By Douglas Busvine and Jason Bush
MOSCOW, April 11 Russian President-elect
Vladimir Putin said on Wednesday that the government should
consider investing money held in the larger of its two sovereign
wealth funds in regional development and strategic projects.
Putin's comments, in an annual address to parliament,
appeared to undermine efforts by Finance Minister Anton Siluanov
to save Russia's windfall oil revenues as insurance against a
possible oil-price collapse.
Putin said Russia "can think about" investing some of the
funds in the $89.5 billion National Welfare Fund in developing
Eastern Siberia and the Far East, and part in strategic
projects. He called for a government decision this year.
Putin's comments come amid disagreements within Russia's
government over how to manage the country's oil revenues. Energy
levies account for half of federal revenues, making the budget
highly sensitive to the oil price.
Russia is planning to introduce new budget rules within the
next two months that will define how much of these revenues to
save in the two sovereign wealth funds, the National Welfare
Fund and the Reserve Fund, presently worth $62.3 billion.
While only the Reserve Fund is officially designated to
protect the budget against lower oil prices, the fund was
heavily depleted, having fallen to 3 percent of gross domestic
product from 10 percent in 2008, when global markets crashed.
The National Welfare Fund is officially designated to secure
Russia's pension system, and plug a growing deficit in Russia's
state pension fund. It is mostly invested abroad in low-risk
Finance Minister Anton Siluanov wants to save both funds and
introduce a so-called fiscal rule that would stipulate that the
budget should balance based on a 10-year average for oil prices.
However, Economy Minister Elvira Nabuillina recently
proposed that part of the Welfare Fund should be spent on
investment projects, while officials from her ministry argue the
fiscal rule should run for a shorter, three-year period.
Spending money from the fund would reduce the size of
Russia's fiscal reserves.
"It's probably not a good idea ... because of Russia's
dependence on oil prices. If [the fund] is spent it increases
the vulnerability," said Tim Ash, head of emerging market
research at RBS in London following Putin's remarks.
Putin's comments come a few days after former Finance
Minister Alexei Kudrin warned that investing too much of
Russia's oil wealth domestically would also damage Russia's
economy by causing an overvalued real exchange rate.
"When they say - let's build factories with these resources
- this is a less effective form of modernisation than creating
low interest rates and a more stable exchange rate," Kudrin said
at a recent economic conference.
In a sign of the issue's sensitivity, Putin said that any
decisions on the Welfare Fund would require a consensus among
Departing from his prepared remarks, Putin told deputies
that spending funds from the Fund should be considered "very
"Russia is a special case. To end up without reserves is
very dangerous," Putin said.