For the second time in less than a decade, Elvira Nabiullina is leading the Russian economy into dangerous waters.
In 2014, faced with the collapse of the ruble and soaring inflation after barely a year as head of the Central Bank of Russia, Ms Nabiullina forced the institution into the modern era of the economic policy-making by sharply raising interest rates. This politically risky move slowed the economy, kept the price spike in check and earned her an international reputation as a tough decision-maker.
In the world of central bankers, among the technocrats responsible for keeping prices in check and the stability of financial systems, Ms Nabiullina has become a rising star for using orthodox policies to manage an unruly 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 director of the International Monetary Fund, claimed that Ms Nabiullina could “blackmail the central bank”.
It is now up to Ms Nabiullina to steer Russia’s economy through a deep recession and keep its financial system, cut off from much of the rest of the world, intact. The challenge follows years she spent bolstering Russia’s financial defenses against the kind of powerful sanctions that have been brought to bear in response to President Vladimir V. Putin’s geopolitical aggression.
It guided the extraordinary rebound of the Russian currency, which lost a quarter of its value a few days after the invasion of Ukraine on February 24. The central bank took aggressive action to prevent large sums of money from leaving the country, halting a panic in the markets and halting a potential run on the banking system.
In late April, Russia’s parliament confirmed Ms Nabiullina, 58, for five more years as president after Mr Putin nominated her for a third term.
“She is an important beacon of stability for the Russian financial system.“, said Elina Ribakova, deputy chief economist at the Institute of International Finance, an industry group in Washington. “His renewal has a symbolic value.”
Prescribe a hard remedy
In her last crisis, she turned disaster into opportunity. In 2014, Russia was rocked by a double economic shock: a crash in oil prices – caused by an increase in US production and Saudi Arabia’s refusal to cut production, which weighed on oil revenues of Russia – and the economic sanctions imposed after the annexation of Crimea by Russia.
The ruble fell. Ms. Nabiullina abandoned traditional policies – such as spending large amounts of foreign exchange reserves to support the exchange rate – and steered the bank towards managing inflation. She raised interest rates to 17%, and they stayed relatively high for years.
It was a painful readjustment and the economy contracted for a year and a half. But by mid-2017, she had achieved something that seemed far-fetched a few years earlier: the inflation rate fell below 4%, the lowest in the country’s post-Soviet era.
“She was the very model of a modern central banker,” said Richard Portes, professor of economics at London Business School, who has shared panel discussions with Ms Nabiullina at conferences.
“She did what she had to do,” he said, even when it was politically difficult. “If you want a demonstration of the alternative,” Portes added, “just look at Turkey,” where years of political interference in the central bank have allowed inflation to become uncontrollable, reaching 70% this month.
Under Ms. Nabiullina’s leadership, the central bank continued its modernization efforts. He improved his communication by scheduling key policy decisions, providing policy advice, meeting with analysts and submitting to interviews with journalists. The Central Bank of Russia has come to be seen as the country’s key economic brain, attracting respected economists from the private sector.
At its annual conference in St. Petersburg, the central bank has attracted economists from around the world, and Ms. Nabiullina has attended international gatherings, including the Federal Reserve’s annual symposium in Jackson Hole, Wyoming and regular meetings to central bankers organized by the Bank for International Institutions in Basel, Switzerland.
She has been described as likeable, focused, always well-prepared, an advocate of market forces (despite her background in Soviet-era economics), 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 most prestigious schools in the country, and is married to an economist colleague.
Clean the banks
Along with her record on monetary policy, Ms Nabiullina has received praise for pursuing a deep cleanup of the banking sector. In her first five years at the bank, she revoked about 400 banking licenses — essentially shutting down a third of Russian banks — in a bid to weed out weak institutions that carried out what she called “dodgy transactions.”
It was seen as a brave crusade: in 2006, a central bank official who had launched a vigorous campaign to shut down banks suspected of money laundering was assassinated.
“Fighting corruption in the banking sector is a job for very brave people,” said Sergei Guriev, a Russian economist who left the country in 2013 and is now a professor at Sciences Po in Paris. He, however, called his program flawed because it was largely limited to private banks. This created a moral hazard problem that left public banks feeling comfortable taking a lot of risk with government protection, he said.
Ms Nabiullina’s integrity was never in doubt, added Mr Guriev, who said he had known her for 15 years. “She was never suspected of corruption.”
Build a fortress
Ms Nabiullina has been a senior official in Mr Putin’s regime for two decades. She served as his top economic adviser for just over a year before being named central bank chairwoman in June 2013, having served as economic development minister when Mr Putin was prime minister.
“She has the confidence of the government and the president,” said Sofya Donets, an economist at Renaissance Capital in Moscow who worked at the central bank from 2007 to 2019. In recent years, it was pretty obvious that all sorts of political issues in the financial sphere have been delegated to the central bank, she added.
That trust was built as Ms. Nabiullina supported the Russian economy against Western sanctions, particularly because of the long reach of US sanctions. In 2014, the United States cut many large Russian companies from their capital markets. But these companies had large debts in foreign currencies, which raised concerns about how they would repay their debts.
Ms. Nabiullina has worked to get as many US dollars out of the economy as possible, so businesses and banks will be less vulnerable if Washington further restricts access to the country’s use of dollars.
She also shifted the bank’s reserves, which have reached a value of more than $600 billion, into gold, the euro and the Chinese renminbi. During her tenure, the dollar’s share in reserves fell to around 11% from more than 40%, Ms Nabiullina told parliament last month. Even after sanctions froze the bank’s overseas reserves, the country has “adequate” gold and renminbi reserves, she told lawmakers.
Other sanctions protections included an alternative to SWIFT, the global banking messaging system, developed in recent years. And the bank has changed the payment infrastructure to process credit card transactions in the country, so even exiting Visa and Mastercard would have minimal effect.
In March, Bloomberg News and The Wall Street Journal, citing unidentified sources, reported that Ms Nabiullina tried to resign after the invasion of Ukraine, and was rebuffed by Mr Putin. The central bank dismissed these reports.
Last month the Canadian government placed it under sanctions for being a “proximity to the Russian regime”.
Mr Guriev, who has not had recent contact with Ms Nabiullina, said he thought she might stay in her role because she could convince herself that if she quit, inflation would spiral out of control and the Ordinary Russians would be more affected. seriously.
“However, I think she actually supports Putin’s war economy,” he added. “She’s actually doing something she didn’t sign up for.”
A war economy
After Ms Nabiullina spent nearly a decade building a reputation for controlling inflation and introducing traditional monetary policy to Russia, Western financial sanctions imposed after the invasion of Ukraine have left her quickly forced to abandon her favorite policies. It more than doubled the interest rate, to 20%; used capital controls to severely restrict the flow of money out of the country; close trading of shares on the Moscow Stock Exchange; and relaxed regulations on banks so that loans do not freeze.
These measures ended the initial panic and helped the ruble rebound, but capital controls were only partially lifted.
Today, Russia is entering a deep recession with a closed economy. On April 29, the bank lowered the interest rate to 14%, a sign that it was moving from suppressing a financial tornado to an attempt to minimize the prolonged impact of sanctions on households and businesses as the inflation is accelerating and companies are being forced to reinvent their supply chains. without imported goods.
Inflation has risen sharply and could reach an annual rate of 23% this year, according to central bank forecasts. The overall economy, he said, could contract by up to 10%.
“We are in an area of enormous uncertainty,” Ms Nabiullina said.
Liz Alderman contributed report.