Evgeny Kogan: calls for a weaker ruble raise questions about Russia's economic model

Calls to weaken the ruble in order to increase the competitiveness of Russian products in foreign markets raise unpleasant questions about the country’s economic development model. Investment banker Evgeniy Kogan wrote about this in his Telegram channel.

He commented on a study by the Institute for Integrated Strategic Studies (ICSI), whose analysts calculated the ruble exchange rate beneficial for specific industries.

It turned out that car tire manufacturers need a dollar at 103.8 rubles, light commercial vehicles at 104.3 rubles, truck tractors at 113.9 rubles, and grain harvesters at 116.7 rubles. On average, for mechanical engineering you need an exchange rate higher than 115 rubles per dollar.

Kogan recalled that for many years in Russia there have been calls to develop its industry, increase import substitution, move away from dependence on raw materials and increase non-resource exports. However, against this background, a “small and very unpleasant question” arises.

“How exactly are we going to do this with a strong ruble? Especially if at the same time we have an expensive loan, sanctions costs, expensive logistics and problems with international payments,” the expert asked. At the same time, the collapse of the ruble exchange rate, he noted, will lead to a rise in inflation due to higher prices for imports, including components and equipment, a decrease in the purchasing power of the population and the preservation of a high key rate.

That is, exporters need one ruble exchange rate, importers need another, the population needs a third, the Ministry of Finance needs a fourth, and the Bank of Russia generally does not want the ruble exchange rate to jump from side to side, writes Kogan. But no one can name a course that would suit everyone. Therefore, the question is not how much the ruble is worth, but in the economic model itself.

If the construction of an export-industrial economy is underway, then the problem of competitiveness must be solved. Devaluation of the national currency is the easiest way, but far from the most pleasant.

“Because if the only way to make a domestic combine harvester competitive is the dollar at 116.7 rubles, then perhaps it’s not just the exchange rate that needs to be discussed. Perhaps you should ask yourself: why is this combine uncompetitive without such a course? This, in my opinion, is a much more interesting question,” concluded the investment banker.