Kudrin Shifts Bank Support to Industry

The government has decided that 300 billion rubles ($10.3 billion) set aside to recapitalize banks could be better spent on economically vital companies and the unemployed, and AvtoVAZ is among the priority recipients for the money.

Next week, the Finance Ministry will submit changes to the 2009 budget to the State Duma, Finance Minister Alexei Kudrin told Vedomosti. The alterations will redirect funds reserved for capitalizing banks through the use of government bonds and state guarantees, he said.

This year’s budget includes 150 billion rubles for bond issues that can be exchanged for privileged shares in banks. “But since the economic situation is a bit better than previously expected, it’s not essential to issue bonds for recapitalization. For that reason, it’s been decided to give the government the right to use these funds to support [other] sectors of the economy,” said Kudrin, who is also a deputy prime minister.

He said the government would be given the right to use the funds for the same purposes that the anti-crisis fund is being used for: reducing unemployment, developing single-industry towns, grants to the social insurance fund, and support for military and other economically vital companies, such as AvtoVAZ, the United Shipbuilding Corporation and the United Aircraft Corporation.

Anti-crisis spending in 2009 could reach 600 billion rubles instead of the 450 billion rubles currently allotted in the budget. “The government has almost used all of the 450 billion rubles,” a Finance Ministry official said.

The extra 150 billion rubles could also be carried over to next year, Kudrin said. “The money doesn’t need to be spent immediately, it needs to be spent as it’s needed.”

Originally, 150 billion rubles was allotted to bank capitalization programs through government bonds this year, with an additional 250 billion rubles planned for 2010. Last week, however, the government decided to remove this year’s spending completely and to cut the 2010 figure by 150 billion rubles, saving a combined 300 billion rubles to throw at anti-crisis programs.

And while the application process for capitalization through the government bonds was only opened late last week, banks did not show much interest. Alfa Bank, Bank St. Petersburg, and Promsvyazbank — which had all initially considered the option — have now declined it.

To turn the government bonds into actual cash, banks would have to put them up as collateral. That would provide short-term funds, which could backfire since the capital would be on paper only, said Rushan Khvesyuk, chairman of Alfa Bank’s executive board. Of the banks surveyed by Vedomosti on Wednesday, only Russian Standard confirmed its interest in participating in the program.

Another change to the 2009 budget will involve the re-allocation of 300 billion rubles reserved for state guarantees, a Finance Ministry official said. Of the sum, 100 billion rubles had been reserved for defense enterprises, with the rest for economically vital companies. The defense companies did not need that much, however, so 25 billion rubles allotted for them will be transferred to the guarantees fund for non-defense enterprises.

State guarantees for defense enterprises were not particularly needed, said Anton Siluanov, a deputy finance minister. “Other measures were more in demand: subsidized interest rates and capitalization,” he said.

The 200 billion rubles in state guarantees for economically vital enterprises, however, has already been used, said Oleg Savelyev, a deputy economic development minister. “We’ve received applications for a sum greater than 25 billion rubles. We’ll decide on additional guarantees by the end of the year,” he said.

The government is right to push the freed up funds toward other parts of the economy, rather than decrease the budget deficit, said Yulia Tseplyayeva, chief economist at Merrill Lynch for Russia and the Commonwealth of Independent States. The most important thing now is to get out of the crisis as quickly as possible, she said.