VTB head measures government aid to his bank in grams.
Prime Minister Vladimir Putin and the other participants in the investment forum called Russia Is Calling officially declared that the Russian economy was recovering from the crisis. However, the forum decided that it was premature to curtail the costly anti-crisis programme, and said that the main priority was moving on from "manual control" of the economy to systemic decisions.
VTB, which organised the forum, had been waiting for Vladimir Putin to take part in its events for five years, the bank's president Andrei Kostin admitted. It had not waited in vain. Yesterday the prime minister graced the VTB Capital investment forum with his presence. A happy Kostin thanked the long-awaited guest so effusively that Putin, who was clearly in an excellent mood, suggested that the banker should be counting not the years of waiting but the amount of money VTB had received from the budget. "Two hundred twice," Kostin replied. The prime minister played along with the joke, explaining to the foreigners present that the figures referred to 400 billion roubles in government support rather than the amount of vodka usually poured into 200-gram glasses.
There were many reasons for Putin's upbeat mood yesterday. They were provided by Vice Premier and Finance Minister Alexei Kudrin and Central Bank First Deputy Chairman Alexei Ulyukayev who had been warming up the audience with good news before the prime minister arrived. There were signs of a rivalry between the two financial bosses.
Kudrin for some reason stole the limelight from Ulyukayev by announcing that the Central Bank had once more cut its refinancing rate by 0.5 percentage points to 10% a year. There was a buzz of approval in the audience though it never developed into a standing ovation.
Ulyukayev, who discovered a new law of physics whereby the sonic speed at the Finance Ministry was higher than at the Central Bank, did not mind his colleague upstaging him. Anyway, he had an equally pleasant piece of news to report: at the opening of the MICEX trading yesterday the Central Bank had bought more than $ 1 billion. "It hasn't happened for a long time," the banker said cheerfully and suggested that apparently the money had been brought to Moscow by the participants in the investment forum.
The finance minister and the Central Bank executive continued vying with each other in charging the audience with positive ideas. Kudrin said that the government support for the economy in crisis must and will continue for about two years, which are likely to be particularly difficult for all the governments in the world. "It is not yet the time to exit the stimulus measures," the finance minister declared. His forecasts for the Russian economy were fairly upbeat. The budget deficit at the end of 2009 is likely to be less than the government forecast of 8%, and may drop to 6.8% next year. In the third quarter of this year, capital inflow into Russia amounted to $7.2 billion, which is "a good benchmark for returning to the pre-crisis level." However, it will not happen immediately: in 2010 the Finance Ministry expects foreign investment in fixed assets to be around 1%, in 2011, 7.2% and in 2012, 10.4%. Inflation over the next three years may go from double digits today to less than 7% a year. The inflation forecast is conservative and the actual level in 2010 may be even lower, echoed Ulyukayev. And he shared the Central Bank's medium-term plans of making the rouble a free-floating currency.
Amid the general euphoria over the signs of an end to recession, Putin struck a sobering note calling on the members of the forum to show "guarded optimism." He gave a brief summary of the results of the crisis year for Russia and made a statement that all the bankers and businessmen present were anxious to hear. The anti-crisis measures had not led to "large-scale nationalisation or a slide into wholesale government regulation." "We have preserved freedom of capital and convertibility of the rouble. Russia remains a liberal market economy," he stressed, promising to steadily scale down government presence in the economy, which now stands at almost 50%, as the situation became more stable. It is necessary to pass on from "manual control" of the economy to systemic decisions. The quality of post-crisis recovery is more important than its speed.
Independent experts single out the government's promise to drastically cut inflation over three years.
The authorities could not accomplish that task in the pre-crisis boom years. The head of the economic analysis unit at the Eurasian Development Bank, Yevgeny Vinokurov, said that the growth of consumer prices depended on the efficiency of the retail network, demand for goods and the tariffs for housing and utilities services provided by the natural monopolies. Vinokurov does not share the government's optimism. "Our inflation forecast for 2009 is 12%. Proposed increases in electricity and utilities tariffs in 2010 cause concern. I don't think it will be easy to keep inflation down to 10%," Vinokurov says. He believes the forecast for investment growth to be reasonable. "If one proceeds from the Finance Ministry's forecast of the oil price next year (less than $60 per barrel, i.e. less than the current price) the forecast is realistic. One should also bear in mind the slump in fixed capital investment in 2009 and related potential for recovery," he noted.
Alexei Pavlov, deputy chief of the analytical department with Arbat Capital Bank, puts inflation in Russia in 2009 at around 10.5%. The target of reaching single-digit inflation in 2010 is feasible, if the increase of the natural monopolies' tariffs is moderate and demand is slow. However, cutting inflation to 7% by 2012 is utopian, Pavlov believes. "To achieve that target, all the regulated tariffs should be frozen, which is inconceivable at present. Most probably as the economy recovers from recession, Gazprom, Russian Railways and the power industry will lobby with a fair chance of success for a more aggressive raise of tariffs, which, coupled with the overall increase in demand, again threatens a double-digit price growth in 2012," Pavlov says.
Igor Naumov
