Saturday, 29 October 2011

Russia cool on euro bailout fund

The Kremlin gave a non-committal first response Thursday to suggestions that it might contribute to a 1.3 trillion euro investment fund being proposed by Euro-zone leaders.

Presidential aide Arkady Dvorkovich told journalists that, while Russia’s Sovereign Wealth Fund would consider taking part in the investment vehicle, it would prefer to help the eurozone through its regular payments to the International Monetary Fund.

“We are prepared to take part in a stabilization mechanism primarily through the International Monetary Fund,” Dvorkovich told the Russian Money Market forum in Moscow, a conference organized by the Prime, Dow Jones news agencies. “We are doing this at the moment and are ready to step up our efforts if necessary.”

European leaders agreed early Thursday morning on a mechanism to boost the eurozone’s main bailout fund, the European Financial Stability Facility, to around 1.3 trillion euros ($1.4 trillion) through bond issuance and by taking outside investments into a special investment fund.

While EU leaders say they expect the main investors are likely to be China and Japan, they are also approaching other emerging economies, including Russia.

VTB Capital strategist Nikolai Podguzov told The Moscow News that Russia is unlikely to make direct investments to the eurozone.

“I’m not sure that Russia will be ready to participate [in the EFSF] anytime soon in substantial amounts,” Podguzov said. “There would be a lot of difficulties in getting approval to invest such volumes so I’m not sure Russia could be one of the most active participants. It is more likely to remain a participant in the framework of the IMF or another international institution.”

The chief executive of the EFSF will travel to Beijing on Friday to discuss details of a possible Chinese investment package for the eurozone. China has also said it will contribute to the European fund through the IMF, a move that would boost its voting rights at the organization.

Dvorkovich described the agreement reached by eurozone leaders after 11 hours of talks on Wednesday night as “cautiously optimistic,” adding that the decision taken was the “minimum necessary measure.”

Shares in European markets rose sharply on news of the deal, which was aimed at preventing the sovereign debt crisis from spreading to weightier Euro-zone economies, such as Italy. The leaders also agreed that banks holding Greek debt would accept a 50 percent loss.

Ready for the crisis

Other panel speakers at Thursday’s conference reiterated official claims that Russia is better prepared for a potential fresh wave of global financial instability than it was ahead of the last crisis.

“In 2008 the government and the Central Bank had to devise support measures as they went along,” Deputy Finance Minister Alexei Savatyugin said. “This time round we wouldn’t have to think up anything new.”

Savatyugin said the main concern for Russia was a drop in the oil price due to low economic growth in the United States and Asia.

“If the price of oil falls to $90 per barrel, the Central Bank’s monetary instruments should be enough to deal with the situation,” the deputy minister said.

“If it falls to $75 or $60 per barrel, additional capitalization of system-critical banks and enterprises in the real sector of the economy would be needed,”Savatyugin added.

Deputy Economic Development Minister Andrei Klepach told the conference that Russian markets would face no liquidity deficit this year, although there is some “tightness.”

Central Bank head Sergey Ignatiyev said at the beginning of October that regulators are not excluding the possibility of a liquidity deficit in the Russian banking system due to sales of foreign currency and said he was ready to supply banks with up to 1 trillion rubles.

“There was a fairly large surplus in September and expenditures were below the monthly average for the year,” Klepach said. He said liquidity problems will likely ease by the end of the year due to higher budget spending.

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