No crisis in Russia, putin says

The Russian economy is certainly facing some difficulties, but there is no crisis, Russian Prime Minister Vladimir Putin said today at a meeting in his public reception in Novosibirsk.

"There are difficulties in global financial markets, and they indeed are facing a crisis. We, thank God, have difficulties, but no crisis," he emphasized.

The Prime Minister expressed hope that there would be no crisis in Russia, noting that the government was actively taking measures to counteract negative economic developments. A lot has been done successfully, but there is still more to be done to get through this period without significant losses, according to Putin.

Commenting on the government's efforts to support small businesses, he said the Russian government would increase its financial support for small businesses many times over, pointing to the RUB 3.4 billion (approx. $126.4m) allocated for the purpose in 2008. The cabinet is now "actively discussing the possibility of increasing this amount even more," Putin said, noting that the money would be distributed to small businesses through Sberbank.

Asked how the replacement of the single social tax with insurance payments would affect small businesses, he replied: "In this respect we will consider measures to balance the total tax burden on the economy, primarily on small and mid-sized businesses," especially in the innovative and hi-tech sectors.

"They, along with agricultural companies, will enjoy these benefits," he said. Putin also allayed fears that an overall increase in the tax burden would prompt companies to resort to semi-legal schemes. "We certainly hope this will not happen," the Prime Minister stressed.

Banks that received funds from the government as part of an anti-crisis program should act responsibly and refrain from raising loan interest rates for their clients, Putin said in a conversation with Alfa-Bank President Petr Aven during a visit to the bank's office in Novosibirsk.

"By taking money from Vnesheconombank or the Central Bank at collateral-free auctions, you are acting, to a certain extent, as the government's commercial agents, which is why your further actions on the interbank market should abide by the terms on which the government provided those funds. Interest rates should not be raised," Putin warned.

Petr Aven assured Putin that the bank was not going to cut its lending programs. "We are not taking cash for ourselves," he stressed. The Prime Minister emphasized that the money should reach the real sector of the economy.

He asked Petr Aven if his bank felt the effect of anti-crisis measures taken by the government. Aven said his bank had already borrowed RUB 8 billion (approx. $297.4m) at a collateral-free auction. Putin said the Central Bank had allocated about RUB 400 billion (approx. $14.9bn)for the first auction, but noted that this was short money, while subordinated loans for a total worth RUB 950 billion (approx. $35.3bn) would provide banks with long money. Alfa-Bank has not yet received a subordinated loan, but would apply for it, Aven said.

Several anti-crisis bills to stabilize the Russian financial market took effect on October 14. The law "On Additional Measures to Support the Financial System of the Russian Federation" allows the Bank for Development and Foreign Economic Affairs (Vnesheconombank) to issue up to $50 billion in foreign currency-dominated loans to Russian companies to help them pay off their debts to foreign lenders, provided that the loans were taken out before September 25, 2008. Vnesheconombank will be allowed to issue such loans until the end of next year.

The minimal interest rate for such loans will be at least 5 percent higher than the LIBOR rate as of the loan's date.

The law also provides for a total RUB 950 billion (approx. $35.3bn) in subordinated loans to Russian banks. Sberbank will receive up to RUB 500 billion (approx. $18.6bn) in collateral-free subordinated loans from the Central Bank, at an interest rate of 8 percent, until December 31, 2019. Up to RUB 450 billion (approx. $16.7bn) of the National Wealth Fund will be placed on deposit with Vnesheconombank until December 31, 2019, at an interest rate of 7 percent. In turn, Vnesheconombank will grant a subordinated loan of up to RUB 200 billion (approx. $7.4bn) to VTB, at 8 percent and until the end of 2019; and up to RUB 25 billion (approx. $929.36m) will be lent to Russian Agricultural Bank, also at 8 percent and until December 31, 2019.

Russian stocks closed lower on Wednesday, the MICEX losing 3.74 percent to 628.12 points and the RTS shedding 7.17 percent to 665.78 points.

On the MICEX, Gazprom ended the day 6.36 percent lower, Sberbank was down 3.51 percent, and LUKoil lost 3.72 percent; while Norilsk Nickel climbed 7.95 percent, RusHydro rose 12.81 percent, and Uralsvyazinform edged up 0.95 percent. The MICEX index dropped to as low as 613.03 percent, but managed to recover slightly in later trade.

The government's efforts to support Russian telecoms companies could bring their stocks up by as much as 50 percent, Valentin Guskov, at Solid Management, told RBC TV. Alexander Blokhin, senior trader at KIT Finance, agrees, noting that some state funds have already reached the Russian stock market.

Kirill Penzin, chief analyst at the MICEX Stock Exchange, added that the Russian market was showing signs of resistance to negative external factors.

-Russia Times