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Russia to act if credit crunch worsens: Kudrin

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WASHINGTON - The worst of the global credit crunch may have passed but Russia stands ready to act if the situation deteriorates, Finance Minister Alexei Kudrin told Reuters.

Published: Tue 23 Oct 2007, 5:25 PM

Updated: Sat 4 Apr 2015, 11:29 PM

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  • (Reuters)

‘If the crisis in the West develops no further, then we have already passed the critical phase,’ Kudrin said in an interview in Washington. ‘If it develops further, then we remain in a zone of risk and need to be ready.’

The outbreak of the US subprime mortgage crisis in August triggered an outflow of capital from Russia as foreign investors sold investments. Many banks and companies have lost their access to foreign credit.

But Russia, the world’s number two oil exporter, has coped so far with the resulting shortage of liquidity in its banking system and no borrower has yet been forced into default.

The central bank, whose reserves of over $430 billion are the world’s third largest, has pumped billions of dollars into the banking system via one-day repo auctions.

‘At last we can appreciate the value of our conservative policies,’ said Kudrin, a hawk appointed by President Vladimir Putin in 2000 who has run budget surpluses and paid down debts.

A new budget code comes into force on Nov. 1 that will allow the government to deposit excess cash on hand at banks, said Kudrin, who spoke on Monday night after attending the autumn meetings of the International Monetary Fund and World Bank.

A Finance Ministry official said last week that budget funds deposited at the central bank totalled 1.5 trillion roubles ($60 billion). That exceeds the 1.4 trillion roubles in securities on the central bank’s ‘Lombard’ list eligible for repo operations.

‘We can place these funds on domestic and foreign markets,’ said Kudrin. ‘The proportions we allocate will depend on the liquidity situation on the domestic market.’

Development cash

Russia may also deposit funds from state development institutions, Kudrin said, echoing remarks by Vladimir Dmitriyev, head of Russia’s new state Development Bank.

The Development Bank, created out of debt service agent and national pension fund manager Vneshekonombank, is one recipient of a 640 billion rouble ($25.8 billion) state capital injection to fund investment and infrastructure projects.

This money will take time to commit, and Kudrin said that it could also be deposited in the meantime at local banks. Funds under management at the national pension fund may also be placed at banks or invested in mortgage-backed securities.

Work should be completed ‘within days’ to make it possible for banks to pledge their credit portfolios as collateral against funding from the central bank.

‘There are enough instruments, including those at the government’s disposal,’ said Kudrin. ‘Whether we actually place the funds will depend on our evaluation of monetary aggregates on the market.’

Weak dollar ok, but no shocks please

Russia is not concerned by the weakening of the dollar, now near its lowest levels against the euro since the launch of the common European currency, as long as market conditions remain orderly, Kudrin said.

‘We have no need for sharp movements or shocks that might destabilise securities markets. That is a concern for us,’ said Kudrin. ‘But a gradual fall by the dollar is no bad thing.’

Russia has no plans to change the asset allocation of its $140 billion budget stabilisation fund, which gathers windfall oil revenues and is counted as part of the central bank’s reserves.

‘Now there is no need to change the basket, but we will closely follow the market,’ said Kudrin.

The fund, set up to protect the budget against a possible slump in oil prices, is invested in AAA-rated sovereign debt, with holdings of dollar and euro instruments each having a weighting of 45 percent and a further 10 percent in sterling.



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