The man Vladimir Putin is relying on to end the deepest currency crisis of his presidency has seen worse.
As deputy head of the central bank after the Soviet Union fell in 1991, Dmitry Tulin, then in his mid-30s, had to help organize the rollout of a dozen new currencies against the backdrop of runaway price growth across the former communist empire. Now 58, Tulin is back at Bank of Russia, this time to craft monetary policy as the ruble’s biggest retreat in 17 years shakes the foundations of a shrinking economy.
“Tulin not only knows how the monetary system works in Russia, but also how it was created during much tougher times than now -- the hyperinflation of 1992 and then a period of just very high inflation,” said Alexander Potemkin, 58, a former central bank deputy who worked with Tulin in the 1990s.
The path to Tulin’s return started when officials were preparing an emergency rate increase early last month, two people familiar with the matter said. Plunging oil prices were compounding the ruble’s decline and further choking a financial system already gasping from sanctions. The head of monetary policy, Ksenia Yudaeva, asked her boss, Governor Elvira Nabiullina, to find someone to help calm markets, the people said, asking not to be identified because of the sensitivity of the matter.
The key rate was lifted just before 1 a.m. on Dec. 16 --- to 17 percent from 10.5 percent, the biggest single increase since 1998, when borrowing costs soared past 100 percent and the government defaulted on its domestic debt.
Two days later, after the ruble fell more than 10 percent, Putin scolded the central bank for not acting more quickly. Within a month, Yudaeva, 44, was sidelined. Tulin takes over daily efforts to stabilize the ruble on Jan. 21, while Yudaeva, who earned a PhD at the Massachusetts Institute of Technology, will remain in charge of forecasting and strategy.
The Bank of Russia has struggled to adapt to the dual shocks of plummeting crude prices and the closing of U.S. and European capital markets to Russian companies in retaliation for Putin’s foray into Ukraine. It spent more than $88 billion supporting the ruble last year, eventually accelerating a move to abolish the corridor used to manage currency swings and safeguard the country’s foreign exchange reserves, which fell below $400 billion for the first time since 2009.
The closing of western markets has made it almost impossible to roll over Russia’s total foreign debt, which shrank by nearly a fifth last year to $600 billion, about 90 percent of which is held by banks and companies, according to estimates published by the central bank today.
The challenges facing Tulin’s monetary policy team are more “complex” than in previous crises and include figuring out how to start cutting rates without stoking further ruble volatility, according to Andrey Belousov, the Kremlin economic aide. Current borrowing costs make it “impossible” to do business in Russia, Belousov told reporters in Moscow last week.
Tulin was the first person Nabiullina thought of when Yudaeva, fearing market participants didn’t have faith in her, asked the governor to split forecasting and day-to-day operations, the two people said. Yudaeva didn’t answer calls to her mobile phone seeking comment. Tulin declined to be interviewed for this article.
Nabiullina, 51, was impressed by Tulin’s work as an independent director at state-run OAO Sberbank, the country’s biggest lender, after she became central bank chief in 2013, said one of the people, as well as a banker with knowledge of the issue. Nabiullina admired his resoluteness and insistence on transparency, they said.
Inside the Bank of Russia, there was only one plausible contender for the position, First Deputy Governor Sergey Shvetsov, a 17-year veteran of the institution who oversees financial markets and wanted the job, two people said. While valuing Shvetsov’s professionalism, Nabiullina wanted someone more independent to entrust with policy levers, they said.
Tulin is a maverick who can’t be pressured by the Kremlin, the government, banks or companies, the people said. In 2006, two years after returning to the regulator to oversee commercial lenders, Tulin quit in protest of his colleagues’ refusal to revoke the license of Globex, which would soon become one of the first Russian banks to fail as a result of the global credit squeeze, costing the state about $2.5 billion.
In the first week of January, when the markets were closed for Russia’s extended New Year holiday, Nabiullina met with Tulin to sound him out on the position, two of the people said. Nabiullina said she needed someone with his vast experience and proven ability to act with speed, they said.
Both Sberbank Chief Executive Officer Herman Gref, her former boss at the Economy Ministry, and Sergey Ignatiev, her predecessor at the central bank, supported the appointment, though Gref doubted Tulin would be willing to rejoin the regulator more than eight years after such a bitter falling out over Globex, according to two of the people.
After winning over Tulin, Nabiullina presented her choice to Putin, who gave his consent, the people said, disputing a report in RBC Daily on Jan. 16 that said Putin ordered Nabiullina to strip Yudaeva of her monetary policy role.
The Bank of Russia’s press service said Nabiullina sought Putin’s approval because she was required to under law. Putin’s spokesman, Dmitry Peskov, said the central bank is independent and therefore all personnel decisions belong to its governor.
After leaving the central bank the first time in 1994, Tulin served two years as Russia’s top official at the International Monetary Fund in Washington. He returned to Russia in 1996 as chairman of Vneshtorgbank, later rebranded VTB, where he worked until 1999, when he joined the European Bank for Reconstruction and Development as a senior adviser. From 2006, when he quit the Bank of Russia the second time, to 2012, he was a partner at Deloitte in Moscow.
The Bank of Russia has appointed another former 1990s central banker to start the same day as Tulin. Alexander Torshin will return as deputy governor responsible for relations with parliament and the government on Wednesday. Torshin, a member of the dominant United Russia party, has served in the upper house of parliament, the Federation Council, for the past 14 years.
When Tulin returns to the central bank in his new role this week, he’ll be faced with balancing the need to stabilize the ruble with reducing interest rates and reining in inflation, which reached 11.4 percent in December, the most among the world’s 10-biggest economies.
An even more pressing issue, though, is the need to restore the “market’s trust” in the nation’s monetary authority, said Potemkin, the former deputy central bank chief.
“He needs to create conditions for people to do business, banks to work and investors to come,” Potemkin said. “All of them need an understanding of how much the national currency costs and how much it will cost in the next few quarters. Figuring that out requires some serious practical knowledge.”
If anyone can achieve all of those things, it’s Tulin, said Georgy Matyukhin, the first chairman of post-Soviet Russia’s central bank. Tulin’s experience in banking supervision will also be an asset as the central bank continues to develop mechanisms to provide liquidity in a market shut off from the rest of the world, he said.
“He was my smartest and most capable deputy,” Matyukhin, 80, said by phone. “And he’s tenacious.”
Tulin himself, in an article for a policy journal in 2009, described his tenacity this way:
“When I was doing sports as a kid, I was taught to push through to the very end when running the distance, even if you are helplessly losing.”
(A previous version of this story was corrected to say Globex was one of the first banks to fail after the 2008 crisis.)