* FinMin would welcome market-driven weakening
* Real appreciation has hurt competitiveness - Siluanov
* Weaker rouble would boost budget revenues
* Risk that inflation would become entrenched
By Maya Dyakina
MOSCOW, June 18 Russia's Finance Minister said
on Tuesday he would welcome a weaker rouble to revive flagging
economic growth, but while the approach may boost fiscal
revenues there is a risk that inflation could become entrenched.
Anton Siluanov's call for a weaker currency follows a series
of meetings chaired by President Vladimir Putin, who has pressed
the government to meet spending promises made on his return to
the Kremlin in May 2012 in the search for more growth.
The $2 trillion economy, the world's ninth largest, grew by
1.6 percent year-on-year in the first quarter of this year - its
slowest since 2009. Weakness ran into May, with industry output
shrinking by 1.4 percent from a year earlier.
"The Finance Ministry would accept a certain weakening of
the rouble's exchange rate, but only as long as it is driven by
the market and not by administrative methods," Siluanov told
"A small weakening of the rouble can play a positive role
for budget revenues and for the economy as a whole", he added.
The International Monetary Fund, however, urged Russia to
keep spending in check, fight inflation and accelerate reforms
aimed at putting the economy on a broader footing rather than
manipulating demand or the currency.
"There is no point in monetary or fiscal stimulus," the
IMF's mission chief for Russia, Antonio Spilimbergo, told a news
conference after an annual visit. "The economy is running at
full capacity. A weaker rouble will not boost the economy."
Moscow has made scant progress in developing a manufacturing
base to diversify away from relying on its mineral wealth,
weighed down by a nominal exchange rate that has remained stable
while wages and the cost of living rise faster than elsewhere.
Weakening the rouble would help exporters in that battle
while also encouraging domestic producers in the vast,
resource-rich country to compete on price with imports.
It would also benefit the budget through the higher return
from oil exports, with a one-rouble decline in the exchange rate
to the dollar overall worth an estimated 190 billion roubles ($6
billion) in annual revenues.
The rouble has fallen by more than 5 percent this year to
36.92 against the dollar-euro currency basket targeted by
the central bank. It weakened further after Siluanov's comments.
The government last year introduced a so-called fiscal rule,
capping new borrowing at 1 percent of gross domestic product,
making it hard to ramp up spending in an increasingly desperate
struggle to revive growth.
The central bank has held off from easing monetary policy
because inflation, at 7.4 percent, remains above its 5-6 percent
target range. Putin's dovish economic adviser Elvira Nabiullina
takes the helm next week, possibly heralding interest rate cuts.
Siluanov said, however, that he saw no place in Russia for
western-style monetary stimulus, where central banks buy up
government bonds to lower the cost of credit.
"There is no need at the moment to implement a policy of
so-called quantitative easing, as is being done in other
countries, as this could stoke inflation further," he said.
Those comments sought to put an end to a debate in Russia on
widening the mandate of the Bank of Russia to add promoting
economic growth to its existing task of defending the stability
of the rouble.
Economists said a weaker rouble could bolster the public
finances without jeopardising financial stability, as Russia's
foreign debts are low. But they doubted there would be much of a
positive impact on growth.
"A weaker rouble is likely to help improve fiscal
performance in 2013 and beyond, but may not be so promising for
economic acceleration in general," Julia Tsepliaeva, economist
at BNP Paribas in Moscow, said in a note.
MANAGING THE WINDFALL
The Finance Ministry is laying the ground for a shift in how
it handles oil export revenues - a key part of its revenue base.
Energy levies account for around a half of the federal tax take.
In the past, dollar-denominated revenues would be converted
into roubles in off-market operations and deposited in the
ministry's budget Reserve Fund and the National Welfare Fund,
which are together worth 5.4 trillion roubles ($170 billion) and
are held at the central bank.
From August, these dollar revenues will be transferred
directly to the central bank, obviating the need for the central
bank to conduct market operations to mob up rouble liquidity.
"This is a zero-sum operation from the point of view of
buying and selling currency," Siluanov said. "The Finance
Ministry thus neutralises the effect that currently results from
filling the Reserve Fund from oil and gas revenues."
Under the new fiscal rule, the Reserve Fund effectively
functions as an off-balance-sheet fiscal buffer, being topped up
when oil prices are high and drawn down when they are low. It is
now worth around 4 percent of GDP.
A weaker rouble would also have the beneficial impact of
unwinding its real effective appreciation - which has totalled
56 percent since 2004 - forcing up business costs and making it
hard for them to compete against imports.
"Over the past 10 years the nominal exchange rate of the
rouble has hardly changed, and prices have risen strongly," said
Siluanov. "The resulting real effective appreciation of the
rouble has had a negative impact on Russian exporters."