WRAPUP 1-RUSSIA KUDRIN CALLS FOR CAUTION IN RESERVES USE
By Gleb Bryanski and Dmitry Sergeyev
Reuters
Tue Oct 21, 2008 5:06am EDT
MOSCOW, Oct 21 (Reuters) – Russia must use caution in deploying its
foreign exchange reserves to battle the effects of the global economic
crisis, after spending nearly a tenth of its total in two months,
Finance Minister said on Tuesday. The reserves, the world’s third
largest, are now at $530.6 billion, down $66.9 billion since early
August. The rating agencies have said Russia’s reserves are a key
factor for the country’s investment grade rating,
The call on the cash pile is rising because the country has to support
its currency, fund high budget social spending and finance a $210
billion financial system rescue plan, a challenging task at a time
of declining oil prices.
"The gold and forex reserves have fallen by $50 billion," Finance
Minister Alexei Kudrin told fellow finance ministers from former Soviet
states. "We need to be careful when we use this stabilising influence."
"Gold and forex reserves allow us to guarantee the currency rate
stability," he added.
Reserves have fallen mostly because of heavy interventions by the
central bank over the past months.
The regulator has managed to keep the currency stable versus the
dollar/euro basket at around 30.40.
But as ordinary Russians track their savings through the dollar rate
officials have to intervene almost daily to persuade the population
that the rouble will not weaken. "No rouble devaluation is planned,"
Kudrin’s deputy Sergei Shatalov told reporters in the Armenian
capital of Yerevan, where he was travelling as part of President
Dmitry Medvedev’s delegation.
As the dollar continued its rally versus the euro on global markets,
its rate versus the rouble <RUB=> rose to the highest level since
February 2007 of 26.5 while exchanges rates on the streets were as
high as 28.
Traders said, however, they haven’t seen signs of central bank’s
interventions in the past two days.
BIG DEMAND FOR REFINANCING
The reserves are poised to fall by a total of $74 billion in the
next weeks. Russia has earmarked $50 billion to help its companies
refinance foreign loans, another $6.7 billion to buy local stocks and
$17.3 billion in subordinated loans for the country’s largest banks.
The money will mainly flow via state agent, Development Bank, known
in Russian as VEB, whose head said on Tuesday he had already received
$97 billion in refinancing applications.
Russian companies have borrowed aggressively abroad to fund growth
and acquisitions in the past years and now struggle to refinance
loans as capital markets are shut.
"Banks have applied for twice as much as companies — $64 billion
from the banks and $33 billion from companies," Vladimir Dmitriyev
told reporters adding that the first 10 applications would be cleared
in the near future.
He also said the bank may start investing state funds in the stock
market this week.
Kudrin said the Finance Ministry will withdraw from refinancing banks,
leaving that role to the central bank’s new system of collateral free
loan auctions, which began on Monday.
He also told finance chiefs of the Commonwealth of Independent
States (CIS), a loose grouping of ex-Soviet republics, that they
would be affected by a slowdown in Russia’s construction industry,
which employs migrants from all over the region.
"The industry is overheated and will suffer a decline in demand and
many who only just started their projects feel it already," Kudrin
said. (Additional reporting by Denis Dyomkin and Andrei Ostroukh,
Writing by Dmitry Zhdannikov; Editing by Victoria Main)