* Proposals to spend all fiscal reserves "deeply mistaken" -
* Russia keeps intact limit on domestic investments by
National Welfare Fund
* Approves $4.6 billion in additional infrastructure
By Darya Korsunskaya and Jason Bush
NOVO-OGARYOVO, Russia, Nov 6 President Vladimir
Putin said on Thursday that Russia should not spend all of its
fiscal reserves, lending support to fiscal conservatives who
favour keeping most rainy-day funds invested in low-risk foreign
Putin was addressing a meeting to discuss the use of the
National Welfare Fund, an $89 billion stash of energy revenues
that has been saved to cover the rising long-term cost of state
"The National Welfare Fund is a security cushion for the
Russian economy ... Those who suppose that we should allow
ourselves to spend this fund entirely are deeply mistaken,"
Putin told senior officials at his official residence.
Putin appeared to be responding to proposals, reported in
the Kommersant daily on Thursday, under which the government
would commit most of the money to infrastructure projects.
The NWF and its sister Reserve Fund were created by former
Finance Minister Alexei Kudrin, who restored the public finances
to health in the first decade of the millennium but was forced
out of office in 2011.
With the economy slowing, calls have grown to plough more
NWF cash into infrastructure that proponents argue could boost
growth in both the short and long run, much as the post-war
construction of the U.S. interstate highway network did.
Economists warn however that, in a country with a history of
official corruption and mismanagement, money could end up being
wasted rather than put to good use.
Benefits from improved road and rail links would accrue
mainly to the wider economy rather than the NWF, warned Evsei
Gurvich, head of the Economic Expert Group, a thinktank that
advises the Finance Ministry.
"We should realise that we will need a return from the
National Welfare Fund to support the pension system," Gurvich
Thursday's meeting rejected proposals to increase the share
of the National Welfare Fund that could be invested in domestic
infrastructure to 50 or 60 percent, Deputy Prime Minister Igor
Shuvalov said afterwards.
Under present rules no more than 40 percent of the Fund can
be invested in Russia, a rule that is designed to diversify its
investments to diminish risk.
Presently around two-thirds of the Fund is held in low-risk
bonds of western governments. The remaining third is largely
deposited at state development bank VneshEconomBank.
Russia's other sovereign wealth fund, the $87 billion
Reserve Fund, is entirely invested abroad.
Whereas the Reserve Fund has a mandate to support the budget
in the event of a fall in oil prices, requiring a conservative
investment strategy, the National Welfare Fund has a vaguer
mandate to secure the state pension system.
The Finance Ministry favours keeping most of the fund in
liquid assets that could be easily tapped. But the Economy
Ministry argues that it should be invested in growth-promoting
projects. Putin came down somewhere between the two.
He has backed proposals that have circulated to invest NWF
cash in infrastructure bonds that would finance major projects.
"Holding reserves only in the form of securities and liquid
money in bank accounts is insufficient," Putin said.
"We also need other instruments, able to secure both the
income of the financial reserves, and also their more active
work in the interests of the development of the Russian economy,
for stimulating investment."
Boosting funding for such projects via the National Welfare
Fund represents a way for the government to stimulate flagging
economic growth, while formally complying with fiscal rules that
limit its ability to boost budget spending.
The government approved an additional 150 billion roubles
($4.6 billion) in infrastructure investments by the Fund, a
ring-road in the Moscow region, the Baikal-Amur railway in the
Far East, and upgrading the Trans-Siberian railway.
(Reporting by Darya Korsunskaya; Writing and reporting by Jason
Bush; Editing by Douglas Busvine)