Whose money is more expensive in Europe?
Mikhail Demidenko
Deputy Director of the Centre for Integration Studies at Eurasian Development Bank (EDB)
Russian companies are not expected to default on currency loans.
The global financial market livened up recently: several national currencies depreciated, stock exchanges nosedived, and China (the world's second largest economy) is making its yuan a freely convertible currency.
What happens in our Eurasian space? Mikhail DEMIDENKO, Deputy Director of the Centre for Integration Studies at Eurasian Development Bank (EDB), talked about this with our reporter Alexey MIRONOV.
Q. Mr Demidenko, do EDB countries coordinate their foreign exchange policies?
A. The coordination of foreign exchange policies is the prerogative of the Advisory Committee for Macroeconomic Policy at the Eurasian Economic Commission's Board, which comprises heads of economic and financial ministries and of central (national) banks of the EEU member states. Foreign exchange policies are coordinated by heads of the member states' central banks.
Q. Can the devaluation race destroy the Eurasian Union?
A. First of all, there's no devaluation race in the EEU. The current changes in foreign exchange rates are caused by the global situation and the prices of oil and raw materials, or, in other words, external factors. The weakening of currencies is determined by economic logic of the country and not arbitrary decisions. Second, fluctuations in foreign exchange rates in the EEU markets will promote deeper coordination of foreign exchange policies in these countries. This means that they will need to agree with each other and change the rates of their national currencies with respect to the US dollar or the euro simultaneously. This will strengthen mutual trade and investment and remove imbalances in their economies.
Q. Do your analysts forecast that processes such as the impairment of the Kazakh tenge will continue in other post-Soviet countries?
A. Sharp changes in the exchange rate as it happened in Kazakhstan (A.M.: in Kazakhstan the tenge sharply fell by almost 30% in mid-August) are not expected in Russia or Belarus. The key difference is that Kazakhstan has been fixing its exchange rate with respect to the dollar for as long as it could. However, oil prices and the significant impairment of the Russian ruble with respect to the world's leading currencies made it impossible to maintain the tenge rate at the stated level any longer. The government of Kazakhstan made a correct decision to free the exchange rate. This will save reserves, improve competitiveness of the economy and balance foreign trade. Calculations showed that the tenge was significantly over-evaluated in recent time and this was the cause for its drastic, one-time adjustment.
In Russia the exchange rate was made free-floating in the autumn of 2014 and Belarus has been pursuing a rather flexible exchange rate policy since January 2015. In fact, the exchange rate there changes continuously and is linked to fundamental and speculative factors and this prevents it from significant, one-time changes.
As for the future, the EEU countries are expected to be under serious influence of oil prices and the dynamics of the Russian ruble. If it continues to weaken with respect to the dollar, the tenge and the Belarusian ruble will impair too. However, this will be a continuous, not uneven process.
Q. How did events in China (the yuan's depreciation by 2.9% in the second week of August) and Brazil (the real has lost 23.6% from the beginning of the year) affect the post-Soviet space?
A. The situation in China influences the post-Soviet space in terms of the mood of investors and global market players, and in terms of the prices of energy resources and raw materials. The depreciation of the yuan and, all the more so, the Brazil real does not have a direct effect on Russia and Belarus.
Q. What will happen if the Brent oil costs US $30-40?
A. It's very difficult to forecast. There's a perception that US $30 or $40 per barrel is on the verge of the bottom. The equilibrium price will most probably be higher.
Q. Should Russian companies which have currency debts expect a default?
A. No, they should not. Even if oil prices approximate US $40 Russian companies will manage to pay their foreign debts.
ADDITIONAL INFORMATION
Eurasian Development Bank (EDB) was established by the intergovernmental agreement of Russia and Kazakhstan on 12 January 2006. In 2009-2011 Armenia, Tajikistan, Belarus and Kazakhstan joined the bank. EDB promotes trade and economic growth in its member states and integration in Eurasia.
The Eurasian Economic Union (EEU) comprises all the EDB member countries, except Tajikistan.