Loh Hong Aun

The first solution that carry out by Central Bank Russia (CBR) is expand their
monetary policy and regulate the borrowing interest rate to be lower. It mean people
will be easier to access fund in that period and counteract the decline of rubles value.
CBR also intervened when buy the ruble on open market operation (OMO) to save the
currency. However, lower borrowing rate which mean will encourage the loans and new
money will sum in the money supply by loans. A big money supply and liquidity trap
will be found and inflation will appear. It is because in a normal economy, if the system
contain too much money, it require a regular amount of goods and services and increase
the price. Therefore, lower borrowing may lead to possibility of inflation happen. It will
be another challenge for the countrys economic.
In fact, Russias capital outflow hit the record of $130 billion in 2008 and also first
quarter of 2009 also up to $39 billion. Investors are not willing to keep Russian assets
anymore and struggled to sell it to buy dollars, yen or golf and lower the value of ruble.
To fight with it, a massive reserve which is $210 billion of dollars and euros used by
CBR to buy rubles on the OMO. With this action of CBR stabilized the value of rubles.
In my opinion, this solution is quite useful and it may absolutely solve but partially
lighten the crisis of Russia. I think this policy is not absolutely effective since even
though it can reduce the recession, but the advantage that mention above may give rise
to the inflation that also bring challenge to the country.
Second solution Russia central bank fixed the exchange rate where the central will
get involve in the issue when the exchange rate exceed or less than the limit. Fixed the
exchange rate can avert the undulation of currency. The issue of currency fluctuate may
cause the problem of frim involve in trade arise. Example like a company export its
products to US, the export would lost it competitive if the sterling appreciate rapidly
and eventually may need to stop the business. Devaluation of imported raw material
that rely by firms will cause the costs of imports raise and decrease profitability. If a
currency still stable, it could encourage the investment of in the country. As we know,
investor would prefer to invest in a stable currency compare to the uncertainty currency.
If the countrys currency is stable, it can attract more investor and improve the economy
of country.
At the period of Russia facing crisis, the FX reserves began sell by the central bank
to maintain the exchange rate and large amount of RUB liquidity into money market
and by way of state-owned banks also infused. The banking system had been stabilized
but the pressure keep increase in exchange rate and depreciate extremely. Injection of
liquidity had been essentially ceased by the CBR on February 2009, other effort such
as unofficial pressure on commercial bank, weaker USD and increased the demand of
RUB to stabilize the exchange rate. This consider as effective solution as it stabilize the
exchange rate successfully.
The third solution is restructure the loan. To escape from the crisis, non-performing
loan of country should be reduced as much as they can to prevent other problem come
together. Thence, restructure the loan such as lengthening the duration or other changes
of loans term to ensure debtor has the ability to repay the loan. This is a crucial factor
as the non-performing loan will cause the pace of economy and bring loss to country.
According to the fact, the Russian consumer spending increase continuously from
2008 to 2009. The amount of consumer spending on the 4th quarter of 2008 which is
5200.5 billion raise to 5402.1 billion which is the data of the 1st quarter of 2009. In my
opinion, although Russia get strong hit by the global financial crisis, but the effort that
enforce CBR such as the expansion of monetary policy, fixed exchange rate and
restructuring loan had partially reduced the crisis and also the burden of consumer. The
data had confirmed the truth of increase the spending of Russian consumer efficiently
and the circumstance can change the crisis of Russia.
Other solution can be recommend to Russia is the international regulations and law
should be reregulate. Russia can reform the global regulatory criterion and institute a
global Regulatory Standards Authority (RSA) to name and shame which mean control
and stop the illegal procedure to be continue. RSA would support the global financial
regulation and proposed will be consolidated and standard currently. All companies
should be request by the global company law to take into account the social externalities
which show an intense signal that unethical behavior will not be accept. The
environment performance in the rating companies should be consist in the rating
agencies demonstratively.
Besides the solution of fixed exchange rate, Russia also may implement devalue as
a solution. It reveal that lower the exchange rates value of the country. There is an
example like in 1992, United Kingdom was Exchange Rate Monetary (ERM) and the
value of Pound was result in semi-fived against the D-Mark. However, the changes
appear when the UK government left the ERM and allow the fall of pounds value.
Eventually, the exports become cheaper which cause by the devaluation of the exchange
rate. Therefore, it may be another effective solution for Russia to boost their economy
and break away from financial crisis.
Last but not least, a plan that named Trouble Asset Relief Program (TARP) from
United State which contain the process of purchasing troubled, depressed asset or
mortgage backed securities from the bank for the purpose of not only minimize the
uncertainty of market and also bring liquidity to the market. Banks are not allow to
reimburse the losses that occurred on the depressed asset in this asset. However, will
expect the price will be maintain, stabilize and eventually increase the value. In my
opinion, it will be a functional solution for Russia when confront with the global
financial crisis.
(1,024 words)
References
1. Conrad, J., Lanzeni, M.L., Nestmann, T. and Walter, N., 2009. Russia in the
financial crisis and beyond. Frankfurt: Deutsche Bank Research, viewed 22th July
2017, <https://www.dbresearch.com/PROD/DBR_INTERNET_EN-
PROD/PROD0000000000251634/Russia_in_the_financial_crisis_and_beyond.PD
F>.
2. Goldman, D., 2009. Troubled Asset Relief Program, viewed 22th July 2017,
<http://www.netadvisor.org/wp-content/uploads/2017/01/2009-11-16-Follow-the-
money_-Bailout-tracker-CNNMoney.pdf>.
3. Bernanke, B.S., 1983. Non-monetary effects of the financial crisis in the
propagation of the Great Depression, viewed 23th July 2017,
http://www.nber.org/papers/w1054.pdf>.
Appendix

Appendix 1