bank should be put beyond the reach of political temptation. In Estonia, for example, this has been successfully achieved by a currency board arrangement with a rigid commitment to the exchange ratell. For Russia, the CBR's independence has been only partly a legal question: it also depends on how the laws are interpreted and what are the relative political strengths of the various players. The problem has not been too little central bank independence from the government or the parliament, but rather a lack of unanimous commitment by the monetary authorities to a consistent monetary policy objective12

.

7 These laws are: the law on banks and commercial banking, the law on the monetary system of the Russian Federation, the law on the internal debt of the Russian Federation, and the law on currency regulation and control.

8 Traditionally the central banks in Germany and in the USA have been very independent. European economic integration aims at a central bank independent of governments.

9 Such trade-offs include e.g. the Philips curve effect where low inflation can cause high unemployment.

10 See e.g. Alesina et aI., Journal of Money, Credit and Banking, No 25, May 2, 1993.

11 Lithuania has also introduced a currency board arrangement.

12 For a discussion of the interdependence of political commitment and the stabilization programme outcome, see Rautava 1994.

30

3 Monetary Policy of the Central Bank of Russia

3.1 Monetary Policy Objectives and Instruments

As mentioned in the previous sections, price stability in the form of low inflation is a generally accepted ultimate objective of monetary policy. Conventionally, monetary policy focuses on intermediate targets in addition to a final target, as intermediate targets are easier for policy makers to control. The principal alter­native intermediate targets in the errort to maintain price stability have been fixing the exchange rate or targeting money growth.

An important aid in achieving a monetary policy target is public confidence. Countries with a history of high inflation tend to have less credibility in pursuing price stability, and countries with a history of low inflation such as Germany, are perceived as being more credible by the public and by foreign investors.

Unlike some other transition economies such as Poland and Estonia, Russia did not choose to link economic reform to a fixed exchange rate, although it was a clear option until the summer 1992. The choice was to let the rouble float and conduct monetary policy by setting a target for money growth. In accordance with the programmes agreed with the International Monetary Fund (IMP), the monetary authorities have aimed at lowering the growth of base money (currency outside the CBR plus required reserves) and of rouble broad money (M2) by setting quantitative limits on domestic credit to the general government, to commercial banks, and to the central banks of the other countries of the former Soviet Union. The restrictions on money emission have been set in line with the government's inflation objective.

With respect to monetary policy instruments, the challenges of transformation lie in switching from quantitative methods to market operations. However, the necessary preconditions for successful use of instruments such as the discount rate must first be put in place13

. As these conditions have not existed in the early stages of reform, controlling credit expansion has clearly been the most powerful instrument of the CBR in conducting monetary policy.

In addition to a central bank's basic function of providing an adequate amount of cash for circulation, the CBR has also financed specific lending programmes. These lending programmes mean that the CBR has granted credits to state enterprises and specific regions, either directly, through commercial banks, or through the Ministry of Finance (MoF). The credits have often been provided at subsidised interest rates and on favourable terms. The increase in money emission due to directed credits has repeatedly led to the acceleration of inflation. The importance of direct central bank financing has, however, diminished in 1994 as the credits are now channelled through the budget. The CBR has also taken steps towards a more market based distribution of financing through credit auctions.

13 These preconditions are a relatively stable macroeconomic environment, competitive and functioning financial markets and the instruments needed by the central bank to affect commercial bank borrowing from the central bank.

31

The question of directed credits is a part of a larger question of structural change in the Russian economy through privatization, enterprise restructuring and downsizing of the system of subsidies. Directed credits and other subsidized programmes have delayed the introduction of hard budget constraints for state enterprises. The lack of a functioning social safety net has kept the enterprises burdened with providing social services to the employees.

The discount rate has developed into one of the most important monetary policy instruments of the Central Bank of Russia. Officially, the CBR sets the dis­count rate, which is the interest rate on central bank loans to commercial banks. In order to achieve lower inflation, the discount rate should be set positive in real terms and adjusted as the outlook for inflation changes. The interest rates charged on central banks loans have differed by type and loan recipient14

.

In Russia, the real annual discount rate was negative through 1992, but to­wards the end of 1993 it turned positive in real terms. This resulted from a decrease in the rate of inflation as well as a rise in nominal interest rates. Positive real interest rates imply tighter monetary policy by the CBR15 and provide a more effective way to influence liquidity in the money market. Table 1 traces the course of the discount rate since January 1992.

Table 1. Annual Discount Rate of the CBR

Date Annual Discount Rate, %

January 1992 20 April 1992 50 May 1992 80 April 1993 100 June 1993 110 June 1993 120 June 1993 140 July 1993 170 September 1993 180 October 1993 210 April 1994 205 May 1994 200 June 1994 185 June 1994 170 June 1994 155 August 1994 150 August 1994 130

Source: Idantalouksien Viikko (Eastern Economies Weekly) 1992-1994, Unit for Eastern European Economies, Bank of Finland.

14 According to the agreement of May 1993 between the CBR and the finance ministry, the MoF agreed to pay interest rates on the credits for the budget deficit in line with the market rates. Traditionally, the government has paid 10 per cent annual interest on these loans. According to the vice chairman of the CBR, Aleksandr Khandruev, the MoF continued to pay the low interest rate in 1993.

15 According to Delpla and Wyplosz (1994), the real interest rate may be a misleading figure of monetary tightness in Russia, as centralized credits granted by the CBR have been provided at a subsidized interest rate. In September 1993 subsidized credits represented 85 % of the credits granted by the CBR. After that, subsidized credits have been mainly provided through the budget. According to Vestnik Banka Rossii, No 18, 19.7.1994, directed credits accounted for less than 30 % of the CBR credit during the first five months of 1994.

32

In 1994, the CBR has started to gradually lower the discount rate, which has exceeded the inflation rate by several percentage points. Nevertheless, it has remained clearly positive in real terms, as the monthly inflation rate has fallen to 5 per cent in summer 199416

•

The interest rate margin charged by the commercial banks is limited to 3 percentage points, if the credit is refinanced with central bank credits17

• Other­wise, banks are free to set the interest rate. In general, the interest rates have followed the CBR's discount rate. Due to the cross ownership structures in the Russian banking sector, interest rates long remained negative in real termsl8. At the end of 1993, they turned positive in real terms. This means that the scarce supply of credits may now be more efficiently distributed by credit worthiness criteria.

Since early 1994, bank lending rates have fallen below the CBR's discount rate for the first time since the start of economic reform. For example, in June 1994, short run monthly lending rates were around 10 per cent while the monthly discount rate was 15.4 per centl9

• This gap implies a very tight monetary policy. The CBR has officially announced that the annual discount rate will be kept no more than five per cent below the interbank rate as from April 19942°. The CBR has further announced that it will continue to lower the annual discount rate in step with inflation and estimated that the rate would decline to 100 per cent by the end of 1994.

Another instrument of the CBR's monetary policy is the reserve ratio. The CBR imposes reserve ratios on commercial banks as a means of controlling liquidity in the banking system. In most industrial countries interest rates have taken over the function of short-tern monetary control. Since the real interest rate long remained negative in Russia, the effect of interest rates has not been strong enough to establish a reliable link between the creation of base money and the growth of other monetary aggregates. Therefore, reserve requirements have been used to tighten monetary conditions. Up until 1991, the reserve ratios were set arbitrarily and private commercial banks were required to have reserves 2-3 per cent higher than the former state-owned specialized banks. From 1992, the CBR has set uniform reserve requirements. The reverve requirements are currently 20 per cent of demand deposits and time deposits maturing within one year, and 15 per cent of longer-term time deposits. As the centralized credits to the enterprise sector have been excluded from the reserve requirement calculations, it is unclear how effective this procedure has been in tightening the money supply. Moreover, commercial banks have held reserves in excess of CBR requirements.

The Russian government has recognized the need to develop indirect methods of monetary management. Although issues of corporate bonds were permitted with

16 The Russian way of calculating the monthly refinancing rate is to simply divide the annual rate by 12.

17 Hirvensalo 1994, p. 37.

18 A large number of commercial banks were founded by a group of companies or organizations for the purpose of securing cheap financing.

19 Delpla and Wyplosz 1994.

20 Vestnik Banka Rossii, No 17, 12.7.1994.

33

the introduction of joint stock companies in December 1990, the corporate securi­ties market has developed slowly and lacks in liquidity and infrastructure. The bond market started to grow in May 1993 when the Russian government intro­duced three-month Treasury bills for financing the budget deficit.

Even though the first issues were carried out slowly, government securities have been reliable and sufficiently liquid. An infrastructure for their circulation has been created. The government securities currently available are long-term bonds, short-term Treasury bills, Vnesheconombank's bonds, golden certificates and specific T -bills to cover government arrears to enterprises.

Most promising of the government securities are the short-term Treasury bills. From July-August 1994, three-month T-bills have been issued twice a month and secondary market trading takes place daily. The pricing of the bond has been based on the CBR's refinancing rate. The yield on the three-month T-bill has inc­reased from close to 100 per cent for the earliest issues to levels above market interest rates. In February 1993, non-residents were also allowed to take up to 10 per cent of the bond issues. The issues have been growing steadily and are starting to have an impact on the financing of the budget deficit. The government plans to cover approximately 5 per cent of the budget deficit in 1994 by issuing bonds and certificates.

The central bank also started issuing six-month T-bills in December 1993 and 12-month bills in 1994, and the Ministry of Finance plans to start issuing two-year and three-year Treasury bills from the end of 1994. The Treasury bill market has been growing in volume in 1994, since banks have no longer been attracted to the credit market, where interest rates have continued to fan21.

Golden certificates, which were introduced at the end of September 1993, resemble gold futures contracts for delivery in one year22. In April 1994, the Russian government introduced regulations on the issue of one-year Treasury bills to cover government debts and arrears to enterprises. The total issue of these bills will be 1 100 billion roubles in 1994 and their yearly net yield will be about 40 per cent23.

3.2 Foreign Exchange Policy

The Central Bank of Russia switched in July 1992 from a multiple exchange rate system for the rouble to a unified floating exchange rate. Despite unfavourable economic conditions, the decision was not reversed and has served as an important step in opening Russia to the world economy. Contrary to the original plan, the rouble has continued to float since unification.

By late 1993, regular spot auctions were held at exchanges in six cities, and two futures markets were active in Moscow. In 1994, two more currency exchanges have been created. Towards the end of 1993, off-auction dealing began

21 Reuter 19.5.1994.

22 Due to a lack of experience in futures trading in Russia, there are many technical problems.

23 Rossiyskaya Gazeta 23.4.1994.

34

to grow in importance. This includes interbank currency trading and bank trading directly with customers. The turnover of off-auction transactions estimated at one­third of Moscow Interbank Currency Exchange (MICEX) turnover in 1993. This trend has continued in 1994, leading to a 50 per cent cut in MICEX commission rates on July 1, 199424

•

The nominal exchange rate has depreciated from over 400 roubles per dollar at the beginning of 1993 and to over 2 000 roubles per dollar in mid 1994. In real terms, the rouble has clearly appreciated. Intervention by the CBR has played an important role in the determination of the exchange rate. Since the second half of 1993, the Ministry of Finance and the CBR have both stated on several occasions their intentions to prevent sharp fluctuations of the rouble. In 1993, the combina­tion of a high rate of inflation and limited nominal exchange rate depreciation led to three-fold increase in the real the exchange rate.

During the first half of 1994, the real exchange rate appreciated by less than 10 per cent, which implies that nominal exchange rate developments are more in line with the lower inflation rate. In 1994, the CBR has announced its policy of countering excessive fluctuations of the rouble in the short run, but allowing the rouble to depreciate at a rate somewhat below the inflation rate25

.

Figure 1. Nominal Exchange Rate (roubles per US dollar) 1992:M2 - 1994:M8

2500r---------------------------------~

2000

1500

1000

500

92/2.... B 9 10 12 :2.... 8 10 12 2 .. 8 e ~ 5 7 g '11 IR/.,:; s ? 9 .,., ~.,:; 5 7

24 Vestnik Banka Rossii, No 16, 5.7.1994.

2S Vestnik Banka Rossii, No 18, 19.7.1994.

35

The combination of negative real exchange rates, high domestic inflation, lack of domestic investment instruments and considerable foreign exchange surrender requirements for exporters led to a substantial flight of capital in 1992 and 1993. There are various estimations of the size of the capital flight. According the CBR's head of the currency control department, Viktor Melnikov, illegal capital movements from Russia amounted to usn 30 billion between 1990-199326. Apparently the capital flight was greatest in 1993, estimated at USD 1.5 billion a month. The central bank has tried to control capital movements by issuing a 50 per cent foreign exchange surrender requirement for exporters. From July 1993, enterprises must have sold this amount directly at currency exchanges instead of paying part of the earnings to the CBR. This has also served to increase trading volumes on the exchanges.

There is some evidence that the capital fight has slowed since late 1993, as real interest rates are positive and deposit rates have been lucrative for investors27. According to the CBR, the Russian balance of payments for the first quarter of 1994 shows a positive USD 318 million for errors and omissions in comparison with usn -2.045 million for the first quarter of 1993. The CBR argues that is could be interpreted as the return of illegally transferred capitaf8. However, the amount of cash dollars in Russia has increased significantly, which might point to further dollarization of the Russian economy29. Exporting com­panies have also been subject to tighter control in 1994, which has increased the technical difficulties of illegal capital movements.

26 Reuter 19.5.1994.

27 According to Russian Economic Trends, Vol.2, No 4, 1994, dollar deposits in Russian banks grew by much less in 1993 than in 1992, due to higher real interest rates on roubles.

2S Vestnik Banka Rossii, No 18, 1994.

29 According to the CBR, the amount of dollars in circulation was 5.7 billion for all of 1993, whereas in the first quarter of 1994 alone, the corresponding amount was 4.2 billion dollars.

36

4 Special Questions Related to Central Bank Policy in Russia

Successful monetary policy in any country requires mutual understanding by various authorities on what is the final objective of monetary policy and a clear commitment to achieve this objective. A crucial problem in connection with economic reform in Russia is poor coordination between the primary monetary authorities.

In addition to the CBR, another influential player in Russian monetary policy is the Ministry of Finance. The division of labour between the Russian central bank and the MoF has been vague during the era of economic reform. During 1992-1993, the CBR on several occasions expressed its concern over falling production and insisted that the collapse of production should be cushened by subsidized credits contrary to the views of the reform-oriented MoF. On the other hand, the reformer governments have run large budget deficits, which have been almost automatically financed by the central bank.

Another interesting feature describing the environment in which the Central Bank of Russia operates is the CBR's stance towards the central banks of the other CIS countries. The idea of maintaining the rouble zone with several monetary authorities through 1992 resulted in competing monetary expansion by the different central banks and inflationary pressure for the whole rouble area. Independent monetary policies sprung up among the CIS countries came in 1993.

4.1 Financing of the Budget Deficit

As will be shown in the next section, inflation in Russia is largely a monetary phenomenon related to the growth of the money supply. In section 2 we stated that budget deficits have been traditionally financed by the central bank. In practice, this has meant extending credit to the government. Therefore, budget deficits have required substantial amounts of central bank financing and are an important cause of inflation30

.

The overall budget deficit of the Soviet Union in 1991 was officially esti­mated to be 22 per cent of GDP. Adjusting this figure in line with international standards raises it to over 30 per cent of GDp31

• In 1992, the World Bank esti­mated that the real deficit was 25 per cent of GDP. There are also several estimations of the budget deficit for 1993. According to the State Statistical Committee, it amounted to 7 per cent of GDP. The central bank and the finance

30 According to Delpla and Wyplosz, since October 1993, credits to the government have accelerated as credits to commercial banks decreased. This represents a redirection of credit, since subsidies to industries and agriculture are now channelled through the budget.

31 The true size of the Russia budget deficit in 1991-1992 is difficult to estimate since a large share of government expenditure was hidden in extra-budgetary funds. Furthermore, import subsidies were excluded from Russian budget figures. Thirdly, there were hidden subsidies to specific sectors or regions that do not show up in official deficit figures.

37

ministry claim that the real budget deficit was closer to 15 per cent of GDP, as new credits of several billion roubles were granted to the agro-industrial and military complexes at the very end of 199332

•

According to the MoF, over half of the budget deficit was financed by central bank credits in 1993. The government has continued to pay only a symbolic interest rate on these loans. A new source of financing is government securities, but their share of financing the deficit was only 1 per cent in 1993. In recent years, foreign borrowing has also covered much of the deficit. However, in 1993 credits from the IMP covered only some 8 per cent of the budget deficit. Figure 2 illustrates the sources of financing for the deficit in 1993.

Figure 2.

A (57.20/0)

Sources of Financing for the Budget Deficit in 1993

A Credits from the CBR B CBR profit C Credits from the IMF D Government bonds E Other sources

Source: Kommersant Daily 12.2.1994.

D (1.0%)

C (8.4%)

From the above figures it is easy to conclude that budget deficits financed by new money have been a major source of Russian inflation. By granting credits to state enterprises or to specific sectors, Russian decision makers have tried to cut the fall in production. This has perhaps involved the most crucial disagreement in Russian monetary policy; could and should the collapse of production be diminished by menas of inflationary financing? Mainly Russian conservative industrialists have argued that in the absence of a social safety net, falling production would lead to a surge in unemployment with severe consequences. However, high inflation has hit production severely by increasing overall uncertainty, which in tum has decreased the availability of inputs and long-term financing.

An important reason for Russia's fiscal crises has been the inability to end extensive price controls. The government has long continued to control energy and

32 This led to the accumulation of substantial budgetary arrears. Almost all of the reduction in the real budget deficit in 1993 was accounted for by a drop in unbudgeted import subsidies.

38

infrastructure prices. Shortfalls in budget revenue is another serious fiscal problem. The political weakness of the federal government has resulted in large tax exemptions for Russia's regional governments. Also, the enterprise sector has been successful in evading taxes. According to the Ministry of Finance, the government received only 60 per cent of the tax revenue predicted during the first six months of 199433

• This is due partly to inaccurate projections. Lower-than­expected officially recorded economic activity and inflation together with rising interenterprise arrears have in turn contributed to the shortfall in nominal revenue. In 1994, the federal government has simply been unable to honour its expenditure promises, which has resulted in considerable payment arrears and expenditure sequestration.

4.2 Relations with the CIS

By early 1992, all the CIS countries had established their own central banks, most of which were successors of branches of the former Gosbank. The continuation of a single currency area with several central banks created a typical "free-rider" situation with some states trying to issue money faster than the average. This caused inflationary pressures for the whole rouble area, especially for Russia, which tried to follow a tighter monetary policy than that of the CIS countries in general. The free-rider problem was largely eliminated during 1993, when most of the countries of the former Soviet Union introduced their own currencies.

In 1992, the CBR granted extensive amounts of technical credits to the cen­tral banks of the CIS countries to finance payment imbalances between the other states and Russia. These credits constituted an important share of Russian money creation in 1992. Since mid 1993, technical credits from the CBR have been replaced by official loans from the Russian government, which are included in the government budget.

There have been reported talks on establishing a new rouble zone in some form. Russia and Belorussian signed an agreement in April 1994 to set up a monetary union between the two countries. Lengthy negotiations proceeded the agreement. In August 1994 the countries decided to postpone currency union until Belorussian moves closer to Russia in the economic reform process. Russian authorities are concerned that the union would induce inflation in Russia, since Russian monthly inflation (under 10 %) is considerable below that of Belorussian (40-50 %).

33 This however, is an improvement over the first quarter of 1994, when only 30 per cent of budgeted tax revenue was actually received.

39

5 Monetary Events in Russia, 1992-1994

In the previous chapter we focused on the functions and instruments of the CBR and on the environment in which it operates. Now we turn to an analysis of the actual monetary events of Russian transformation since 1992.

The monetary events of 1992-1994 can be divided into four sub-periods34•

These periods can be seen from figure 3, which traces the development of Russia's monthly inflation rate.

Figure 3. Monthly Inflation Rate, 1992:M2 -1994:M8

40 ,-------------------------------------,

35

30

25

20

15

10

5

9212 <\ 6 8 10 12 2 <\ 6 8 10 12 2 + 6 8 :3 :; 7 9 11 93/1 3 :; 7 9 11 9<\/1 3 :; 7

The first period is January-May 1992, when macroeconomic policies were relatively tight. In January 1992, the Russian government announced a price liberalization freeing 90 per cent of all retail prices and 80 per cent of wholesale prices. The monthly inflation rate rose to over 200 per cent. As fiscal and mon­etary polices were tightened, the monthly inflation fell to about 10 per cent in August 1992.

Due to a considerable loosening of monetary policy in the last two quarters of 1992, Russia's inflation rate picked up again. The period from June 1992 to January 1993 constitutes a second phase in monetary dynamics. Characteristic to this period is rapid growth of the monthly money supply. Overall domestic credit expansion grew to 40 per cent of GDP in the second half 1992. Of this, 8 per cent of GDP was used to finance the budget, 22 per cent went to enterprises and 10 per cent went to the other FSU countries35

•

The third period is 1993, when there was a renewed attempt at gradual stabilization. In May 1993, the CBR and the Ministry of Finance agreed on quarterly limits for credit expansion. The CBR agreed to raise its interest rates to

34 See e.g. Sachs 1994.

35 Sachs 1994.

40

market levels and the MoF was to diminish the budget deficit. As a result of these positive developments, the IMF granted Russia USD 1.5 billion under the sys­tematic transformation facility (STF)36. The situation changed somewhat as credits granted to the agricultural sector and a continued fight between the govern­ment and parliament over the budget led to a new wave of loosening of monetary policy in autumn 1993. This shows up as a peek in monthly inflation in January 1994 (21.4 %). It also delayed the second tranche of the IMP's systematic transformation facility.

The fourth phase starts after the December 1993 parliamentary elections, when there seems to have been more consensus at the conduct of monetary policy. The monthly inflation rate has dropped to under 10 per cent since February 1994. Although the figureheads of economic reform left the government after December 1993, the key ministries are still headed by reformers. The government is a broad national coalition and the political situation appears to be more stable now than at any time since the reform began. The cooperation between the government and the CBR seems to function more smoothly than in 1993. The central bank appears to share the government's commitment to the monthly inflation objective of 7-9 per cent by the end of 1994. Even though the parliament has a conservative majority, it appears to be more cooperative and professional than the preceding one. Furthermore, most of the Duma's economic committees are chaired by non­conservative deputies.

The Chernomyrdin government signed a budget agreement in March 1994 that envisioned a deficit of under 10 per cent of GDP. This led to a disbursement of the second part of the STF from the IMF. The actual budget for 1994 approved by the Duma at the end of June 1994 projects a somewhat larger deficit. Expenditures were increased by over 10 000 billion roubles from what was agreed with the IMP, mainly reflecting an increase in credits to agriculture. The federal budget deficit was revised upward accordingly. The government has promised to take offsetting deficit-reduction measures in the form of action against tax avoidance37

• Also, the president's six economic degrees of May 1994 aim at improving tax collection. The government is expected to gain revenue from privatization after moving to direct sales of state enterprises in July 1994.

According to several studies, the monetary roots of Russian inflation are fairly clear since the price liberation in 1992. A strong correlation can be shown between the growth of M2 lagged by 4 months and monthly inflation38. During 1993, M2 grew 530 per cent, whereas the corresponding figure for 1992 is over 1000 per cent39. The link between money supply and inflation is illustrated in figure 4.

36 The STF was set up earlier in 1993 to help with the transformation of ex-socialist countries.

37 All the government's projected measures to increase budget revenue have not, however, been implemented or are being implemented at a lower rate, or with a longer delay, than was first anticipated.

38 Easterly and Vieira da Cunch, 1994. See also Russian Economic Trends, Vol. 2, No 3, 1993. The Russian Ministry of Finance made corresponding calculations in Vaprosi Ekonomiki 1, 1994. Similar calculations have been shown by Western experts with a 3-month lag.

39 PlanEcon Report, April 28, 1994.

41

Figure 4. Inflation and Growth of Money Supply (lagged four months), 1992:M7 - 1994:8

35 ,-----------------------,

30

25

20

15

10

5

9:21 7 9 11 93/1 3 7 9 11 94/1 3 5 7 9 B 10 12 2 4 6 B 10 12 2 4 B

-e-tnf tat ron -t--MOney Supp t y

The moderation in the expansion of Russian central bank credit seems to be a key component in reducing monetary expansion in 1993. In 1992, central bank credit grew at an average monthly rate of almost 30 per cent, whereas in 1993, total cen­tral bank credit grew at an average monthly rate of less than 12 per cent and in the last quarter of 1993 at 8 per cent40

. As pointed out earlier, a large share of the drop in money expansion is explained by reduced lending to the other CIS countries. During the second half of 1993, the CBR did not approve new credits to the central banks of the other countries of the former Soviet Union.

In 1994, the trend of tightening central bank lending has continued. The monthly growth rate of rouble base money was less than 10 per cent during the first quarter of 1994, but the growth rate picked up during the second quarter. Money velocity rose in the first quarter, reflecting the impact of a tighter monetary policy, but fell in the second quarter. The increase in willingness to hold money may reflect lower inflation expectations.

On February 28, 1994, the CBR starting monthly credit auctions of central bank refinancing for selected commercial banks. The regulations for participating in the auctions were originally very strict, but they have been revised to allow more banks to take part. During the first half of 1994, 10 per cent of CBR credits to commercial banks were distributed through the auctions41

. As market interest rates have fallen sharply during early 1994, the CBR has been forced to auction credits at interest rates lower than its refinancing rate. The first credit auctions have also suffered from technical problems. However, credit auctions are an important step toward market based distribution of central bank credits.

The budget deficit during the first half of 1994 was 9 per cent of GDP. At the same time, real GDP fell by almost 20 per cent and industrial production by some

40 PlanEcon Report April 28, 1994.

41 Vestnik Banka Rossii, No 18, 19.7.1994.

42

25 per cent42• The acute question seems to be: is such a deep drop in statistical

production politically sustainable. Nevertheless, the inflation objective of the Russian government appears attainable, as the government seems to put a higher priority on avoiding hyperinflation than on avoiding the collapse of production. Another acute question is the increasing stock of interenterprise arrears and whether the government will be able to avoid inflationary measures to improve the situation.

42 Finansovyu Izvestiya 18.-24.8.1994.

43

6 Supervision of the Financial System43

An important task of the Central Bank of Russia is to secure the stability and development of the Russian commercial banking and financial system. Russia's financial sector has experienced rapid change over the past few years and the banking system has been one of the most dynamic areas of Russian economy. More than 2 000 new commercial banks have been created since 1988. In the Moscow area alone, 220 new banks were created in 199344

• In the absence of well functioning capital markets, commercial banks play a key role in the transformation and restructuring of the Russian economy. The new banks are the principal channel for transferring resources from savers to investors.

Most of Russian smaller and medium-sized banks are undercapitalized and poorly supervised. Many banks are owned by their client enterprises. Commercial banks have been accused of illegal activities and connections with organized crime. Even though Russian banking inspection has been frequently criticized, the CBR has several ways to control and monitor commercial banking activities.

Securities markets are only beginning to develop in Russia following the privatization of the enterprise sector. This has meant the creation of a number of exchanges, investment companies and investment funds. A limited number of non­bank financial institutions, such as pension funds and insurance companies, have also been established. The Ministry of Finance regulates and supervises the securities markets and authorizes securities exchanges and investment institutions. On the other hand, the central bank conducts the actual issues of government securities and develops the necessary infrastructure for securities markets45

•

6.1 Commercial Banking Licences and Minimum Capital Requirements

The Central Bank of Russia issues operating licences for commercial banks. There are three types of licenses. A general license gives its holder the right to conduct foreign exchange operations within and outside of Russia. An extended interior licence is issued for foreign exchange transactions of a non-recurrent nature. By July 1, 1994,202 Russian banks had a general licence and some 400 banks had an

43 Like the law on the Central Bank of Russia, also the law on banks and commercial banking of 1990 is outpaced by political and economic events. The draft of this law was discussed in the former parliament and was brought up again in the State Duma. In July 1994, the new draft law passed its first hearing in the Duma.

44 On July 1, 1994, there were 2 294 commercial banks operating in Russia and the number of branch offices (excl. Sberbank) was 5 143. See Vestnik Banka Rossii, No 18, 19.7.1994.

45 The MMM investment fund crisis in summer 1994 revealed the need for more effective regulation of the growing Russian financial markets. The government is taking steps to improve and clarify the legislation on financial markets.

44

extended interior licence46• Most Russian banks operate with an ordinary licence.

The holders of ordinary licenses can undertake currency operations only in Russia. The CBR can deny a commercial a bank licence on the grounds of non­

compliance with the law or inadequate financial standing of the founders. The central bank may revoke a licence on the grounds of false reporting, insolvency or illegal operations.

There are few limits on the scope of activities that banks can undertake, and portfolio diversification requirements on lending have remained liberal. A bank must have at least three shareholders and no shareholder can hold more than 35 per cent of its capital.

The Central Bank of Russia sets minimum capital requirements for commer­cial banks. Since 1992, these requirements have been tightened on several occasions, but they are still quite modest because of the aim to improve the effi­ciency of the banking system. From March 1, 1994, the CBR ordered a 20-fold increase in the minimum capital requirement. Existing banks are given until January 1995 to increase their capital to 2 billion roubles from the previous 100 million roubles47

• In 1999, the requirement will rise to the European Union threshold of Ecu 5 million. As a result of the higher minimum capital require­ments, many banks have merged with larger banking units. The CBR also regulates the composition of basic capital.

The bankruptcy law, adopted in November 1992, took effect on March 1, 1993. This law opens the door to bankruptcy proceedings against defaulting enterprises. The Central Bank of Russia started the liquidation of commercial banks in 1993 by revoking the licences of 23 banks. Of these, the Inter-Kiber Bank has been declared bankrupt. These banks exemplify the situation were raised minimum capital requirements have led to falsification of documents. According to the CBR, about 170 banks in Moscow (one third of the banks) violated the law in 199348

•

Currently, 17 foreign-owned banks are operating in Russia. During 1993 there was considerable political debate concerning the rights of foreign-owned banks to operate in Russia49

• The operations of foreign banks were tightly restricted by a presidential degree in November, 1993. The decree was revoked in 1994, but Russia's central bank will partly continue to protect domestic banks to some extent from foreign competition until July 1, 19995°. Until January 1996, all foreign banks, except those licensed by the central bank before November 1993, are restricted to off-shore status, which allows them to serve non-residents only.

46 Vestnik Banka Rossii, No 18, 19.7.1994.

47 Vladimir Smimov, the CBR's deputy head of hard currency operations, predicted in Segodna, 22.2.1994 that only 7 per cent of Russia's 2 048 banks will meet the new requirement. According to Vestnik Banka Rossii, No 18, 19.7.1994, 71 Russian banks (3 % of all banks) had minimum capital of over 5 billion roubles at the beginning of July 1994 and 389 banks had minimum capi­talof 1-5 billion roubles.

48 Daily Kommersant 5.3.1994.

49 For a discussion of foreign-owned banks, see Hirvensalo 1994.

50 Reuter 28.7.1994.

45

Until July 1993, Russia will continue to restrict the scope of foreign banks' activ­ities.

Foreign-owned banks are also subject to higher minimum capital requirements than Russian banks. The central bank has imposed a 12 per cent ceiling on the share of foreign ownership of the whole Russian banking sector. In mid 1994, the share of foreign banks did not exceed seven per cent.

6.2 Other Supervisory Measures Concerning Commercial Banks

In addition to minimum capital requirements, commercial banks are required to fulfil other supervisory requirements prescribed by the Russian central bank. All banks are required to maintain reserves at the central bank. The central bank is also expected to establish limits on loans to a single borrower.

The central bank can conduct audits of commercial banks or instruct auditing organizations to conduct bank audits. Commercial banks must be audited annually and must publish an annual balance sheet. The CBR is planning to carry out a detailed reform of the accounting system over the next few years. From September 1994, the CBR can appoint a temporary management team to a commercial bank that is facing financial or managerial diffuties51

•

6.3 Settling Payments

The CRB has had an important role in clearing interbank payments. Payments between banks have been cleared through correspondent accounts at the CBR's clearing centres. It has not been possible to clear payments directly between the banks. The payment system has been based on cash, checks, payment orders and payment demand orders. Cash has been used for retail transactions and payment orders for wholesale transactions.

Traditionally, all settlements of individual corporate transactions had to be handled manually at the central bank. Payments and settlement orders have been dispatched mostly by mail. Delays in settlements and inefficiencies in the payment system have contributed to a worsening of interenterprise arrears52

• Recently, independent clearing centres have appeared, and competition in the field is inc­reasing. Currently, there are a few such clearing centres operationg in Moscow and one in the Urals; there are plans for similar centres to start operations in Rus­sia's regions53

• The development of independent clearing centres is hindered by an inadequate legal base, and some centres suffer from a lack of modern technol­ogy.

51 Nezavisimaya Gazeta 3.9.1994.

52 For a discussion of interenterprise arrears, see e.g. Bigman and Pereira Leite, Enterprise Arrears in Russia: Causes and Policy Options, IMF Working Paper 61/1993.

53 Daily Kommersant 25.2.1994 and 12.5.1994.

46

7 Conclusions

Since the beginning of the economic transformation in 1992, the operations and instruments of the Central Bank of Russia have become more like those of Western central banks. As overall macroeconomic condition become more stabilized, the preconditions for central bank operations improve. The improved understanding by Russian decision-makers of the importance and basic functions of money increase the optimism that financial stabilization may be attainable.

The CBR's reliance on inflatory means of influencing monetary conditions, such as direct credits to enterprises, is diminishing. The CBR has been moving towards more market based distribution of credits. At the same time, the impor­tance of the discount rate and open market operations are increasing. The positive real interest rate makes it possible for the central bank to adjust monetary condi­tions in line with inflationary developments.

Important challenges lie ahead in the area of commercial banking. Russia's banking sector is facing such problems as undercapitalized banks, inefficient payment transfers, lack of adequate supervision and illegal activities. Improving the soundness of commercial banks, building up the legal infrastructure of the financial system and modernizing the payment system are important future areas of focus for the Central Bank of Russia.

47

Literature

Bredenkamp, Hugh (1993) Conducting Monetary and Credit Policy in Countries of the Former Soviet Union: Some Issues and Options. IMF Working Paper 23/1993, International Monetary Fund.

Delpla, Jacques - Wyplosz, Charles (1994) Russia's Unconventional Transition. Paper presented at the Conference "Russian Economic Reform in Jeopardy", June 16-17, 1994, Stockholm.

Easterly, William - da Cunha, Paulo Vieira (1993) Financing the Storm: Macroeconomic Crisis in Russia, 1992-93. The World Bank.

Fuchita, Yasuyuki - Sadakazu, Osaki - Takashi, Miwa (1993) Financial and Capital Market Reforms in Russia. Nomura Research Institute, Ltd.

Hirvensalo, Inkeri (1994) Banking in St. Petersburg. Review of Economies in Transition 1/1994, Bank of Finland.

Kivilahti, Terhi - Kero, Jukka - Tekoniemi, Merja (1993), Russia's Financial and Banking System in The Russian Economy in Crisis and Transition, Edited by Pekka Sutela, Bank of Finland A:86.

Rautava, Jouko (1994) Interdependence of Politics and Economic Development: Financial Stabilization in Russia. Review of Economies in Transition 7/1994, Bank of Finland.

Sachs, Jeffrey D. (1994), Russia's Struggle with Stabilization: Conceptual Issues and Evidence. Paper written for the Annual Bank Conference on Develop­ment Economics, The World Bank, April 28-29, 1994, Washington, D.C.

Tarkka, Juha (1993) Raha ja rahapolitiikka. Oy Gaudeamus Ab, JyvaskyHi.

48

1/92 Pekka Sutela: Neuvostoliiton hajoamisen taloudelliset aspektit. 24 s.Jouko Rautava: Suomen ja Venäjän taloussuhteet Suomen EY-jäsenyyden valossa. 12 s.

2/92 Seija Lainela - Jouko Rautava Neuvostoliiton talouskehitys vuonna 1991. 15 s.Seija Lainela Viron taloudellisen kehityksen lähtökohdat. 9 s.Merja Tekoniemi Yksityistäminen itäisen Euroopan maissa ja Baltiassa. 7 s.

3/92 Kamil Janácek Transformation of Czechoslovakia’s Economy: Results, Prospects,Open Issues. 20 p.Sergey Alexashenko General Remarks on the Speed of Transformationin the Socialist Countries. 25 p.Sergey Alexashenko The Free Exchange Rate in Russia: Policy, Dynamics,and Projections for the Future. 19 p.Jouko Rautava Liikaraha, inflaatio ja vakauttaminen. 16 s.

4/92 Stanislava Janácková - Kamil Janácek Privatization in Czechoslovakia. 8 p.Sergey Alexashenko The Collapse of the Soviet Fiscal System: What Should Be Done? 45 p.Juhani Laurila Neuvostoliiton ja Venäjän velka. 23 s.Jukka Kero Neuvostoliiton ja Venäjän ulkomaankauppa. 24 s.

5/92 Pekka Sutela Clearing, Money and Investment: The Finnish Perspective on Tradingwith the USSR. 26 p.Petri Matikainen “Suuri pamaus” - Puolan talousuudistus 1990. 22 s.

6/92 Miroslav Hrncír Foreign Trade and Exchange Rate in Czechoslovakia: Challenges of theTransition and Economic Recovery. 39 p.Terhi Kivilahti - Jukka Kero - Merja Tekoniemi Venäjän rahoitus- ja pankkijärjestelmä. 37 s.

7/92 Seija Lainela Baltian maiden rahauudistukset. 23 s.Seija Lainela - Jouko Rautava Baltian maiden poliittisen ja taloudellisen kehityksen taustatja nykytilanne. 14 s.Sergei Alexashenko Verojen ja tulonsiirtojen jakautuminen entisessä Neuvostoliitossa. 17 s.

1/93 Pekka Sutela Taloudellinen transitio Venäjällä. 11 s.Pekka Sutela Venäjän taloudellinen voima 2000-luvulla. 9 s.Pekka Sutela Itäinen Eurooppa integraatiossa: ottopoikia, sisarpuolia vai ... 11 s.

2/93 Inkeri Hirvensalo Changes in the Competitive Advantages of Finnish Exporters in the FormerUSSR after the Abolition of the Clearing Payment System. 35 p.Miroslav Hrncír The Exchange Rate Regime and Economic Recovery. 17 p.Gábor Oblath Real Exchange Rate Changes and Exchange Rate Policy underEconomic Transformation in Hungary and Central-Eastern Europe. 31 p.Gábor Oblath Interpreting and Implementing Currency Convertibility in Central andEastern Europe: a Hungarian Perspective. 19 p.

3/93 Jouko Rautava Venäjän järjestelmämuutos ja talouskehitys 1992. 19 s.Seija Lainela Baltian maiden talous vuonna 1992. 25 s.Pekka Sutela Itäinen Eurooppa vuonna 1992. 14 s.

4/93 Jouko Rautava Monetary Overhang, Inflation and Stabilization in the Economiesin Transition. 17 p.Jarmo Eronen Manufacturing Industries before and after the Collapse of Soviet Markets:a Comparison of Finnish and Czechoslovak Experience. 19 p.

REVIEW OF ECONOMIES IN TRANSITIONfrom number 4 ISSN 1235-7405

5/93 Pekka Sutela Uusi hanke entisen rupla-alueen kaupankäynnin monenkeskeistämiseksi. 8 s.Juhani Laurila Venäjän velkakriisin kehitys ja nykytilanne. 10 s.

6/93 Jouko Rautava Yritystuesta sosiaaliturvaan: Julkisen tuen muutospaineet Venäjällä. 7 s.Jarmo Eronen Venäjän uusi hallinnollinen aluejako. 7 s.Aleksei Tkatshenko Pienyrittäjyys Venäjällä: Nykytilanne ja kehitysnäkymät. 35 s.

7/93 Tuula Rytilä Russian Monetary Policy Since January 1992. 20 p.Inkeri Hirvensalo Developments in the Russian Banking Sector in 1992-1993. 22 p.

8/93 Seija Lainela - Pekka Sutela Introducing New Currencies in the Baltic Countries. 26 p.Inna Shteinbuka The Baltics’ ways: Intentions, Scenarios, Prospects. 27 p.Inna Shteinbuka Latvia in Transition: First Challenges and First Results. 33 p.Inna Shteinbuka Industry Policy in Transition: the Case of Latvia. 30 p.

9/93 Jouko Rautava Venäjän keskeiset taloustapahtumat heinä- syyskuussa 1993. 10 s.Merja Tekoniemi Venäjän parlamenttivaalien poliittiset ryhmittymät. 3 s.Jarmo Eronen Venäläinen ja suomalainen periferia: Permin Komin ja Kainuunluetaloudellista vertailua. 29 s.

10/93 Seija Lainela Venäjän federatiivisen rakenteen muotoutuminen ja taloudellinen päätöksenteko;Pietarin asema. 14 s.Inkeri Hirvensalo Pankkitoimintaa Pietarissa. 14 s.Juhani Laurila Suoran sijoitustoiminnan kehittyminen Venäjällä ja Suomen lähialueella. 29 s.Juhani Laurila Suomen saamiset Venäjältä. Valuuttakurssimuutosten ja vakautustenvaikutukset. 8 s.

1/94 Pekka Sutela Insider Privatization in Russia: Speculations on Systemic Change. 22 p.Inkeri Hirvensalo Banking in St.Petersburg. 18 p.

2/94 Aleksei Tkatshenko Pienyritysten yksityistäminen Venäjällä. 23 s.Jarmo Eronen Konversio Venäjällä: tulosten tarkastelua. 10 s.

3/94 Juhani Laurila Direct Investment from Finland to Russia, Baltic and Central Eastern EuropeanCountries: Results of a Survey by the Bank of Finland. 14 p.Juhani Laurila Finland’s Changing Economic Relations with Russia and the Baltic States. 11 p.Jouko Rautava EC Integration: Does It Mean East-West Disintegration. 8 p.Eugene Gavrilenkov Macroeconomic Crisis and Price Distortions in Russia. 20 p.Eugene Gavrilenkov Russia: Out of the Post-Soviet Macroeconomic Deadlock througha Labyrinth of Reforms. 22 p.

4/94 Jouko Rautava Venäjän järjestelmämuutos ja talouskehitys 1993. 16 s.Seija Lainela Baltian maat vuonna 1993. 19 s.Jouko Rautava Suomen idänkauppa 1990-93. 7 s.

5/94 Pekka Sutela Production, Employment and Inflation in the Baltic Countries. 22 p.Seija Lainela Private Sector Development and Liberalization in the Baltics. 14 p.Seija Lainela Small Countries Establishing Their Own Independent Monetary Systems:the Case of the Baltics. 17 p.

6/94 Merja Tekoniemi Työttömyys ja sosiaaliturva Venäjällä. 31 s.

7/94 Pekka Sutela Fiscal Federalism in Russia. 23 p.Jouko Rautava Interdependence of Politics and Economic Development:Financial Stabilization in Russia. 12 p.Eugene Gavrilenkov “Monetarism” and Monetary Policy in Russia. 8 p.

8/94 Pekka Sutela The Instability of Political Regimes, Prices and Enterprise Financing and TheirImpact on the External Activities of the Russian Enterprises. 31 p.Juhani Laurila The Republic of Karelia: Its Economy and Financial Administration. 37 p.Inkeri Hirvensalo Banking Reform in Estonia. 21 p.

9/94 Jouko Rautava Euroopan unionin ja Venäjän välinen kumppanuus- ja yhteistyösopimus -näkökohtia Suomen kannalta. 7 s.

10/94 Seija Lainela - Pekka Sutela The Comparative Efficiency of Baltic Monetary Reforms. 22 p.Tuula Rytilä Monetary Policy in Russia. 22 p.

11/94 Merja Tekoniemi Miksi Venäjän virallinen työttömyysaste on säilynyt alhaisena? 19 s.

1/95 Jouko Rautava Venäjän järjestelmämuutos ja talouskehitys 1994. 19 s.Seija Lainela Baltian maat vuonna 1994. 21 s.Vesa Korhonen Itäisen Euroopan talouskehitys 1994. 19 s.

2/95 Urmas Sepp Inflation in Estonia: the Effect of Transition. 27 p.Urmas Sepp Financial Intermediation in Estonia. 32 p.

3/95 Vesa Korhonen EU:n ja Venäjän kumppanuus- ja yhteistyösopimus. 31 s.Jouko Rautava Talousintegraatio ja Suomen turvallisuus - Suomi Euroopan unionin idäntaloussuhteissa. 21 s.Jouko Rautava Suomen idänkauppa 1985-94. 10 s.

4/95 Nina Oding Evolution of the Budgeting Process in St. Petersburg. 29 p.Urmas Sepp A Note on Inflation under the Estonian Currency Board. 12 p.Pekka Sutela But ... Does Mr. Coase Go to Russia? 14 p.

5/95 Urmas Sepp Estonia’s Transition to a Market Economy 1995. 57 p.

6/95 Niina Pautola The New Trade Theory and the Pattern of East-West Tradein the New Europe. 21 p.Nina Oding Investment needs of the St.Petersburg Economy and the Possibilities tomeeting them. 20 p.Panu Kalmi Evolution of Ownership Change and Corporate Control in Poland. 21 p.

7/95 Vesa Korhonen Venäjän IMF-vakauttamisohjelma 1995 ja Venäjän talouden tilanne. 37 s.Inkeri Hirvensalo Maksurästit Venäjän transitiotaloudessa. 30 s.Seija Lainela Baltian maiden omat valuutat ja talouden vakautus - pienten maidensuuri menestys. 14 s.

8/95 Pekka Sutela Economies Under Socialism: the Russian Case. 17 p.Vladimir Mau Searching for Economic Reforms: Soviet Economists on the Roadto Perestroika. 19 p.

9/95 Niina Pautola East-West Integration. 33 p.Panu Kalmi Insider-Led Privatization in Poland, Russia and Lithuania:a Comparison. 16 p.Iikka Korhonen Equity Markets in Russia. 14 p.Jury V. Mishalchenko - Niina Pautola The Taxation of Banks in Russia. 5 p.

1/96 Juhani Laurila Payment Arrangements among Economies in Transition:the Case of the CIS. 23 p.Sergei Sutyrin Problems and Prospects of Economic Reintegration within the CIS. 17 p.Viktor V. Zakharov - Sergei F. Sutyrin Manager Training - Another Emerging Market in RussianEducational Services. 9 p.

2/96 Jouko Rautava Venäjän järjestelmämuutos ja talouskehitys vuonna 1995. 12 s.Juhani Laurila Katsaus lähialueisiin. 28 s.Iikka Korhonen Baltian vuosikatsaus. 10 s.Pekka Sutela Ukrainan ja Valkovenäjän taloudet vuonna 1995. 10 s.Vesa Korhonen Itäisen Euroopan siirtymätalouksien kehitys 1995. 17 s.

3/96 Niina Pautola Intra-Baltic Trade and Baltic Integration. 12 p.Vesa Korhonen The Baltic Countries - Changing Foreign Trade Patterns andthe Nordic Connection. 16 p.Iikka Korhonen Banking Sectors in Baltic Countries. 22 p.

4/96 Niina Pautola Trends in EU-Russia Trade, Aid and Cooperation. 16 p.Niina Pautola The Baltic States and the European Union - on the Road to Membership. 20 p.Elena G. Efimova - Sergei F. Sutyrin The Transport Network Structure of the St.PetersburgRegion and its Impact on Russian-Finnish Economic Cooperation. 11 p.Iikka Korhonen An Error Correction Model for Russian Inflation. 10 p.

5/96 Juhani Laurila - Inkeri Hirvensalo Direct Investment from Finland to Eastern Europe;Results of the 1995 Bank of Finland Survey. 21 p.Tatiana Popova - Merja Tekoniemi Social Consequences of Economic Reform in Russia. 26 p. Iikka Korhonen Dollarization in Lithuania. 7 p.

6/96 Juhani Laurila - Inkeri Hirvensalo Suorat sijoitukset Suomesta Itä-Eurooppaan; Suomen Pankinvuonna 1995 tekemän kyselyn tulokset. 20 s.Jouko Rautava Suomi, Euroopan Unioni ja Venäjä. 6 s.Niina Pautola Baltian maiden talouskatsaus 1996. 12 s.

1/97 Panu Kalmi Ownership Change in Employee-Owned Enterprises in Poland and Russia. 51 p.

2/97 Niina Pautola Fiscal Transition in the Baltics. 23 p.Peter Backé Interlinkages Between European Monetary Union and a Future EU Enlargementto Central and Eastern Europe. 19 p.

3/97 Iikka Korhonen A Few Observations on the Monetary and Exchange Rate Policiesof Transition Economies. 8 p.Iikka Korhonen A Brief Assessment of Russia’s Treasury Bill Market. 8 p.Rasa Dale Currency Boards. 14 p.

4/97 Sergei F. Sutyrin Russia’s International Economic Strategy: A General Assessment. 17 p.Tatiana Popova The Cultural Consequences of Russian Reform. 17 p.Ludmilla V. Popova - Sergei F. Sutyrin Trends and Perspectives in Sino-Russian Trade. 11 p.

5/97 Jouko Rautava Venäjän järjestelmämuutos ja talouskehitys vuonna 1996. 10 s.Iikka Korhonen - Niina Pautola Baltian talouskatsaus 1996. 12 s.Merja Tekoniemi Katsaus lähialueisiin 1996. 11 s.Merja Tekoniemi Ukrainan talouskatsaus 1996. 10 s.Kari Pekonen Valko-Venäjän talous vuonna 1996. 6 s.Katri Lehtonen Keski- ja Itä-Euroopan talouskehitys vuonna 1996. 13 s.

6/97 Niina Pautola Towards European Union Eastern Enlargement - Progress and Problemsin Pre-Accession. 17 p.Katri Lehtonen Theory of Economic Reform and the Case of Poland. 26 p.Boris Brodsky Dollarization and Monetary Policy in Russia. 14 p.

7/97 Toivo Kuus Estonia and EMU Prospect. 24 p.Olga Luštšik The Anatomy of the Tallinn Stock Exchange. 23 p.Riia Arukaevu Estonian Money Market. 20 p.

1/98 Iikka Korhonen The Sustainability of Russian Fiscal Policy. 8 p.Tatiana Popova - Merja Tekoniemi Challenges to Reforming Russia’s Tax System. 18 p.Niina Pautola Optimal Currency Areas, EMU and the Outlook for Eastern Europe. 25 p.

2/98 Peter Westin Comparative Advantage and Characteristics of Russia’s Trade withthe European Union. 26 p.Urszula Kosterna On the Road to the European Union - Some Remarks on BudgetaryPerformance in Transition Economies. 31 p.

3/98 Jouko Rautava Venäjän järjestelmämuutos ja talouskehitys vuonna 1997. 11 s.Merja Tekoniemi Keskuksen ja alueiden välisten suhteiden kehitys Venäjällä 1992-1997. 10 s.Niina Pautola Baltian talouskatsaus 1997. 11 s.Merja Tekoniemi Katsaus Suomen kauppaan IVY-maiden ja Baltian maidenkanssa 1990-1997. 11 s.Tom Nordman Kiinan talouden tila ja ongelmat. 11 s.Merja Tekoniemi Ukrainan talouskatsaus 1997. 10 s.Iikka Korhonen Keski- ja Itä-Euroopan talouskehitys 1997. 12 s.

4/98 Kustaa Äimä Central Bank Independence in the Baltic Policy. 30 p.Iikka Korhonen – Hanna Pesonen The Short and Variable Lags of Russian Monetary Policy. 11p.Hanna Pesonen Assessing Causal Linkages between the Emerging Stock Markets of Asiaand Russia. 10 p.

5/98 Laura Solanko Issues in Intergovernmental Fiscal Relations – Possible Lessons for Economiesin Transition. 19 p.Iikka Korhonen Preliminary Tests on Price Formation and Weak-form Efficiency in BalticStock Exchanges. 7 p.Iikka Korhonen A Vector Error Correction Model for Prices, Money, Output, andInterest Rate in Russia. 12 p.Tom Nordman Will China catch the Asian Flu? 14 p.

6/98 Saga Holmberg Recent Reforms in Information Disclosure and Shareholders’ Rightsin Russia. 17 p.Vladimir R. Evstigneev Estimating the Opening-Up Shock: an Optimal Portfolio Approach toWould-Be Integration of the C.I.S. Financial Markets. 39 p.Laura Solanko – Merja Tekoniemi Novgorod and Pskov – Examples of How Economic PolicyCan Influence Economic Development. 14 p.Ülle Lõhmus - Dimitri G. Demekas An Index of Coincident Economic Indicatorsfor Estonia. 12p.

7/98 Tatyana Popova Financial-Industrial Groups (FIGs) and Their Roles in the RussianEconomy. 24p.Mikhail Dmitriyev – Mikhail Matovnikov – Leonid Mikhailov – Lyudmila Sycheva RussianStabilization Policy and the Banking Sector, as Reflected in the Portfolios of Moscow Banksin 1995–97. 29 p.

1/99 Jouko Rautava Venäjän järjestelmämuutos ja talouskehitys vuonna 1998. 10 s.Iikka Korhonen – Seija Lainela Baltian maat vuonna 1998. 10 s.Tom Nordman Kiinan talouden tila ja näkymät. 13 s.Pekka Sutela Ukrainan talouskatsaus 1998. 14 s.Iikka Korhonen Keski- ja Itä-Euroopan talouskehitys vuonna 1998. 10 s.