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Glazyev, Kotegawa Warnings Publicized in Russia, as Central Bank Drastically Hikes Rates in Attempt To Defend Ruble

Dec. 15, 2014 (EIRNS)—"Japanese Advise Putin to Make Some Arrests" and "Kotegawa: Don’t Raise Rates, Jail Speculators," were headlines on some of the dozens of articles appearing in Russian media last week, about a Dec. 9 session of the Moscow Economic Forum (MEF). The conference of the MEF, which was set up several years ago as a less foreign-corporate-dominated alternative to the annual St. Petersburg International Economic Forum, was titled, "What Is the Central Bank for Russia: Friend of Foe?" Daisuke Kotegawa, director of research at the Canon Institute for Global Studies and former Japanese Treasury official and IMF executive director for Japan, was the foreign guest speaker. Academician Sergei Glazyev, an adviser to President Vladimir Putin, keynoted the meeting with a scathing follow-on to his recent, sensational article, "U.S. Sanctions and the Bank of Russia: a Double Blow against the National Economy."

Glazyev argues that the Central Bank, with its declared battle against inflation, is strangling the already credit-starved Russian economy. He calls for capital controls and the denomination of foreign trade in rubles, as well as earmarked Central Bank lending for productive investment an idea repeated by Putin in his Dec. 4 annual Message to the Federal Assembly. But, reports vestifinance.ru, Deputy Chairman of the Central Bank Xenia Yudayeva (an MIT PhD in mathematical economics) does not agree with Glazyev’s recommended measures, which she objects "would bring isolation from the Western world." And major banks, according to Moscow sources, continue to funnel the funds they borrow from the Central Bank not into productive investment, but onto the currency markets.

MEF co-chairman Konstantin Babkin, an agricultural implements producer who opposes radical free trade and heads a political party, the Party of the Cause, said at the meeting that CBR head Elvira Nabiullina’s rate hikes, meanwhile, had led to business borrowing rates of 12 or 15 or 20%, with which it is impossible to make any long-term investments. As several participants pointed out, the rate policy undercuts Putin’s call in the Message, for measures to boost Russian small and medium-sized businesses so they can produce for import substitution, in the face of the sanctions and the plunging ruble.

Kotegawa, whose presentation was published in full by vestifinance.ru and extensively quoted elsewhere, reviewed the experience of Japan, contrasting it with that of Thailand, during the 1997-1998 currency crisis. The special guest cited an instructive story, reported agronews.ru, linked with Babkin. In 1998, the Bank of Thailand raised its key rate to 25% per annum and kept it there for 18 months, resulting in the destruction of the nation’s industry as a whole. Glazyev made the same warning, for Russia today. Kotegawa contrasted the situation in Japan at that time, where derivatives positions were wound up over a weekend, and speculators went to prison. In reply to Babkin’s question about what the mission of the Central Bank of Japan is, Kotegawa replied, "The development of the country’s industry." Commented agronews.ru, "That says it all." Economist Mikhail Delyagin described Nabiullina and the Central Bank as part of a liberal clan, which is implementing policies in the interests of global business, and against Russia.

Dec. 16 began with an after-midnight announcement by the Central Bank of a drastic increase of the key rate, to 17%, a jump of 6.5 percentage points! "In effect, this means a ban on lending," one observer in Moscow put it.