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2018-01-19 Caucasus/Russia/Central Asia
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Business as Usual: Russia Exhausts Its Reserve Fund
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 [Jamestown Foundation]
The Russian Ministry of Finance released an official statement, on January 10, 2018, confirming that all the money previously channeled into the Reserve Fund, as well as the interest it produced during the last 12 months, had been credited to the federal budget. So the Fund will be formally dissolved and closed on February 1, 2018 (Minfin.ru, January 10, 2018). This announcement was nothing new, since it was long ago predicted that all the assets from the Reserve Fund would be sold in 2017 to cover the state’s budget shortages. Moreover, Finance Minister Anton Siluanov told journalists last December that the government used 660 billion rubles ($11.7 billion) from the National Welfare Fund because the 1.5 trillion rubles ($30 billion) that remained in the Reserve Fund was insufficient to balance the books (TASS, December 26, 2017). Many experts pointed to this as a milestone in the Russian economy’s downward spiral (Rucompromat.com, accessed January 16, 2018). But as other observers have noted, the Russian authorities still possess enough financial reserves to balance the country’s finances this year (Echo Moskvy, January 2, 2018).
What looks concerning, however, is the Ministry’s move to abolish the Reserve Fund as such. Until last year, the National Welfare Fund had never been used for balancing the budget before. Its value changed with fluctuations in the ruble exchange rate. And some portion of it was invested in infrastructure projects—therefore, only 62 percent of it may be immediately mobilized (Rosbalt, January 1, 2018). The only steady decrease occurred between September 2017 and January 2018 (by $10.2 billion, or 13.5 percent). But since the taboo on using the Welfare Fund has now been lifted, new claims on its funds could materialize, not only from budget lobbyists but also from state-owned corporations. In October 2014, Rosneft’s director-general, Igor Sechin, unsuccessfully petitioned the government for 2.4 trillion from the Fund (RBC, October 28, 2014).
Going forward (2018–2020), the perspective for Russia’s reserve fund will likely resemble 2012–2014. Global oil prices seem to have largely stabilized, which is a comfortable situation for Russian leaders. From 2018, oil exports could add up to $20 billion per year to Russia’s reserves, while entirely eliminating the budget deficit. That said, a new international financial meltdown or another foreign policy “adventure” could easily lead Russia into a new crisis, with reserves once again being depleted.
Russia’s problem lies not in any difficulty with amassing reserves; the problem is with managing them. Russian authorities are able to exchange the reserves into dollars, euros or pounds, and to secure them by buying either US or European government bonds. What they lack is a mechanism similar to the one used by Norway’s Government Pension Fund Global—in this case, the majority of the fund is invested in shares rather than bonds (65.9 versus 31.6 percent), while the holdings are highly diversified (around 9,000 companies in 77 countries) and secured (with up to 18,000 futures and credit default swap deals). For Norway, this produced an average return of 9.2 percent per annum for 2013–2017, on a fund that amounts to $1 trillion (Nbim.no, accessed January 16, 2018). Yet, there are no similar policies on the horizon for Russia’s reserve fund.
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Posted by 3dc 2018-01-19 23:24||
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