Authors: Vera Kuznetsova, Vera Sitnina
Government launches plan to assist banks and industrial companies
On October 13, Russian President Dmitry Medvedev signed a package of new laws. On the basis of these laws and the government's decisions, the Cabinet of Ministers will switch over from support of the banking system to direct financing of the "most important," or, as we call them here, strategic companies. The state is unprecedentedly boosting its role in regulating the market, and Prime Minister Vladimir Putin does not seem to be afraid of this. In criticising the United States for the umpteenth time, he said recently that during the crisis, governments in all countries without exception returned to state regulation of the economy. He neglected to mention, however, what this often leads to.
"We must offer our companies alternative internal sources of refinancing their earlier foreign debts, thus protecting Russian companies' assets from being sold out at low prices that do not reflect the real cost of their businesses," the Prime Minister said when opening a special meeting of Vnesheconombank's supervisory board on October 13 (see pp. 1 and 7 for details).
Mr Putin is really concerned that industrial companies, which used to be lavishly credited abroad before the crisis, do not receive any funds now. He said the time was growing near to repay loans and that our companies have no chance of meeting their debts. "This mechanism does not work any longer," he said.
At a meeting of the government's presidium held earlier that day, the Prime Minister talked about a lack of liquidity as being a common problem. "We make decisions and allocate funds but quite often, they do not reach end consumers. In this sense, Russia does not differ much from other countries. The only difference is that we have real opportunities and real funds that do not come from nothing," Mr Putin explained. "Nevertheless, our companies are beginning to suffer ‘financial hunger'," he said, with a meaningful glance at Russian Finance Minister Alexei Kudrin. "We must step up the implementation of the adopted decisions."
Mr Kudrin, who discussed global problems at a recent G8 financial summit, confirmed that many countries are suffering from a "confidence crisis" rather than a lack of liquidity. "The problem can be resolved only by boosting the banks' capital. "This practice is unusual," the Minister said (as if meaning himself and his actions), "but there is no way out of this situation."
On the same day, October 13, President Dmitry Medvedev made good on his word to closely follow the situation in the financial markets on a daily basis. At a meeting with his economic aide, Arkady Dvorkovich, he discussed ways to swiftly implement the state plan for support of the financial system and industries. "As I told you at our last meeting, the main thing now is to take swift action - adopt decisions, then laws and bylaws, and then transfer money to the banking system as quickly as possible," the President said.
The laws are really being drafted swiftly. On October 13, President Medvedev signed a package of laws aimed at stabilising the Russian financial market, which parliament passed in no time. "The package was devoted to one issue - ways to ensure stability in our financial market. By this, I mean involved processes occurring today on the international financial market, our dependence on these processes, and the need for this country to avert their most drastic consequences," the President said.
In turn, Mr Dvorkovich said that all bylaws had already been drafted and would be adopted within the next two days, while Vnesheconombank will need two more days to organise the refinancing of Russian companies and banks. "In this way, we are replacing the funds borrowed on global markets. This money will be reserved in the amounts necessary to implement the decision on applications," Mr Dvorkovich said.
"Still, even when the Central Bank implements the planned stabilisation measures, it will not give up its practice of issuing unsecured loans to national banks," Dvorkovich told the president. "This practice will continue after the situation is normalised. It is very important for all of us to understand the potential of the financial market's stabilisation in future," he explained. According to Mr Dvorkovich, the decision allowing the Central Bank to issue unsecured loans to Russian banks for a term of up to six months "is not just an anti-crisis measure; this is an actual replacement of the former system of bank refinancing abroad by a new system." According to the presidential aide, the Central Bank intends to begin doing this within the next few days, actually replacing the Finance Ministry's mechanism of issuing loans.
The placement of the National Welfare Fund's monies on the domestic market will be launched within the next two days. Formerly, these funds were also placed in foreign securities. Mr Dvorkovich is convinced that "this will help to improve the quality of the National Welfare Fund's portfolio, to preserve the funds of pensioners, including future ones, and also to support liquidity on the Russian financial market. Many assets are more reliable on the domestic market than on foreign ones."
