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Chernyaev Sergey Ivanovitch, Kaluga Branch Bauman Moscow State Technical University, the Faculty of Fundamental Sciences E-mail: [email protected] Goreeva Nadezhda Mikhaelovna, Kaluga Branch RSAU MAU n. a. K. A. Timiryazev,
the Faculty of Economics E-mail: [email protected] Demidova Larisa Nikolaevna, Kaluga branch Financial University at the Government RF, the Faculty of Financial and Economic E-mail: [email protected] Ogloblin Igor Yuryevich, Director of the Company, Ottawa, Streamline Through Co E-mail: [email protected]
The fractal nature of the Russian financial system during crisis
Abstract: This study examines the fractal nature of most socio-economic phenomena through the examples of developed countries and Russia, and displays the need to identify the perspectives of evolution processes to prevent social and economic collapses. During the financial crisis, the reduction of economic stability of the Russian economy led to shrinkage of GDP, curtail in economic aid of the banking sector to the real sector of the economy, with the priority as a sole exception being given only to the natural resources sector. The high tax burden and decline in the credit resources allocated leads to stagnation and closings in the small business sector. The article attempts to summarize the set of anti-crisis measures needed to be taken by the Russian government.
Keywords: fractal nature of the global financial crisis, the causes and consequences of instability in the world economy and the Russian economy, the ways out of the crisis for Russia; foreign experience of overcoming the crisis.
The financial crisis showed that the formation of an ges. Sharpness and intermittence in their run appear to
economy cannot develop along an absolute increasing be a typical trend (Fig. 1).
linear function. However these kinds of cyclical process- This means a high probability of significant and
es for institutions of market regulation are not peculiar. unpredictable fluctuations in the market variables,
In the dynamic series, according to main economic and and those fluctuations are capable of undermining
financial indicators the development itself has no con- financial stability, especially in countries that have
stancy or laws of similarity, thus it could be considered in unstable economies. Under conditions of instability and
terms of the fractal properties of the given phenomena overvaluation of financial markets, as well as the creation
and processes. For example, studies of the financial mar- of stock bubbles and high debt burden in developed and
ket have shown that the statistical distribution of return developing countries — governments cannot develop
on financial assets is not Gaussian (normal), but is a Par- any effective measures to influence the economy in order
eto distribution, which values have infinite variance and to eliminate disparities and occurrences of crises.
significant deviation of values ± 3c. The fractal nature In the years 2011-2012, the European Central Bank
of most socio-economic phenomena is manifested in its conducted a significant money emission, which in its
own constant progress, because the very process of evo- turn has to compensate for a declining demand.
lution of such systems is of a dual essence self-similar The economic system itself, with its presently
transitional condition-process. The difficulty in review existing features is not capable of steady upward
and assessment of these processes stems not only from development. The strategy and financial regulatory
the complexity of the selection of functions, but also mechanisms are not changing and are This measure
from the synergy itself of the system. For this form of was supposed to prevent a deflationary collapse of the
fractal distributions the high peak and fat tails are typical, financial system similarly to measures undertaken in
they are caused by a minor amount of substantial chan- the U. S. to stimulate the consumer market. However,
the formation of superstructures in banking of EEC and the U. S. has no creative power in principle. When forming their monetary policy, the central banks of the developed and developing countries do not have an effective management and have not adopted any measures to combat the crisis. The authorities, who 88
should have been providing monetary regulation, did not find adequate crisis management techniques. Developing countries, including Russia, have become more vulnerable because of their economic dependency on many partners who participate in international monetary and credit relations.
Fig.1. Dynamics of oil and grain production in the world
Thus, the G-20 countries, which generate up to 90% of the global GDP should in the near fUture develop new mechanisms that ensure the macroeconomic balance not only for the interdependence of the existence of sectors and markets, but also to secure the balance of economic processes. From this perspective, multi-directional dynamics of majority of elements of the system generate disequilibrium and imbalances in the countries' economies. Therefore, the state of the economic system which can be considered balanced is when a certain ratio of its elements counteracts the emergence of turbulence. In this sense, the manifestation of imbalance, in particular, appears as a multidirectional dynamics in the value of money in the domestic and foreign economies, i. e. the combination of inflation with the growth in the exchange rate. Then the domestic interest rate rises and it becomes profitable for corporations to borrow abroad. For example, in Russia in 2008, this led to a sharp rise in foreign corporate debt — up to 454.8 billion dollars (including the banking sector — up to 191.3 billion U. S. dollars). A sharp reduction of the so-called "financial cushion" in a form of the future generations fund and the reserve fund did not allow for the financing of investment projects aimed at the development of market infrastructure and demand. Russia's low GDP growth is largely due to an increase in consumer demand- not for domestic
goods, but for imports. In the EU the rate of decline in 2012 was negative 0.3%, and in the CIS countries (except Russia) the increase was insignificant — 3.8% [2]. According to Rosstat [8-9], in 2012 the domestic economy was able to grow by 3.4%, when compared to 2011, with the GDP deflator of 108% [7]. According to global financial centres, in 2012, Russia ranked 39th out of 62 states. According to the report on the financial development for the year 2012 prepared by the World Economic Forum (WEF), the main problems of the Russian financial system are the low availability of financing for businesses (Russia is in 53rd place), an unfavorable and worsening regulatory environment (59th place), an underdeveloped banking sector (58th place), a low level of stability of the financial system (41th place) due to the situation in the banking sector [1]. Dependency on oil and gas revenues and an coincidentally unfavorable environment; Russia's entry into the WTO; the ineffective implementation of ongoing reforms; a high burden on the budget due to the implementation of large-scale projects, both within the country and abroad are all syn-ergistically negative and aggravating circumstances for the country's economic development.
The country achieved success in spending its budget money on projects that neither bring any income nor increase social guarantees to its population. According
to the expert assessment of the Accounts Chamber of the Russian Federation, the total expenditures of the federal budget for the preparation and hosting of the 2014 Olympic Games would amount to 154 767.2 million rubles in 2012, in 2013-91 474.0 million rubles, and in 2014 -27 664.4 million rubles. In comparison, the evaluation of expenses in the federal budget to implement priority national projects in the years 2012-2014, are foreseen in the amount of 1 120.4 billion rubles, including in 2012-457.0 billion rubles (of which 33.6% will be spent on preparation for the 2014 Olympic Games), in 2013-350.1 billion rubles, or 7.7%, and in 2014 -313.3 billion [10].
During the financial meltdown in 2008, Russian companies and banks borrowed abroad 570 billion dollars, the amount being greater in comparison with all the monetary reserves of the country during the same year — $ 550 billion. With that, the interest on debt was 24%. This "expensive money" was not aimed at any specific projects and had been spent very inefficiently. With the complete funding of the federal targeted investment program in 2013, the main executives of the budget had commissioned 18 out of 978 developments planned in the same year (i. e. 1.8%). For 8 months of 2011, according to data of the Ministry of Economic Development of Russia, from the total of 2078 developments subject to completion, 52 developments were commissioned, or 2.5% [5,6]. In terms of the cost structure the largest part of funding was allocated for Rosav-todor (Federal Highway Agency) to finance the federal
targeted program "Development of the Russian Transport system (in the years 2010-2015)." In addition to direct funding of the 2014 Olympic Games, the funds of this targeted program are allocated for construction of the social and industrial complexes in the City of Sochi. At the same time, the amount of funds, provided by the Russian Ministry of Energy for activities under the federal target program "Economic and Social Development of the Far East and Transbaikal for the period to 2013." was reduced by almost 3.9 billion rubles. These funds could have been directed at strengthening the state of the energy base of the region known for its complexity in terms of climate conditions.
The spending of both the budget and commercial funds for implementation of no profitable investment projects, including those unpromising for the modernization and development of production, will lead to stagnation of the economy in the medium term. The precrisis maximum peak of economic growth will contribute to the development of the fractal properties of economic processes, consequently providing a high probability of unpredictable market fluctuations. This situation could undermine financial stability. Furthermore, inadequate market structure and poor corporate management have led to inefficiency of the one of the main engines of economic development — the national innovation system. Market disequilibrium disrupts the transformation process of income into savings, and then the latter — into investment [8]. A significant part of the innovation cost is accumulated in the natural resources sector [11].
Table 1. — Dynamics of expenditure on technological innovation and of innovation indicators, presented by sector of the Russian economy [7]
Indicator 2000 2008 2009 2010 2011 2011 relatively to 2000, (change, times)
Expenditure on technological innovation, prior to 2010 in prices of the year 1995 price level, in 2010 — in prices of the year 2000 price level, million Rub 10462,7 17143,1 21725,5 400803,8 28680,9 2,7
The share of innovative products, works and services in the total of the shipped goods, completed works and services,%
In mining, manufacturing, production and distribution of electricity, gas and water 4,4 5,1 4,6 4,9 6,1 1,4
In communication, and in activities related to the use of computers and information technology 16,9 4,2 3,8 4,7 4,8 0,3
In 2011, less than 10% of the total number of enterprises were working in the development and implementation of technological innovations (for comparison: in Germany — almost 70%, Ireland — 57%, Belgium — 60%). Regionally, only 11 regions in Russia have a comparatively high level of innovative activity (including Tomsk, Novosibirsk, the Nizhny Novgorod region, the republic of Tatarstan, etc.) [3, 4].
Investment banking is an important part of investment processes in the economy. The banking sector as the main component of financial intermediaries does not, however, play any significant role in financing and investing in manufacturers' innovation activities in most industries. In the microeconomic aspect of the course of their investment activities, commercial banks should be involved in the placement of securities of becoming privatized enterprises; they should carry out investments into the share capital in the form of shares, subdivisions, interests in the securities of companies, and should conduct constituent activities. A high proportion of speculative banking, aimed at maximizing its own margin, does not play an essential role in the financing of the processes associated with the introduction of innovations in industrial production. By way of non-investing in manufacturing, the financial sector is trying to reduce the risks associated with a reliability decrease in its activities and with the reduction of stability. There is an opinion that the investment credits in Russia have low profitability and liquidity, high risks. On the one hand such an opinion is justified by present conditions, in which domestic producers work and the financial system functions. The system of "kickbacks" and "grey" money is not included in the expenditures, but imposes an additional transaction costs on the latter. In addition, the lack of government guarantees and legal liability in the transactions with investing is dooming banks to lose money in such operations.
Disadvantages of the present business situation lead to a low entrepreneurial business activity and the outflow
of their capital abroad to be invested in a more favorable environment. This is confirmed by the data in Global Entrepreneurship Monitor (Global Entrepreneurship Monitor), the research of which puts the level of entrepreneurial activity in Russia approximately 4 times lower than that in Brazil and China, and 2-3 times lower than in Mexico, Turkey and South Africa.
Attempts to stabilize this situation by controlling inflation under such an undeveloped market infrastructure conditions, a lack of manufacturers' interest in production, and banks' speculative financing will not lead to success. Not the price increase itself, but its irregularity and unpredictability contributes to the recession of the Russian economy [2]. Reduction in inflation can cause the same harm as its increase since such an action affects debtors (they discover that they are unable to pay for such expensive high interest rates loans, which they took out based on the anticipated price raise on their production, and that price has not raised at the end). The support for high refinancing rates, as well as a high tax burden both form an unfavorable economic situation, which in turn, when coupled with a deficit of credit resources and the lack of state support for domestic producers, all lead to a crisis in almost all sectors of the economy.
Thus, stabilization and alignment of random fluctuations of major economic indicators in Russia can contribute to improving the investment climate. However, the investment component is not the only remedy to neutralize the fractal character of the country's market.
The economic policy makers should draw their attention towards market balancing and other incentives aimed primarily at the reduction of dependence on the oil and natural gas revenues, as well as at the creation of a more favourable environment. In case of an increase in pension costs and debt load, and uncoordinated actions of G8 and G20 governments to develop anti-crisis measures, there is a risk of a new cycle of crisis, overcoming which could become a challenge for the global community [2].
References:
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