Russia 090820 Basic Political Developments

National Economic Trends

By Alex Nicholson

Aug. 20 (Bloomberg) -- The ruble touched its highest in almost two weeks against the dollar as oil prices held above $72 a barrel.

The currency of the world’s biggest energy producer gained 1.2 percent to 31.6127 per dollar at 10:15 a.m. in Moscow, after falling 0.1 percent yesterday. The ruble was 0.3 percent stronger against the euro at 45.0116 per euro.

The movements against the dollar and the euro left the ruble up 0.8 percent at 37.6438 against the central bank’s target currency basket, which is used to manage swings that hurt Russian exporters.

Crude oil for September delivery was trading up 27 cents at $72.69 a barrel after U.S. crude stockpiles dropped a more-than- expected 8.4 million barrels last week, the most since the week ended May 23, 2008, an Energy Department report showed yesterday. The dollar traded near a one-week low against the euro on speculation economic data will add to signs the global recession is easing.

The basket is calculated by multiplying the dollar’s rate to the ruble by 0.55, the euro to ruble rate by 0.45, then adding them together. The ruble remains within the 26 to 41 band the central bank pledged Jan. 22 to defend.

To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.

By Paul Abelsky and Alex Nicholson

Aug. 20 (Bloomberg) -- Russia’s international reserves fell $2.8 billion, the biggest drop in more than a month, as the central bank defended the ruble after it weakened to the lowest level in more than five months against the euro.

The value of the world’s third-largest stockpile slid to $400.6 billion in the week to Aug. 14 after rising by $1.4 billion to $403.4 billion in the previous week, the central bank said in an e-mailed statement today.

“There was a sell-off on Aug. 12 and it seems the central bank was intervening a lot,” Tatiana Orlova, an economist at ING Groep NV in Moscow, said by telephone today. “There was a general worsening of sentiment.”

Gross domestic product slumped 10.9 percent last quarter, which Orlova said “added to negative sentiment,” as the commodity-reliant economy reels from slumping gas and oil prices and banks continue to restrict lending. The deeper-than- estimated contraction triggered a sell-off in the currency, Nikolai Podguzov, a fixed-income analyst at Renaissance Capital in Moscow, wrote in a report last week.

The ruble lost 0.9 percent to 45.9481 per euro in Moscow on Aug. 12, its weakest close since Feb. 24. It slipped 0.7 percent to 32.4736 per dollar, its first six-day drop since January and the lowest close since July 13.

Ruble Declines

Bank Rossii, which lowered the refinancing rate five times since April 24 to spur lending, drained more than a third of foreign-exchange reserves from August to January. The ruble declined 35 percent against the dollar in that period, driven by a 63 percent slump in Urals crude and the global slowdown.

Reserves holdings have added $24.5 billion from a record- low $376.1 billion on March 13 as oil prices have recovered. The central bank has curtailed its purchases of foreign currency as it moves toward a free float of the ruble, which Bank Rossii manages against a basket of dollars and euros to limit fluctuations that hurt exporters.

The central bank sold $3.09 billion and 576.7 million euros ($820.4 million) in July, the first month since January when Bank Rossii showed net sales of foreign currency as the ruble weakened after the price of Urals crude oil, Russia’s chief export earner, dipped below $60 a barrel. The regulator’s net purchases amounted to $32.7 billion between February and June.

The financial crisis has accelerated the central bank’s goal of moving to a free-floating exchange rate and using interest rates to manage inflation, Bank Rossii Chairman Sergey Ignatiev said on June 24.

The central bank will still act to prevent the currency’s daily moves of more than 4 percent in either direction and defend its boundaries within the 26 to 41 band against the regulator’s target basket of dollars and euros, Goldman Sachs Group Inc. said in a report earlier this month.

Russia’s reserves are made up of 45 percent dollars, 44 percent euros, 10 percent pounds and 1 percent yen.

To contact the reporters on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net. Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net.

Last Updated: August 20, 2009 04:04 EDT
Russia c.bank injects 44.6 bln roubles via repos

http://www.iii.co.uk/news/?type=afxnews&articleid=7484919&subject=economic&action=article

MOSCOW, Aug 20 (Reuters) - The Russian central bank injected 44.62 billion roubles ($1.40 billion) of one-day funds into the banking system at a rate of 8.33 percent in its first repo auction of the day on Thursday.

The minimum interest rate was set at 7.75 percent. A maximum of 75 billion roubles had been on offer for two repo auctions scheduled for the day.

Following are results of the latest auction, provided by the central bank on its Web site (www.cbr.ru):

NOTE - For details of central bank repo tenders click here .

(Moscow Newsroom; +7495 775 1242; moscow.newsroom@reuters.com)

By Paul Abelsky

Aug. 19 (Bloomberg) -- Russia’s plan to sell $58.5 billion of bonds in the next three years, its first international debt sale since the 1998 default, may be hampered by private borrowers competing to raise funds, the government said.

“The large amounts of the budget deficit may lead to certain difficulties as a result of competition between the state and the private sector on capital markets,” the Finance Ministry said in a report published on its Web site late yesterday.

The country’s worst economic decline on record has depleted state coffers, sending the budget into deficit this year for the first time in a decade. Gross domestic product slumped 10.9 percent last quarter as the commodity-reliant economy reels from slumping gas and oil prices and banks continue to restrict lending.

The fiscal gap may reach 8.9 percent of GDP in 2009, narrowing to 7.5 percent next year, 4.3 percent in 2011 and 3 percent in 2012, the Finance Ministry said in the report.

A decade of oil-fueled economic expansion that averaged close to 7 percent a year ended in the first three months of 2009 after output slumped an annual 9.8 percent. Oil traded in New York peaked at $147.27 a barrel last July before falling to close to $30 at the beginning of the year.

Oil, which traded at $69.19 a barrel yesterday, is poised to fall as much as 15 percent in coming weeks as the global demand ebbs, according to Australian & New Zealand Banking Group Ltd.

Dried Up

Companies have resorted to selling bonds after other sources of financing dried up during the credit crisis, the ministry said. Russian corporations placed 21 issues of Eurobonds since the start of this year for a total of $10.4 billion, according to the report.

The government expects to raise $17.8 billion from foreign investors next year and a further $40.7 billion in the next two years, the ministry said, listing the amounts in the U.S. currency. It has previously announced plans to borrow a total of 2.2 trillion rubles ($68.9 billion) in the next three years.

The government will also borrow 844.1 billion rubles on the domestic market next year, followed by 957.5 billion rubles in 2011 and 755.4 billion rubles in 2012, the ministry said.

“The next few years will be a transition period as the government balances the need to undertake stimulus budget spending and restore macroeconomic stability,” the report said.

Spending this year will probably grow close to 32 percent to 9.98 trillion rubles, or 25.9 percent of GDP, even as revenue tumbles to 6.6 trillion rubles from 9.3 trillion rubles in 2008. The government expects to reduce expenditures to 23.2 percent of GDP next year, 20 percent in 2011 and 18.5 percent in 2012.

Oil Windfall

Russia is resorting to debt sales as its sovereign wealth funds, where the government stowed away windfall oil profits, may be depleted by 2014 or 2015, the ministry said.

The Reserve Fund will be plundered next year after the government uses it to finance the deficit, with no plans to replenish the fund in 2011 and 2012. The stockpile, which contained 2.8 trillion rubles as of Aug. 1, will have 1.6 trillion left by the start of next year, according to the report.

The National Wellbeing Fund will slide from 2.9 trillion rubles on Aug. 1 to 2.3 trillion rubles in 2011 and 1.6 trillion at the start of 2012, according to the Finance Ministry, which predicts the stockpile may be emptied by as early as 2014.

The government’s spending to service sovereign debt will jump to 602.9 billion rubles in 2012 from 333.2 billion rubles next year.

The country’s debt as percentage of GDP will more than double by 2012, growing from 6.5 percent in 2008 to 16.4 percent by 2012. Government debt will be at 10 percent this year, the ministry estimates.

To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net.

Last Updated: August 19, 2009 04:15 EDT
Tax receipts plummet in 1H09

http://www.businessneweurope.eu/dispatch_text9578

bne
August 20, 2009

The government's tax receipts plummeted in the first half of this year to this year, down by almost 40% on the year.

Its tax time in Russia, which has been playing hell with the currency market as companies rush to raise tax to pay their bills. And they have paid a lot less than they did last year.

The federal tax service reported that over all federal tax revenue was down 38.9% to RUB1.7 trillion for the first half of this year.

In total the service collected RUB4.8 trillion for the consolidated and non-consolidated budget for the first half of this year, which is down 23.8% on the year. the consolidated budget includes the federal, regional, and local budgets.

Excluding the non-consolidated funds, the service collected a total of RUB3.9 trillion, which is down by 28.2%. The non-consolidated funds includes the Pension Fund, the Social Insurance Fund, and the Federal Mandatory Health Insurance Fund.

The most important tax is VAT, which makes up about a third of budget revenues and also fell by 19.8% on the year to RUB675.7bn.

At the same time the government's spending has increased by about a third year-on-year and the state expects to run a deficit for the first time this year on the order of 7.5%. However, analysts and investors are concerned that the deficit maybe higher. The funding gap will be financed from the reserve fund this year which still has some $90bn, but the government plans to borrow about $60bn on the international capital markets in the next three years to finance budget spending and reduce the deficit to about 3% by 2012, Deputy Prime Minister Alexander Zhukov said on Wednesday.

In 2008 the tax service collected a total of RUB4.1 trillion which was an 8.8% increase on 2007 and Russia's VAT collection decreased 28.2% on the year to RUB998.bn, the tax service said earlier.