.Moscow abandons bail-outs for bank aid
Russia signalled a change in its policies to fight the financial crisis on Wednesday, indicating that it would switch from bailing out individual companies to supporting the economy through the banking sector.
Moscow also plans huge budget cuts in an attempt to limit its fiscal deficit – rejecting pressure to follow the US and other western countries to try to stimulate the economy with a big boost in public borrowing.
The proposals suggest that Moscow is losing hope it can stave off the crisis with public spending and is instead battening down the hatches for what might be a prolonged recession.
The plans also indicate that the authorities are not giving in to public demands for a quick-fix response and are ready to resist pressure for money from cash-strapped oligarchs.
The news came amid mounting economic gloom in Russia and eastern Europe, with Fitch, the rating agency downgrading Russian sovereign debt, the International Monetary Fund warning of serious difficulties in Ukraine, and currencies plunging from Poland to Kazakhstan.
Russia’s planned policy change was revealed by Igor Shuvalov, the first deputy prime minister, who said the government was deliberately choosing to allow gross domestic product growth to fall to zero or below in 2009 to stabilise the economy and maintain foreign exchange reserves. Moscow was rejecting the advice of those economists who had suggested using the reserves to finance a budget deficit of 10 per cent of GDP to promote growth, Mr Shuvalov told investors at a closed-door meeting in Moscow.
According to those present, the deputy prime minister also said the state would invest “several percentage points of GDP” in strengthening the banking sector, covering “possible future losses” and supervising a consolidation plan that would see the number of banks cut from 1,100 to 500. Separately, Alexei Kudrin, the finance minister, confirmed during a visit to London that the state was preparing to inject $40bn (€31bn, £28bn) capital into banks provided that the money was channelled into the real economy. This would follow last year’s Rbs960bn package of subordinated loans.
Mr Shuvalov made clear some key industrial companies would continue to get priority, headed by military enterprises, Gazprom, the gas monopoly, electricity groups and the state railways. This is a far more tightly focused target than the previously announced list of 295 industrial companies deemed worthy of financial support that included oligarch-led groups such as Rusal, the aluminium company, and Norilsk Nickel, the metal combine.
While more loans to oligarchs are not ruled out, they are no longer in favour. Mr Shuvalov suggested that the state should not have lent $4.5bn to Rusal, Oleg Deripaska’s aluminium group, on the security of its 25 per cent stake in Norilsk Nickel, the metals company, when it was clear these shares were worth only $1.5bn.
In efforts to enhance its regional superpower role, Russia announced plans for a fund to support its ex-Soviet neighbours and other allies, which could total more than $10bn, including $3bn already pledged. It was agreed at a regional summit in Moscow hosted by president Dmitry Medvedev and attended by the leaders of Belarus, Kazakhstan, Kyrgyzstan and Tajikistan.
Meanwhile, Ukraine is having difficulties sticking to a reform plan agreed last year with the International Monetary Fund as part of its $16.5bn rescue package. A senior IMF official visiting Kiev warned of “serious problems” and concern over failure to implement loan conditions, including a social spending cuts and a zero-deficit budget.
FT
Moscow also plans huge budget cuts in an attempt to limit its fiscal deficit – rejecting pressure to follow the US and other western countries to try to stimulate the economy with a big boost in public borrowing.
The proposals suggest that Moscow is losing hope it can stave off the crisis with public spending and is instead battening down the hatches for what might be a prolonged recession.
The plans also indicate that the authorities are not giving in to public demands for a quick-fix response and are ready to resist pressure for money from cash-strapped oligarchs.
The news came amid mounting economic gloom in Russia and eastern Europe, with Fitch, the rating agency downgrading Russian sovereign debt, the International Monetary Fund warning of serious difficulties in Ukraine, and currencies plunging from Poland to Kazakhstan.
Russia’s planned policy change was revealed by Igor Shuvalov, the first deputy prime minister, who said the government was deliberately choosing to allow gross domestic product growth to fall to zero or below in 2009 to stabilise the economy and maintain foreign exchange reserves. Moscow was rejecting the advice of those economists who had suggested using the reserves to finance a budget deficit of 10 per cent of GDP to promote growth, Mr Shuvalov told investors at a closed-door meeting in Moscow.
According to those present, the deputy prime minister also said the state would invest “several percentage points of GDP” in strengthening the banking sector, covering “possible future losses” and supervising a consolidation plan that would see the number of banks cut from 1,100 to 500. Separately, Alexei Kudrin, the finance minister, confirmed during a visit to London that the state was preparing to inject $40bn (€31bn, £28bn) capital into banks provided that the money was channelled into the real economy. This would follow last year’s Rbs960bn package of subordinated loans.
Mr Shuvalov made clear some key industrial companies would continue to get priority, headed by military enterprises, Gazprom, the gas monopoly, electricity groups and the state railways. This is a far more tightly focused target than the previously announced list of 295 industrial companies deemed worthy of financial support that included oligarch-led groups such as Rusal, the aluminium company, and Norilsk Nickel, the metal combine.
While more loans to oligarchs are not ruled out, they are no longer in favour. Mr Shuvalov suggested that the state should not have lent $4.5bn to Rusal, Oleg Deripaska’s aluminium group, on the security of its 25 per cent stake in Norilsk Nickel, the metals company, when it was clear these shares were worth only $1.5bn.
In efforts to enhance its regional superpower role, Russia announced plans for a fund to support its ex-Soviet neighbours and other allies, which could total more than $10bn, including $3bn already pledged. It was agreed at a regional summit in Moscow hosted by president Dmitry Medvedev and attended by the leaders of Belarus, Kazakhstan, Kyrgyzstan and Tajikistan.
Meanwhile, Ukraine is having difficulties sticking to a reform plan agreed last year with the International Monetary Fund as part of its $16.5bn rescue package. A senior IMF official visiting Kiev warned of “serious problems” and concern over failure to implement loan conditions, including a social spending cuts and a zero-deficit budget.
FT
posted by madtom at 10:15 PM
0 Comments:
Post a Comment
<< Home