I have to admit that the Russian crisis has me feeling young again — it’s back to all the old issues from the Asian debt crisis of 1997-1998, when bad things mainly happened to other countries and the discussion here was relatively technocratic; also, I was a lot younger (did I mention that?). And although it’s very serious stuff — I keep pulling myself up short when I want to use standard metaphors like an economic meltdown, because I suddenly remember that Putin has nukes — I am getting some satisfaction in trying to puzzle out the underlying issues.

Which brings me to the interesting question of Russian debt.

Obviously plunging oil prices are bad for petroeconomies. But what is making the Russian experience so dire is the linkage oil->ruble->balance sheets, because of all the dollar- and euro-denominated debt. This, however, raises several questions.

First, how did they get that debt? Here’s the Russian current account balance over the past couple of decades:

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It has been in consistent large surplus, with a cumulative surplus of more than $900 billion. Russia should not be a debtor country. It has managed this nonetheless, presumably because corporations and banks have borrowed abroad, and somehow that money has ended up invested in luxury London real estate and other things. It would be nice to have a good picture of how the flow of funds worked.

That said, at first glance the debt level doesn’t look too high. Here’s the ratio to GDP:

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The central bank helpfully points out that this is in a range the IMF considers low-risk, and there wasn’t any visible upward trend.

But watch out for that denominator. Debt to GDP was stable, but GDP was rising fast in dollar terms, not because of real growth, but because of real appreciation. Compare the actual rise in the ruble price of a dollar, which was modest until the past few weeks, with the rise that would have compensated for relative Russian inflation:

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So I would argue that Russia was in fact going rapidly deeper into debt, but that this was masked by the growing overvaluation of the ruble thanks to high oil prices. Now comes the fall, and suddenly debt looks like a much bigger issue.

And of course the ratio of debt to exports has also shot up.

I’d add a further suspicion: that the reliance on oil exports worsens the problem because ruble depreciation can’t bring about a big export response, at least in the short to medium run — not enough of a non oil base, so even a large percentage increase doesn’t do very much.

Anyway, interesting stuff. At this point the approved move is either (a) go to the IMF or (b) invade the Malvinas. Somehow, (a) doesn’t seem likely — and Putin did (b) in advance.