Igor Yurgens gave an interview to the Financial Times in which he mentioned that Russia’s GDP could contract by as much as 10% this year.  This has led many Russian media to conclude that the Russian government is masking the true scale of the crisis. Today, in an interview with BFM.ru, Igor Yurgens spoke of the possibility of widening the duel currency basket corridor and explained how plans to pull the United States out of its crisis could negatively affect Russia.

- In the interview in the Financial Times you said that, out of all the possible scenarios, the Russian government is considering a pessimistic one in which GDP contraction will reach 10% this year.  Today, Alexei Kudrin announced a marked reduction in federal budget revenues and a simultaneous decrease in revenues from imports and exports.  Does this mean that the pessimistic prognosis will become a reality in the near future?

- I don’t think so, and I hope not. Like a good risk manager, the government must calculate all the different scenarios of how events could develop. At the start of the year, these scenarios started at 3% GDP growth, but under the current conditions, this is looking more and more unlikely; more probable appears to be the forecast I made. I sincerely hope that the latter scenario does not come about. Our reserves rapidly being used up and Deputy Prime Minister Alexei Kudrin’s announcements of a possible increase in borrowing [on the internal market] both show how the external situation is difficult. What’s needed is a whole array of measures for social support for the unemployed, including by the classical method – public work projects. And to use the reserves that were not used during brighter times. We need to consider every scenario and have a war plan for the crisis even for a worst-case scenario. This is absolutely necessary. And it has been done.

- Relying on Kudrin’s data, what kind of GDP growth can be forecast?

- I can’t come up with any figures because there are too many variables. Such variables include the Chinese economy, prices on oil, gas and metals, and the global financial system. No one can calculate GDP at the moment, or a fair price for the ruble - it will establish itself only under the influence of these and other factors. I gave the full range of possible scenarios - from the very worst to the very best. I am sure the government will be able to make use of this range.

- And what is that range, specifically?

- From GDP falling 10% to rising 3%
  - Today the ruble fell again and there is less than one ruble to go to hit the upper currency corridor limit. What is next for the ruble?

- That’s difficult to say. It’s a political decision: either we continue to support the ruble - lowering our reserves, or we widen the corridor. The choice is a simple one. The decision will be made at the highest political level.

- So, a future widening of the corridor is possible?

- Why not, if we need to keep our reserves, including in the case we talked about [GDP falling 10% - BFM.ru]?
- What conditions will be needed to achieve a 3% rise in GDP?

Oil prices need to exceed $50 per barrel; the global financial system must overcome the crisis and start providing cheap credit to Russian corporations at interest rates of LIBOR +2-3%, not like now; and China’s GDP needs to keep growing at 6-8%. If at least these three are present we have a good chance.

- Barack Obama has stated that the US budget deficit will remain. What will this mean for Russia? Will the Central Bank invest in American securities?

- The Central Bank will make its own decisions. But conservative investors, in case of a reduced deficit, would have invested, in particular, in developing markets, including Russia. The deficit in the United States will be maintained by continual emissions of government bonds. A conservative global investor looking for reliable and long-term investments will for the time being invest in US securities and other instruments, draining liquidity, in particular, from our market. This negative factor is a kind of protectionism for the US economy. We need to talk about this. I think that at the G20 meeting in April Dmitry Medvedev and Barack Obama and representatives of the financial sector of America will definitely discuss this. Russia needs more creative solutions.

- What will the American bonds be paid with?

- The United States still has the good fortune of producing 20% of what the entire world produces.

- Many experts expect that America will get through the crisis the quickest, dragging along behind it, among others, Russia, and that the crisis for Russia will end in the first half of 2010. What do you think about such expectations?
 
- That is a very optimistic prognosis. But it’s not only the American economy that will be doing the dragging! Our trade turnover [with the US] stands at 27 billion dollars - the same as with Belarus. But in terms of the overall improving of the situation, the US economy is very important. Of equal importance are the economies of China, India, Brazil and other developing countries.

- Kudrin has announced that in 2009 two trillion rubles will be taken from the reserve fund and borrowing on the internal market will increase. But the ruble will become stable again only after one and a half years. How do you evaluate the effectiveness of such an anti-crisis policy of the government?

- This is not a government anti-crisis policy, it is a statement of facts. I hope it will turn out to be so. But there are a large number of fluctuating factors that will influence all this, as I mentioned earlier.

Interviewed by Yana Milyukova
This interview appeared in BFM.ru on January 30, 2009