State offers $40Bln bank aid

The government has signalled a shift in its anti-crisis strategy, switching up to $40 billion intended for industry bailouts into propping up the banking system.
The shift in policy - apparently prompted by a worsening oil price outlook - will also see the federal budget slashed in the next few days, according to top government economic officials.
We have made a decision to cut considerably government spending, which will be approved in the coming days. We could have lived through the year 2009 by spending reserves but we consider this policy to be unreasonable," First Deputy Prime Minister Igor Shuvalov told an investment forum in Moscow.
To add fuel to the fire, Fitch, the international ratings agency, has downgraded Russia's long term grade as a warning that it must take a more sustainable approach to government spending and the rouble.
Chris Weafer, UralSib's chief strategist, stated that it is most likely to be new infrastructure projects and the development of new industries that will be delayed as the government seeks to avoid redundancies.
"The whole focus of the budget is to maintain employment as high as possible and the government is trying to make it a condition of the bailout packages that companies minimise the number of people they lay off," he said.
Despite the government's focus on employment, it is inevitable that companies will be forced into redundancies to survive the crisis, he said.
"These companies are going to have to make the adjustments they need to survive," said Weafer.
"That means laying people off but there will be pressure on these firms to only cut the people they need to."
He added that the unemployment rate would hit 10 per cent by the end of March and that new jobs that would have been created by new projects will now be put on hold until the crisis eases.
Other analysts have suggested that the cutbacks will not be too extensive as the government will run a budget deficit to fund projects.
"They are going to try and limit the cuts as much as possible," said Roland Nash, chief strategist at Renaissance Capital.
Some experts say there is a limit to how large a deficit the government can run - as it would create financial instability.
"Clearly the fiscal deficit is a risk factor. In 2009, there is a danger state expenditure will be a source of capital outflow," said Natalya Orlova, chief economist at Alfa Bank. She warned that if the deficit is over 5 per cent it would cause the government to spend too much of its reserves in the short run.
Although industry will now receive $40 billion less in direct bailouts from the government, Finance Minister Alexei Kudrin has moved to ensure it reaches companies in need of cash.
"We are preparing the banking package but with the condition that the funds will be passed onto the real economy," he told a news conference in London.
Supporting the banking sector has been a key part of the government's anti-crisis strategy, as they are needed to finance loans for companies short of liquidity.
"Unless you fix the banking sector no money is going to get to the real economy," Nash said.
Fitch's downgrade of Russia's sovereign rating from BBB+ to BBB has been seen as warning that Russia cannot continue spending its currency reserves and must adjust to the economic reality of lower oil prices.
"The reserve figures have come down very fast and the decline in the economy has come at a fast pace," said Weafer. "(Fitch) have highlighted the fact that if the government doesn't take the right, conservative action right now, then they believe the situation could deteriorate much further."