Streetwise Professor

October 23, 2008

Information Management–Flirting with Catastrophe

Filed under: Economics,Politics,Russia — The Professor @ 7:37 pm

Paul Goble echoes a point made earlier here on SWP:

Not surprisingly, this imposition of such censorship [on reporting of the financial crisis] is yielding some Soviet-style results, including among other things the acceptance of the government’s version of reality by many, the belief among others that the government’s effort to hide the facts means that the situation is even worse than it is, and the re-appearance of Soviet-style anecdotes to discuss what is going on.

But the existence of greater freedom in some print media outlets and on the Internet not only means that many Russians continue to have access to information the government is trying to restrict but also that some of them are raising pointed questions about what is going on, actions that are is eroding still further the regime’s standing among these groups.

Russians who rely on government television channels for news about their country and the world, Anton Orekh pointed out in “Yezhednevniy zhurnal” this week, would know something about the financial crisis spreading around the world, but they would not know that it has also hit their own country hard (www.ej.ru/?a=note&id=8494).

Following Putin’s insistence that the Russian government is in control of the situation and instructions from the authorities not to use the word “crisis’ in discussing it, Russians who live in this virtual world who believe, as apparently do some in the Kremlin, that “only what is on television” really exists, thus have one picture of the world.

But those who use the Internet, read some of the more independent newspapers, or even take the time to look around are very much aware that the international financial crisis has hit Russia very hard, be it from the collapse of the stock market, the falling price of oil, or the decline in the ruble exchange rate.

(Fontanka.ru on Tuesday offered an hour by hour comparison of what has been on Russian central television and what appeared on the Internet about the crisis. According to the first, Russia has no problems but the United States is to blame. According to the latter, the situation affects Russia and is much more complicated (www.fontanka.ru/2008/10/21/115/).)

. . . .

But others were less enthusiastic about what the Russian government and the stations under its control have been doing. Lev Lurye, a historian and television host said he could understand the desire to avoid panic, but he added that the failure to tell the population the whole story may make the situation worse not better.

Russians will learn what is really going on one way or another, he said, and consequently, “if experts on the television screens talked about the real situation and about the crisis and its projected course of development, then society would carry on more calmly.” By not doing so, television may lead many to draw apocalyptic conclusions.

Roman Mogilevsky, a sociologist who studies information policy, agreed that anyone who wants to learn the truth can. But the way Russian television has been behaving lately, he said, has “a certain similarity with ‘Swan Lake’ in 1991,” a reference to the playing of classical music when the coup against Mikhail Gorbachev was taking place.

And Aleksandr Nevrozov, a journalist, told Fontanka.ru that he was still uncertain as to what was really going on, but he said that he was “waiting for the moment when the president and premier will stand on the [Lenin] mausoleum [on Red Square] and in front of them financiers and stockbrokers will march by and shout; ‘We are ready for the crisis!'”

The Alfred E. Neumann-Bobby McFerrin (“Don’t Worry, Be Happy”) approach is yet another hard but brittle policy tool. As long as it works, things will cruise along pretty well. But if it doesn’t work–the results could be cataclysmic, with cascading panic and a complete loss of trust in Putin and the government. It is another instance where Putin et al attempt to exert total control, at the risk of a complete loss of control if things go wrong.

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4 Comments »

  1. It’s pretty obvious, when there is a market panic, you can limit its impact but restricting information about the panic. The tactic is as old as the world and it has actually worked on many occasions.

    Comment by Russian Cruises — October 24, 2008 @ 9:07 am

  2. Today’s Gazeta.ru published an interesting account talking about the worst case scenarios for Russia. Here is an excerpt:

    На сегодняшний день 24 октября 2008 года мы имеем в лучшем случае $500 млрд формальных валютных резервов Банка России, из которых $150-160 млрд (то есть треть!) уже фактически проданы. Итого валюты у нас $350 млрд.

    Вычтем отсюда уже принятые и вступившие в силу антикризисные законы. Напомню, 500 млрд рублей – субординированный кредит Сбербанку и $50 млрд ВЭБ (и, вероятно, тому же Сбербанку) на замещение внешних кредитов российских компаний. Еще 4 млрд евро пообещали Исландии. Все эти суммы формально не уменьшают объем международных резервов, это же просто их размещение, да еще с неплохими процентами – по сравнению с американскими гособлигациями. Но фактически этих денег нет.

    Итого из $500 млрд у Банка России в распоряжении остается только половина – $270-280 млрд. А тает сейчас эта половина со средней скоростью $75 млрд в месяц ($15 млрд в неделю – прямые продажи и на $15 млрд в месяц – фактические продажи Банка России).

    На сколько месяцев хватит валютных резервов? С такими темпами в феврале 2009 года резервов не останется (при сохранении формального их уровня в $250-300 млрд).

    Что это значит? А это значит, что в январе будет обвал курса рубля.
    Не до 40, до 60-90 рублей за доллар.

    А если Банк России отпустит доллар раньше, чтобы сохранить валютные резервы – это только ускорит бегство из рубля и рублевых активов и нас не спасет.

    Что такое падение курса рубля на нашем потребительском рынке, на 50% состоящем из импорта? Ведь импорт-то станет дороже в 2-3 раза! Инфляцию будет не сдержать ничем.

    Возникает вопрос: а там, наверху, считать умеют?

    What does it say? Well, of the 500 billion dollar reserves, if you start subtracting all the monies already committed, owed and now being spent, you have $270-280 billion left. Now, the reserves are being spent even faster to protect the ruble: a rate of $75 billion per month. This means the reserves will last until February 2009 at best. What will this mean? According to Gazeta.ru, in a worst case scenario, this will push down the ruble not only to 40 rubles to the dollars, but even farther to 60 or 90 rubles to the dollar. This of course presumes that the Central Bank will fight down to the last dollar to protect the ruble. If it gives up sooner to keep some dollars and euros in reserve, then the crash of the ruble will happen sooner, rather than later.

    The final sentence is telling: “A question arises, there, at the top [what goes without saying is Putin and Medvedev], do they know how to count?”

    The only somewhat optimistic scenario would be if oil were to go back to somewhere between $70 and $90 a barrel according to Gazeta.ru. Even then, they council their readers: “И тем не менее. Хватит иллюзий, откроем глаза.” My translation: “Nevertheless, enough with the illusions, let’s open our eyes!” They then review the dangers of Russian companies defaulting on their loans later this year.

    Finally, this article does reinforce what the Streetwise Professor is saying in this post. They write:

    “Самая главная опасность сегодня – это самоуспокоенность, дистанция между реальным положением дел и представлением о них у наших экономических властей и экономической элиты.”

    My translation: “The premiere danger today is complacency [“self-calming” i.e. the Alfred E. Neumann approach], the distance between reality and the perception of reality by our economic rulers and elite.”

    They conclude thus:

    “Только честная, прозрачная, предсказуемая, публичная и ответственная политика может удержать рынки и людей от паники, Россию – от экономической катастрофы.
    Что будет в противном случае, мы уже проходили. Ровно 10 лет назад.”

    My translation: “Only honest, transparent, predictable and responsible politics can save the market and the populace from panic, [and] Russia from economic catastrophe. What will happen in the opposite case, [well] we have already experience that, exactly 10 years ago [i.e. the 1998 default.]

    Source: http://gazeta.ru/comments/2008/10/24_a_2864133.shtml

    Comment by Michel — October 24, 2008 @ 9:23 am

  3. RusCruises–I agree it’s a tried and true method. I agree that “it has worked on many occasions.” The problem is, that there are many occasions where it hasn’t worked. My point is that this is high risk strategy, when it works the payoffs are very good, but when it doesn’t, the results are catastrophic. It is a highly brittle strategy, which is of a piece with much of Putin’s method. And, of a piece with much late-Soviet policy. Go figure.

    Your website is intriguing, btw. Do you organize cruises, or is it merely a hobby/sporting interest?

    The ProfessorComment by The Professor — October 24, 2008 @ 10:45 am

  4. RusCruises–further my last; I noticed I used the phrase “cruise along pretty well.” Did you find the site by googling “russia cruise”? LOL.

    The ProfessorComment by The Professor — October 24, 2008 @ 10:48 am

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