Russian agribusiness group EkoNiva recently got a 2 billion ruble
($32 million) loan to expand its dairy operations in the Black Earth
region of Voronezh. There’s nothing unusual about that, except that the loan
came from the Central Bank of Russia, which has set aside 100 billion
rubles to help finance industrial and agricultural projects.
Central bankers usually stick to macroeconomic policy and leave business
lending to others. But Western sanctions imposed against Russia for its
aggression in Ukraine have made it hard for the country’s banks and companies
to raise money. So over the past few months, Russia’s central bank and
government have become lenders of last resort. “We need to quickly saturate the
economy with long-term, cheap financing,” says Andrey Margolin, an economist
and vice rector of a state economics academy with close ties to Vladimir Putin.
The government says it’s prepared to spend as much as 60 percent of
a $75 billion sovereign wealth fund to help provide financing for
companies as well as major industrial and infrastructure projects. It’s also
pressuring the central bank to expand its project finance program. Separately,
the bank has pumped tens of billions into the nation’s financial institutions
since last year, and has helped state oil giant Rosneft raise money to pay
$26 billion in foreign currency debt.
Moscow has restricted Western imports in retaliation for the sanctions,
and a weaker ruble has made foreign goods more expensive. That should have
created opportunities for Russian companies by boosting demand for their
products at home. But high domestic interest rates and the lack of access to
foreign capital have prevented many from taking advantage of
the situation.
EkoNiva would have had to pay at least 16 percent interest on a
commercial bank loan, vs. the 11.5 percent it got under the central bank
program, according to Wolfgang Bläsi, chief financial officer of EkoNiva’s
German-based parent company. The central bank funnels the aid through a
state-owned agricultural bank.
As the central bank poured short-term financing into the banking system,
lenders were instructed “to put at least 50 percent into projects the
government wanted,” says Vyacheslav Smolyaninov, chief equity strategist at BCS
Financial Group in Moscow. And the Kremlin drew up a list of 199 “systemically
important” companies that will receive priority for aid, including loan
guarantees. State-owned energy giants Rosneft and Gazprom are on the list, as
well as supermarket chains, a fertilizer company, and a consumer electronics
retailer.
Including the money in the sovereign wealth funds, the government has
$358 billion in foreign currency reserves and gold. So why not put some to
work aiding businesses? One problem is that some banks and companies are poorly
managed and deserve to go under, according to Bernie Sucher, a longtime U.S.
investor in Russia who serves on the board of Moscow-based UFG Asset
Management. Bailing them out only delays the day of reckoning, he says. That’s
what happened in the 2008 financial crisis in Russia, when “the government
sprayed liquidity all over the economy,” he says. “The big miss in 2008 was the
failure to use the crisis to pursue deep structural reforms.”
The Kremlin’s largesse will only tighten its control over an economy
already dominated by large, inefficient state-run companies such as Rosneft—a
situation that weighs on the economy. Russia’s growth began flagging in 2012,
long before last year’s decline in oil prices and sanctions pushed the economy
into crisis.
The $358 billion stash could be drained pretty quickly. Reserves
already are down 30 percent from last year’s peak, as the central bank has
repeatedly stepped into the currency markets to buy rubles. If crude oil
remains close to the current price of about $50 a barrel next year, the Kremlin
is likely to deplete a $73 billion sovereign wealth fund it’s been using
to fill a budget shortfall. In that case it would probably turn to the
$75 billion wealth fund—originally intended to buttress the country’s
pension system—now being tapped for corporate aid, says Dmitry Polevoy, chief
Russia economist at ING Bank Eurasia in Moscow.
More than $20 billion in that fund has been earmarked for projects,
but relatively little has been spent. That’s partly because the Kremlin is
carefully doling out the money in installments and partly because red tape and
bureaucracy have slowed distribution, Polevoy says.
Central Bank Governor Elvira Nabiullina is reluctant to expand the
lending program that aided EkoNiva. She said in June that the program hadn’t
stimulated private investment, as backers had predicted it would. Others, including
Dmitry Tulin, a first deputy central bank governor, want to do more. “If our
financial system doesn’t turn its face toward material production, then our
country won’t have a future,” he told the newspaper Komsomolskaya Pravda in
April. Meanwhile, the Kremlin is mining new sources of aid. Its latest find:
Rusnano, a state investment fund created in 2011 to support an emerging
nanotechnology industry. On July 27, Rusnano announced it would put almost
$100 million into a new pool for Russian companies that would help reduce
the country’s dependence on imported technology. Its co-investor: Moscow-based
SMP Bank, owned by Putin friends Boris and Arkady Rotenberg. “There’s no
limit to where they’re looking now,” a senior government official says.
“They’re taking money wherever they can find it.”
With Ilya Arkhipov and Andrey Biryukov
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