Russia 090423 Basic Political Developments

Putin Offers Measures To Recapitalize Banks

http://www.themoscowtimes.com/article/1010/42/376502.htm

23 April 2009 The Moscow Times

President Vladimir Putin on Wednesday outlined aggressive new measures for recapitalizing the banking sector and spurring lending to cash-strapped enterprises.

Speaking at a Cabinet meeting discussing economic issues, Putin said any banks receiving government assistance would be required to lend out as much as they were receiving and to keep interest rates relatively low.

"It's very important that interest rates aren't more than three percentage points higher that the Central Bank's refinancing. Today, that means 13 percent plus 3 percent -- or 16 percent. And this must be the final price for borrowers, including all commissions," Putin said, according to a transcript posted on the government's web site.

Putin also ordered the Finance Ministry and the nominally independent Central Bank to change the mechanism by which the government guarantees certain loans, allowing the bank to receive government funds immediately after a borrower becomes insolvent rather than having to sell off the collateral first.

"We have to make it more comfortable and attractive for commercial banks, so that a guarantee really does lower credit risks and, hopefully, interest rates for borrowers," he said.

The government has set aside 300 billion rubles ($8.84 billion) to provide guarantees on loans to strategic enterprises, but banks currently have to go through a long process that involves selling the deposit before they can cash in on the guarantee.

Putin also expanded on the government's plans for providing additional capital to the financial sector.

A total of 550 billion rubles are set aside in 2009 to recapitalize the banks. That is in addition to the 757 billion rubles put to that purpose last year.

Government aid to the banking system currently matches shareholder equity at a one-to-one ratio. That aid should be increased so that "for every ruble of shareholder equity, the government adds three rubles in the form of subsidized loans," he said.

Putin also asked the Cabinet to send him a plan within two weeks for using government bonds to build up banks' capital base.

Putin gives banks, borrowers a boost

http://www.forbes.com/feeds/ap/2009/04/22/ap6322256.html
By CATRINA STEWART , 04.22.09, 11:20 AM EDT

Russian Prime Minister Vladimir Putin announced aggressive measures Wednesday to encourage more lending to companies and shore up the troubled banking sector as lenders grapple with a growing deluge of bad debts.

Putin urged the Central Bank to lower interest rates now that the threat of soaring inflation has receded. He also called on officials to make it easier for banks to recover money from the state in cases where state guarantees back the loans of struggling enterprises.

"There must be a higher comfort level for commercial banks, so that providing guarantees actually lowers the credit risks and, I would hope, loan interest rates," the prime minister said during a meeting with business leaders on Wednesday.

Plunging oil prices and a rapid slowdown in demand for its exports has driven Russia to the brink of a recession for the first time in a decade. Unemployment has soared, factories have scaled back production and many companies are locked in sensitive restructuring talks with their lenders.

Officials have said they expect the economy to contract by 2.2 percent this year as lending to the real economy dries up. But that estimate is considered optimistic by many, and the IMF predicted Wednesday that Russia's economy would shrink by 6 percent in 2009.

Responding to calls for lower interest rates, Putin said no lender that has received state aid should charge interest of more than 16 percent - based on a refinancing rate of 13 percent plus 3 percent. Russian borrowers, who have little access to overseas credit, have complained that banks are offering loans at exorbitant rates.

The government's efforts to restart lending come as warning signs emerge of growing problems in the banking system.

German Gref, the influential head of Russia's largest bank, Sberbank, warned earlier this month that Russia's banking crisis is only just beginning. He said that bad loans were probably much higher than official figures suggested, and said the state should not encourage banks to increase lending when they still have bad assets on their books.

Non-performing loans currently account for 3.7 percent of domestic bank portfolios, according to official statistics. But Nataliya Orlova, an economist at Alfa Bank, said the real figure could be as high as 15 percent.

Meanwhile, Russian Finance Minister Alexei Kudrin said Wednesday that Russia will use up almost its entire 4.1 trillion ruble ($120.5 billion) "rainy day" reserve fund by the end of next year - faster than expected - to support its economy through the global financial crisis.

Russia salted away windfall oil profits during the boom years of Putin's presidency to cushion the country against a drastic fall in oil prices.

Russia has tapped into the reserve fund to cover its first budget deficit in a decade. Parliament's upper house on Wednesday passed the revised crisis budget, which envisages a budget deficit of 7.4 percent of gross domestic product, or 3 trillion rubles ($88 billion).

The government had previously suggested the reserve fund would cover Russia's budgetary deficits through mid-2011.

Putin to End Rule On Cash Registers

http://www.themoscowtimes.com/article/600/42/376506.htm
23 April 2009
By Nadia Popova / The Moscow Times
The government will ease life for small businesses by simplifying their taxes and ditching a requirement that they must all use cash registers, Prime Minister Vladimir Putin said Wednesday.

The cutoff level for small businesses to get access to the simplified tax system will be raised to 60 million rubles ($1.77 million) in annual revenues from the current 30 million rubles, Putin told the All-Russia Forum on Small and Middle-Sized Businesses.

The government will lose more than 100 billion rubles in taxes as a result, the Finance Ministry estimated.

The simplified tax regime envisages an entrepreneur paying only one tax -- either 6 percent of revenues or 5 to 15 percent of the net profit. Most small and middle-sized businesses currently pay taxes on imputed income, which means that the tax inspector calculates their taxes with a complicated formula. Under the common tax system, companies pay revenue tax, property tax, unified social tax and value-added tax.

Putin said smaller businesses would get relief with a decision to scrap cash registers, which became mandatory in all shops in 2003 amid a state effort to boost tax collection.

"The cash registers are often more expensive than the goods that are sold in the shop," Putin said.

Entrepreneurs use 2 million tax registers, which cost an average of 15,000 rubles ($442) each, Putin said. Overall sales rung up on them amount to 30 billion rubles per year, plus an additional 10 billion rubles to service them over the same period, he said.

"With that, the amount of [sales] revenue doesn't matter when one pays taxes on imputed income," Putin said.

Legislation on the cash registers will be drafted by July 1, Putin said.

The measure was welcomed by businessmen at the conference, who said cash registers have become a nightmare for them.

"You first have to buy the machine for 15,000 rubles, then regularly change the flash memory device, which costs 9,000 rubles -- and pay for servicing it all the time," Volgograd businessman Andrei Udakhin said on the sidelines of the conference.

"The data registered by the machine has never been used, because the amount of taxes we pay does not depend on that," said Udakhin, who owns two minimarts employing 35 people.

Udakhin called the new tax measures "very useful and logical," but he said small businesses still needed a lot of changes to the Tax Code. "It is very hard for small and middle-sized businesses to switch to the simplified tax system that, for one thing, requires you to have more than 150 square meters of commercial space," Udakhin said. "Most small businesses don't have that much."

Business confidence is at a four-year low now, Economic Development Minster Elvira Nabiullina told the conference. Forty-four percent of small businesses call high taxes their biggest problem, she said.

Putin said an extra 15 billion rubles would be earmarked for regional funds that offer state guarantees as collateral for small businesses. The funds have received 2.5 billion rubles so far.

In another measure of support, at least 20,000 microloans of up to 1 million rubles each will be given out this year, Putin said.

Sberbank chairman German Gref said Tuesday that the state-controlled bank would introduce a microloan program, under which borrowers could obtain the funds in two to five days.

The state's bailout of banks will be tightly connected with the number of loans they issue to small and middle-size businesses, Putin said. The government has earmarked 10.5 billion rubles to support small businesses this year.

Small businesses will receive 100 billion rubles through state banks in 2009, Vneshekonombank chairman Vladimir Dmitriyev said on the sidelines of the conference. Vneshekonombank, or VEB, has said it will hand out loans for 30 billion rubles to small businesses this year, up from 9 billion rubles in 2008.

The European Bank of Reconstruction and Development and Deutsche Bank are ready to give out loans worth 1 billion euros to Russian small businesses with VEB guarantees, Dmitriyev said.

Although regional banks are growing plump with state cash, the situation has not improved for entrepreneurs, Udakhin of Volgograd said. "The interest rates at the banks are still high, from 28 to 40 percent, which we could never afford," he said. He said the average before the crisis was 16 percent.
Pension funds investment restrictions eased

http://businessneweurope.eu/users/subs.php

bne
April 22, 2009

Russia's Federal Service for Financial Markets says it will ease the rules on what pension funds can invest into and so broaden the number and kinds of assets available to fund managers.

The draft laws will be submitted to the government by the end of May, Sergei Kharlamov, deputy head of the watchdog, said report newswires.

The funds will be allowed to invest in more bonds, investment fund shares, certificates of deposit and bank deposits, he said.

The government has said that it is pushing ahead with its plans to reform, deepen and broaden Russia's capital market that was top of the political agenda until the crisis hit last year.

1Q09 macro statistics reveal a mixed picture

http://businessneweurope.eu/users/subs.php

UralSib, Russia

April 22, 2009

Statistics show weakening domestic demand ... On Monday Rosstat published macro data for March and 1Q09 which indicates a mixed performance by the major sectors of the Russian economy. Not surprisingly, the sectors that gained from growing government protectionism and funding (or from stabilization in global commodity prices) did fairly well. These include agriculture, housing construction and mining. At the same time the figures show a significant contraction in domestic demand with real incomes, fixed investment and retail sales all ending the quarter in the red.

... in line with our expectations. This news is in line with our expectation that the Russian economy is set to post major weakness in the first two quarters of the year. However, we stand by our view that in 2H09 the economy may demonstrate clear signs of stabilization and a modest recovery. We reconfirm our 2009 GDP growth forecast at 0% YoY.

Fixed investment and retail sales down. According to Rosstat, in March fixed investment in Russia dropped 15.4% YoY (-15% YoY in 1Q09). However, the rate at which real incomes fell slowed to -0.1% YoY vs. -4.7% YoY in February and -6.7% YoY in January 2009. Last month retail sales volumes declined by 4% YoY with larger numbers of shoppers opting for small format stores and street markets. Also, in March the share of food in retail sales increased to 49.1% vs 47.3% a year ago.

Unemployment jumped 100 bpt in one month. Another unwelcome surprise in March statistics was the major increase in unemployment which based on ILO methodology Rosstat estimates at 9.5% in March, which is a big increase on the February figure of 8.5% and 8.1% in January Growth in housing, agriculture continues. As a result of increased government funding, the volumes of housing construction in March were up 4.2% YoY (2.1% YoY growth in 1Q09). Growing state protectionism and shifts in domestic demand have also helped the agricultural sector which posted 1.7% YoY growth in March (up 2.1% YoY in 1Q09).

Vladimir Tikhomirov