is this is the end of the oligarch era?

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is this is the end of the oligarch era?

Postby bigearth » Wed Oct 22, 2008 9:25 am

Russia set for sale of the century in reverse

By Charles Clover and Catherin Belton in Moscow

Published: October 21 2008 22:10 | Last updated: October 21 2008 22:10

The Russian state could wind up owning huge chunks of formerly private companies as a result of the bail-out measures it is implementing. A senior Russian policymaker said on Tuesday, however, that the government had no plans to “nationalise” these forfeited shares, but would seek to sell them as soon as market conditions improved.

As a result of Russia’s financial turmoil, many of the country’s oligarchs are in dire financial straits, and $50bn (€38bn, £30bn) of aid has been made available to finance their external debts – part of a $200bn-plus Kremlin plan for national economic bail-out measures.

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Igor Shuvalov, the first deputy prime minister and head of a recently created emergency council set up to manage Russia’s financial crisis, said that VEB, the state-owned development bank, would take shares in companies as collateral for bail-out loans and, if the borrowers defaulted, they would forfeit the collateral.

He said: “We don’t have the goal of collecting as many shares as possible. Our goal is that they [the borrowers] pay their debts. In an extreme situation – and this is not something we need; it is not something we want – then we would receive their collateral. If this happened ... we do not need to sell it right away like a commercial bank. We could wait until the situation was better and the market conditions were better.

“We are not ready to spend internal credit resources in order to nationalise what had once been privatised. We don’t have such a goal. Our goal is only to provide credit, because the companies that receive these credits are going to survive and develop.”

VEB was recently provided with $50bn by the state to finance the external debts of Russian companies which fall due before the end of the year. Mr Shuvalov rejected criticism that the bail-out plan was not transparent, saying anyone who had external debts falling due in the coming year would be eligible. “We will give first to those who need to settle their external debts.”

Russian financial markets are in turmoil despite the massive bail-out measures announced over the past month that total more than $200bn in new liquidity. Interbank lending rates hit 22 per cent this week, though they fell back to 17 per cent on Tuesday.

Elina Ribakova, an economist at Citibank’s Moscow office, said that a share of 387bn roubles ($14.5bn) in uncollateralised deposits given to 120 eligible Russian banks on Monday by the central bank had been exchanged almost immediately into dollars – judging by movements in the exchange rate.

The central bank has banned some currency operations that could be used to bet against the rouble.

Mr Shuvalov said the government had no plans to devalue the rouble or implement exchange controls. He said the state would continue to spend reserves to support the currency.

“We don’t have any plans for this. We consider that a devaluation would be harmful ... We are thinking, ‘These are reserves, let us use them as reserves.’ ”

He said: “The interbank rate was 22 per cent and is coming down. This situation will calm down slowly, but will not calm down immediately, because it has already affected the psychology of people. The interbank [market] has started working normally. The rates are high but coming down. Banks have started crediting sectors again. But we still need two or three weeks for the situation to start improving.”

He added that, despite the crisis in the banking sector, the government was not going to issue blanket credits to banks, but instead continue to work with a few carefully chosen institutions, saying he wanted to see consolidation in the industry. He admitted that the government must “strike a careful balance” so as not to cause a bank panic.

“We do not want to simply bury many bankers. But we do want, at the same time, for the banking sector to consolidate. We don’t want the banking system to simply die. We want to give the chance to those bankers and shareholders who are in a position to cope. If they have extra capital they can use, if they have good management, then they have a chance to make use of this. But if they don’t, then these banks will be acquired and consolidated.”

He said the government had made a priority of three sectors, which it would pay careful attention to – working “with manual control”, meaning the state would encourage banks to lend to these sectors as a priority. “We believed that in terms of administrative order we should concern ourselves with banking, retail and construction. In the conditions of low levels of confidence, banks have stopped giving credits, and they need working capital. And in order that they receive this working capital, it is necessary to create these ‘manual control’ mechanisms in banks, so these banks received assurances that their credits would be returned.”

He said that much of Russia’s economic future, including the economic growth rate, depended on the skill of the government officials who were tending to the crisis.

“If we act unskilfully, then we could have zero growth. If we work effectively, then we will have a positive growth rate,” he said.

Many analysts have noted with irony that the situation is the exact opposite of the privatisation of the 1990s – the so-called “sale of the century”. At that time, the nearly bankrupt Russian state privatised valuable assets by borrowing money from oligarchs, collateralised by state shares, and then defaulted on the loans. Chris Weafer, from Uralsib the Moscow investment bank, said: “It’s a different version of the sale of the century. This time it’s the state that is the oligarch with the money.”

Life and times

1985-1987 Served in the Soviet army 1992 Graduated with degree in law from Moscow State University, worked as an attache at the legal department of the Soviet ministry for foreign affairs 1993-1997 Became a lawyer and worked for legal consulting firm “ALM” 1997 Worked in the Committee on State Properties (GosKomImuschestvo) charged with privatisation 1998 President of the Russian Federal Fund of State Properties 2000 Joined cabinet as head of the governmental apparatus 2003 Became an assistant to President Vladimir Putin 2003 Envoy to G8 and Sherpa 2008 Became first deputy prime minister under when Putin became prime minister. Known for liberal and pro-business views

Copyright The Financial Times Limited 2008
. is it a wise man, who knows that he is not wise
. it's good to have cynicism but not be cynical
. the more truth you live with, in your life, the stronger you are
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