Russia cuts spending, bails out banks in 'anti-crisis' plan

GMT 21:59 2015 Wednesday ,28 January

Arab Today, arab today Russia cuts spending, bails out banks in 'anti-crisis' plan

Russia has announced budget
Moscow - AFP

Russia promised government spending cuts but more money for retirees and billions of dollars worth of support for banks as it detailed Wednesday a plan to support its economy battered by low oil prices and sanctions.
The plan, published on the government's website on Wednesday morning, foresees a 10 percent reduction in "most categories of budget spending" but, increases on welfare, which was the cornerstone of President Vladimir Putin's election campaign in 2012.
The measures will help the economy "adapt to new conditions" in a situation when Western sanctions over Ukraine and tumbling oil prices have already cost it $200 billion, Finance Minister Anton Siluanov told Russian senators while presenting the plan.
"The effect of external shocks on the credit balance is about $200 billion," he said, adding that most analysts "believe that this situation will continue long-term."
Speaking at Russia's audit chamber, Putin said anti-crisis measures should not just "throw money at various industries" from national reserves and not let welfare funding "spread over everybody".
Economy Minister Alexei Ulyukayev said he expected a 2015 fall in consumer demand by up to nine percent and in investment by "double digits," according to Russian agencies.
Real wages, real income, retail sales and services are all falling, he said.
"We haven't seen this in 15 years, it is a huge challenge considering the rise in debts of households," said Ulyukayev, who has previously predicted that the economy could contract by up to five percent if oil prices stay low.
- Companies eye Russia's reserves -
The government's crisis plan lists various measures without spelling out the total sum.
Last week authorities presented a draft plan worth 1.375 trillion rubles ($20 billion, 18 billion euros), which comes on top of a 1 trillion ruble ($15 billion, 13 billion euros) bailout package for struggling banks announced in December.
The government is prepared to funnel the trillion ruble fund to Russia's top 27 banks, requiring them to expand lending to the real economy by one percent every month, Siluanov said.
Under the crisis plan, pensions will be increased by 11.4 percent next month at the cost of 188 billion rubles ($2.8 billion) -- more than expected -- to help out the poorest Russians.
Defence spending is not subject to any austerity measures, according to the plan, and defence industries will get extra money to replace sanctioned imports, it said.
The agriculture sector will also get an additional 50 billion rubles ($740 million) in a bid to boost local production to make up for shortages caused by Moscow's embargoes of Western products over the Ukraine crisis.
"As thing stand, the plan is heavy on policy but light on numbers," Liza Ermolenko, emerging markets analyst with Capital Economics, said in a note.
She predicted Russian fiscal policy would stay "relatively accommodative in 2015" before a tighter fiscal squeeze in the following years.
Siluanov underlined that Russia's wealth funds built up from oil sales are not limitless so many investment projects would have to be cut, particularly in construction.
"All new construction projects will have to be delayed," he said, noting the exception of particularly important ones in Crimea, the Black Sea peninsula Russia annexed last March which is struggling without a bridge linking it to mainland Russia.
High energy prices let Russia amass a sizeable pile of cash divided between two oil funds. Siluanov said 5.6 trillion rubles ($83.5 billion) are in Russia's reserve fund and another 4.9 trillion rubles  ($73 billion) in its national welfare fund.
A number of companies that can no longer borrow abroad have asked for colossal amounts of cash from the reserves. One, oil giant Rosneft, has put in a request for 1.3 trillion rubles to fund its projects, deputy economy minister Nikolai Podguzov told journalists Wednesday.
Pressure on the finance ministry to grant this funding is likely to grow as the crisis deepens.
"The most important thing is not to squander the reserves in one year," Siluanov said.


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