For the second time in less than a decade, Elvira Nabiulina has run Russia’s economy through treacherous waters.
In 2014, facing the collapse of the ruble and rising inflation after just one year as head of Russia’s Central Bank, Ms. Nabiulina forced the institution to enter the modern era of economic policy by raising interest rates sharply. The politically risky move has slowed the economy, subdued rising prices and earned it an international reputation for making difficult decisions.
In a world of central bankers, among technocrats tasked with keeping prices under control and financial systems stable, Ms. Nabiulina has become a rising star in the use of orthodox policies to run a rebellious economy, often tied to the price of oil. In 2015, she was named Central Bank Governor of the Year by Euromoney magazine. Three years later, Christine Lagarde, then head of the International Monetary Fund, said Ms. Nabiulina could make “central banking sing.”
It is now up to Ms. Nabiulina to steer the Russian economy through a deep recession and keep her financial system intact, cut off from much of the rest of the world. The challenge comes after years of strengthening Russia’s financial defenses against a series of powerful sanctions imposed in response to President Vladimir Putin’s geopolitical aggression.
It is leading the extraordinary recovery of the Russian currency, which lost a quarter of its value in the days following the February 24 invasion of Ukraine. The central bank has taken aggressive measures to prevent large sums of money from leaving the country, halting market panic and halting the potential movement of the banking system.
In late April, Russia’s parliament confirmed 58-year-old Nabiulina as president for another five years after Putin nominated her for a third term.
“It is an important beacon of stability for Russia’s financial system,” said Elina Ribakova, deputy chief economist at the Institute of International Finance, an industrial group in Washington. “Her reassignment has a symbolic value.”
Ms. Nabiulina in 2019 with President Vladimir Putin. She has been a high-ranking official in his regime for two decades. Credit … Satellite, through Reuters
Prescribing a heavy drug
In her last crisis, she turned the catastrophe into an opportunity. Russia was rocked by two economic shocks in 2014: a collapse in oil prices – caused by a jump in US production and Saudi Arabia’s refusal to cut production, which reduced Russia’s oil revenues – and economic sanctions imposed after Russia annexes Crimea.
The rolls collapsed. Ms. Nabiulina abandoned traditional policies – such as spending huge sums of foreign exchange reserves to maintain the exchange rate – and shifted the bank’s focus to managing inflation. It raised interest rates to 17 percent, and they remained relatively high for years.
It was a painful readjustment and the economy shrank in a year and a half. But by mid-2017, it had managed to cope with something that seemed exaggerated just a few years earlier: inflation had fallen below 4 percent, the lowest in the country in the post-Soviet era.
“She was the very model of a modern central banker,” said Richard Portes, a professor of economics at London Business School who shared panel sessions with Ms. Nabiulina at conferences.
“She was doing what she had to do,” he said, even when it was politically difficult. “If you want a demonstration of the alternative,” Mr Portes added, “you only have to look at Turkey,” where years of political intervention at the central bank have allowed inflation to spiral out of control, reaching 70 percent this month.
Under Ms. Nabiulina’s leadership, the central bank continued its modernization efforts. He improved his communication by scheduling key policy decisions, providing policy guidance, meeting with analysts and presenting interviews with reporters. Russia’s central bank has come to be considered the country’s key economic brains, attracting respected private sector economists.
At its annual conference in St. Petersburg, the central bank attracted economists from around the world, and Ms. Nabiulina attended international meetings, including the Federal Reserve’s annual symposium at Jackson Hall in Wyoming and regular meetings for central bankers held by Bank for International Settlements in Basel, Switzerland.
She is described as representative, purposeful, always well-prepared, a defender of market forces (despite her Soviet-era economic education) and a fan of history and opera. Born in Ufa, a city more than 700 miles east of Moscow, known for its heavy industry, she studied at Moscow State University, one of the country’s most prestigious schools, and is married to a fellow economist.
Ms. Nabiulina at a meeting of Group 20 finance ministers and employees of the Central Bank of Japan in 2019. Credit … Kim Kyung-Hoon / Reuters
Cleaning the banks
In addition to her achievements in the field of monetary policy, Ms. Nabiulina was praised for carrying out a comprehensive cleansing of the banking industry. In her first five years at the bank, she revoked about 400 banking licenses – essentially closing a third of Russia’s banks – in a bid to destroy weak institutions that carried out what she called “suspicious transactions”.
This was considered a bold crusade: in 2006, a central bank employee was killed who launched a vigorous campaign to close banks suspected of money laundering.
“Fighting corruption in the banking sector is a job for many brave people,” said Sergei Guriev, a Russian economist who left the country in 2013 and is now a professor at Sciences Po in Paris. However, he called her program wrong, as it is largely limited to private banks. This has created a moral hazard problem that has left state-owned banks comfortable to take many risks with government protection, he said.
Ms. Nabiulina’s integrity has never been questioned, added Mr. Guriev, who has known her for 15 years. “She has never been suspected of corruption.”
The headquarters of the Central Bank in Moscow. Under Ms. Nabiulina, the share of dollars in her reserves fell to about 11 percent. Credit … The New York Times
Construction of a fortress
Ms. Nabiulina has been a senior official in Mr Putin’s regime for two decades. She was his chief economic adviser for a little over a year before becoming chairman of the central bank in June 2013, already being minister of economic development while Mr Putin was prime minister.
“She has great confidence in the government and the president,” said Sofia Donets, an economist at Renaissance Capital in Moscow who worked at the central bank from 2007 to 2019. In recent years, it has become clear that all financial issues have been delegated. of the central bank, she added.
This confidence was built while Ms. Nabiulina supported the Russian economy against Western sanctions, especially given the long range of US sanctions. In 2014, the United States cut off many large Russian companies from its capital markets. But these companies had large amounts of foreign currency debt, which raised concerns about how they would service their debts.
Ms. Nabiulina set out to extort as much US dollars from the economy as possible, so that companies and banks would be less vulnerable if Washington further restricted access to the use of dollars from the country.
It also shifted the bank’s reserves, which rose to more than $ 600 billion, to gold, the euro and the Chinese yuan. During her tenure, the share of dollars in reserves fell to about 11 percent from more than 40 percent, Ms. Nabiulina told parliament last month. Even after the sanctions froze the bank’s foreign reserves, the country has “sufficient” reserves in gold and yuan, she told lawmakers.
Other protections against sanctions include an alternative to SWIFT, the global banking system developed in recent years. And the bank has changed the payment infrastructure to process credit card transactions in the country, so that even the release of Visa and Mastercard will have minimal effect.
In March, Bloomberg News and The Wall Street Journal, citing unidentified sources, reported that Ms. Nabiulina had tried to resign following the invasion of Ukraine and had been rejected by Mr Putin. The central bank rejected these reports.
Last month, the Canadian government imposed sanctions on her for being a “close associate of the Russian regime.”
Mr Guriev, who has not been in contact with Ms Nabiulina recently, said he believed she could stay in her role because she could be convinced that if she withdrew, inflation would spiral out of control and ordinary Russians would be even more severely injured.
“However, I think it actually supports Putin’s military economy,” he added. “She’s actually doing something she didn’t sign for.”
The offices of the state Sberbank in Moscow. When Ms. Nabiulina revoked hundreds of banking licenses at the beginning of her term, state-owned banks were largely spared. Credit … New York Times
Military economics
After spending nearly a decade building a reputation for suppressing inflation and pursuing a traditional monetary policy in Russia, Western financial sanctions imposed after the invasion of Ukraine quickly forced her to abandon her policy. It more than doubled the interest rate to 20 percent; uses capital controls to severely restrict cash flow outside the country; suspend stock exchange trading on the Moscow Stock Exchange; and loosened regulations for banks so that lending is not delayed.
These measures stopped the initial panic and helped restore the ruble, but capital controls were only partially lifted.
Russia is now entering a sharp recession with a closed economy. On April 29, the bank lowered the interest rate to 14 percent, a sign that it is moving from suppressing financial …
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