AOK - This is a quick and useful read for a glimpse of the Russian government's current desired storyline - I'm seeing several other news & blog items out there that IMHO hint at an interest by Putin (oh please, we all know he's the only one who really counts) to try to improve international, and particularly investor/corporate, interest and get inflows going. Less sabre-rattling, more "forums", more directed press regarding economic opportunity and stability. But all a bit ham-handed, if you'll excuse my cynical eye, a bit like the old (and as far as the Japan incident goes, new again?) Chinese attempts to direct foreign commentary and opinions. Maybe the Russian regime is looking at the "New Normal" and discovering some looming issues?
Anyways, read on ,and perhaps Bill will favour us with some more snippets ..
Minister of Finance Alexey Kudrin has just delivered his address at the Russia Calling! Investment Forum today. The key takeaways from what he had to say are as follows.
The economy. The government expects the global economy to recover gradually. Russia will also have a different GDP growth pattern: about 4.5% YoY GDP this year and about 4% YoY in the next three years. The drivers of this growth will be different from in the past and the country will have to move ahead under a scenario that assumes i) not excessively high oil prices, ii) no speculative capital inflows and iii) rouble appreciation pressures. In addition, private sector external debt will rise at a slower pace than before the crisis. Inflation is seen at about 8% this year, with the government aiming to lower it to 5.5% in three years' time as it will cheapen funding costs and help to develop local financial markets. External position & investment activity. Even in 2008, which was the most challenging year, Russia had a current account surplus and the authorities expect the current account to stay in surplus in the future. Capital outflows during the crisis (mostly in 4Q08) amounted to USD 130bn. This year, Russia will have a marginal capital outflow but it is likely to be close to zero, although the situation is expected to change for the better as Russia enjoys capital inflows in the coming years. Last year, FDI climbed to USD 36bn (although this is still down from the USD 75bn before the crisis). This year, FDI might reach about USD 40bn, possibly growing to USD 50bn next year. The share of investments in GDP will climb to 20%. The government recognises that such a level is comparatively low for a developing country and will focus on creating new tools for investment over the next three years, focusing on sectors such as transportation and agriculture.
Changes to the state budget. The budget is now structured differently, with the majority of expenditures split into targeted programmes. Every kopek in the budget will have its own use, its own target. This will help to fight corruption. A new system for controlling government purchases will be implemented. Government investment (at the state budget level) will stay at around 3% of GDP. The programme for increasing the efficiency of budget expenditures has already been approved by the government. The government expects the budget deficit to moderate to 3.6% next year, 3.1% in 2012 and 2.9% in 2013 before balancing in 2015. Low government debt is the cornerstone of Russia's stability. It will reach about 11% of GDP by the year-end. Stable government finances will help to boost economic growth and investments.
Privatisation receipts are expected at about USD 10bn a year in the next five years (USD 50bn in total). The government plans to start with 50%+1 share stakes. The first sectors are telecoms (Rostelecom), transportation and aircraft building.
Banking sector. The crisis tested the Russian financial sector but the government managed to support it. During the crisis at the end of 2008, Russian people did not trust the banking sector, as they remembered the events of 1998, and the deposit outflow in just a single month was about RUB 450bn. However, government measures (which included providing subordinated loans, refinancing external debt and supporting strategic companies) helped and since 1 January 2008 banking assets have increased 53.8%. Bank capital was rising during the crisis. Credit growth in 2008 was about 34% YoY and only slowed in 2009. As of 1 September 2010, the loan portfolio had increased 5.6% YTD. People's trust in the banking sector improved and since 1 January 2008 deposits have increased over 60%. The authorities continue to monitor the banking sector, with the CBR conducting stress-tests of the banking system. On the back of international experience, the results are not being made public, but the weakest banks might lose their licences.
A monitoring committee headed by Alexey Savatyugin has been created to monitor systemic risks. OTC instruments and the procyclical behaviour of the banking sector will also be monitored. The Basel III capital adequacy ratio is about 10% and Russia already complies with this criteria.
Moscow International Financial Centre. The government has decided to go ahead with the creation of an international financial centre in Moscow. This should be a competitive centre offering a wide range of products and services, and which is able to facilitate the modernisation of the economy. A more precise plan is being developed and most infrastructure will be created within the next two years.
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