Vnesheconombank Deputy Chairman I.V. Makieva’s Interview to Regnum News Agency
In the course of the Petersburg International Economic Forum -2015 Vnesheconombank Deputy Chairman Irina Makievatold about how Russia’s Mono-Cities Development Fund operates.
Corr: Irina Vladimirovna, recently the list of Russia’s mono-cities has undergone some changes; the Government issued a new executive order, the list’s structure changed.Quite how?
Irina Makieva: In accordance with the package of measures for boosting mono-cities’ investment appeal approved by the Russian Prime Minister, the Russian Economic Development Ministry together with the Working Group on Modernizing Mono-Cities under the Governmental Commission on Economic Development and Integration is to review at least once a year the list of Russian mono-cities by upgrading (if necessary) all its categories. Every year the situation changes – some cities improve their situation, the others worsen it. Each year we have to check what sectors are feeling worse than others. For example, the automotive industry is now feeling worse and the aluminum industry is feeling a bit better.The same is done with regard to mono-cities of relevant profiles. Therefore cities with such basic sectors as automotive or mechanical engineering industries replenish the “red zone”. After the latest review of the mono-cities’ list the “red zone” numbers 94 cities (earlier there were 75 cities). 68 cities are ready to move forward cooperating with the Mono-Cities Development Fund.
Corr: Out of 94 cities 68 are ready to move forward. The remaining 26 can be diagnosed for being more dead than alive.
Irina Makieva: No, of course. There are cities that do not want to work. They believe that everything is fine if people can find jobs on their own in the nearest population centers. In the course of our work we saw that there are territories that do not give any proposals for improving their situation. We continue to work with them, monitor the situation, hold videoconferences, trying to understand the situation which is developing there. If we see that a great number of people working at a city-forming enterprises might be laid off , we work with it in a special way. For example, two weeks ago we held a conference devoted to NaberzhnyeChelny. We are working on a proactive basisforecasting a situation 6-8 months in advance – sometimes with cities that are not included in the ”red zone” but where risks are quite high. We start working even if workers have not been given notice of dismissalbut there is a forecast of the negative development of situation.
Corr: Nevertheless, you say that there are cities that do not want to work. What does this mean? As a rule administrations of cities meet representatives of VEB and the Monocities Development Fund with prepared lists of residents and tasks which need the state’s support. It’s quite obvious that they are interested in this support.
Irina Makieva: But before starting a business tripwe work very hard and meticulously, we hold dozens of meetings of our working group in order to find investors because there are territories that do not offer much or they propose business fantasies or business ideas.
For regional businessmen to move from business ideas to business plans we have to perform pretty meticulous, methodical and routine work whichremains invisible. But there are territories that are not ready for this work. For example in the city of Nadvoitsy (the Republic of Karelia) a very grave situation developed. We have been working with them for a year and a half. We find it extremely difficult to find investors. Local business is very passive. They believe that if someone will be the first to come from outside, they will see and might think and decide if they should expand their own business.And we have to work longer and talk more harshly with such cities as Nadvoitsy than with others because it is in thesedifficult, slow starting territories we need to create jobs. We understand this and administrations understand this too, but business does not trust anybody. And we hold not only visiting conferences on such territories but also business forums unseen for such territories in the past. We bring people from the whole country to these territories – the best managers of Tatarstan, Siberia, the best practical experts from across the country. And these businessmen tell them how they started their businesses and how they achieve their goals. Unfortunately, we haven’t achieved tangible results so far. But we’ll go on working until we can persuade people that they should work where they live and do their best.
Corr: And for the time being, these slow starting territories are just waiting for the state to provide them with non-reimbursable money and that would be the endof everything?
Irina Makieva: Territories vary a lot. There are territories that try to work with people, work with local big and medium-sized businesses, and prepare documentation. But there are also territories that adopt a wait-and-see attitude – we’ve got money but it might run short. And we might have to make too much effort. So, we above all support those difficult territories where business seeks to develop and people living in the city want to make changes andan administration makes strenuous efforts to transform a depressive situation into a stable one.
Corr: The list of “redzone”cities is increasing. Has any city you’ve started to work with moved from a “red zone”into a “yellow one”?
Irina Makieva:Not yet. Decisions were made to commit money to several cities but so far tenders are being held for selecting contractorsto build water-pipe lines,boiler stations, sewage treatment facilities. This is a legal procedure making it possible to make projects less expensive. Investment projects are waiting for construction projects to start in order to begin developing facilities at these sites. The first decisions on committing funds have been made with regard to two most problematic cities of the Kemerovo region: Yurga and Anzhero-Sudzhensk. A decision on Kanashwas made two and a half weeks ago, a decision on Krasnoturinsk –was made a week ago. A decision on Kameshkovohasn’t been made yet - documentation and investors are being examined. We are planning to visit another five cities in August-September.
Corr: In one of your interviews, you said you worked with territories in a manual regime and that it would make sense to set up a universal office to process “red zone” projects. Does it mean that cities are often passive?
Irina Makieva: There is no doubt that above all we select cities that have design estimation documentation. Butthere arecities that can be described as scroungersand they believe that if they got in the “red zone” everything should be done for them by someone else. But the Mono-Cities Development Fund is not authorized to work instead of them. An algorithm is as follows: you got in the “red zone”, you developed a comprehensive investment plan. This plan includes a manpower balance sheet, a state of small and medium-sized business, education. This a small and easy to understand document. You develop documentation, you find an investor, you come to our working group. We take two pages from this document and one table which is called manpower balance sheetand itincludes information about possible layoffs at a system-forming enterprise and a potential of investment projects, that is, dynamics of a possible smooth transfer of workers from one enterprise to another without any interruption and a sharp growth in unemployment. We can see all emerging problems from these documents. We ask cities to develop documentation… Andthey respond: And what if you’ll deceive us? We’ll spend money and you won’t support us? We can’t yield to this sort of blackmail. We tell them to have a try. If you do this,we’ll go further with you. The Monocities Development Fund shouldn’t do this work instead of territories, it’s not its responsibility. This a region’s responsibility if it wants to move further it should do something. We can assist in searching for investors, we can enter into companies’ capital, we can help with money, we can help to train managerial teams that will be in charge of business processes on the territory but we won’t work instead of regions.
Corr: You spoke about small and medium-sized enterprises at the Petersburg International economic Forum. Is it true that demand for small and medium-sized enterprises in mono-cities has increased now?
IrinaMakieva:To be more exact, the demand for credit facilities increased. It is associated with the fact that SME Bank Management Board Chairman Sergei Kryukov is a member of the working group on mono-cities, he always travels with us and see this problem from inside. Sometimes SME Bank tackles a problem on a turn-key basis, that is, provides preferential credit facilities to all businessmen of the city on equal terms. Sometimes representatives of small and medium-sized enterprises become residents on the territory of a business park. They come to us and say that banks are ready to extend credits to them at an interest rate of 30 percent. Being aware that cooperation with mono-cities is one of its priorities, SME Bank increases partner banks’ limits and then an interest rate for small and medium-sized enterprises in these cities reduces from 30 to 13 percent and money is provided for a tenure of five years rather than a year. That is, this money becomes long-term and inexpensive and this contributes to the development of small and medium-sized enterprises
As earlier reported by Regnum News Agency, on November 11, 2014, Russian Prime Minister signed an executive order to provide the Monocities Development Fund with a subsidy from the federal budget worth 3 billion rubles and another 26.6 billion rubles are scheduled to be received by the Fund in 2015-2017, this document also specified the rules for providing the Fund with this subsidy which will make it possible to start work as soon as possible.
Dmitriev: VEB to get involvedin implementing a project “the Moscow Kazan high-speed railway (HSR)”
TV Channel Russia 24
HOST: We are now in touch with Maria Bondareva from the Kremlin, she is interviewing live Vnesheconombank Chairman Vladimir Dmitriev. Only a short time ago talks and a news conference between President Vladimir Putin and PRC President Xi-Jinping ended.We’re listening, go ahead Maria.
CORR.: Vnesheconombank Chairman Vladimir is next to me now. Good afternoon Vladimir Alexandrovich.
Vladimir DMITRIEV, Vnesheconombank Chairman: Good afternoon.
CORR.: Vladimir Alexandrovich, let’s start with the contracts you have signed here today. One of the contracts was signed between Vnesheconombank and the China Development Bank for an amount of 8 billion dollars. Tell us about this agreement in more detail.
Vladimir DMITRIEV: First, it should be stressed that we have been fruitfully cooperating with the China Development Bank for a long time – this is our partner bank. It performs the same functions as Vnesheconombank. We signed and implemented a whole number of agreements on funding projects in such sectors as timber processing and power engineering; we also cooperate closely within SCO. Butthe said major agreement provides for cooperation in implementing projects in the Far East. They include projects in infrastructure, power engineering and agriculture. We also hope that the China Development Bank will get involved in cooperation between development banks of the Eurasian Economic Union in implementing a project “The New Silk Road” And we are holding a dialogue with the China Development Bank and our partners from Kazakhstan and Belarus on this issue. A relevant agreement is to be signed on the issue. We believe that this format will suit our Chinese partners well and we are going to jointly explore and in the long run implement projects that are of interest for our countries.
CORR.: When could you sign this sort of agreements? Is the statement on cooperation within EAEU and the Silk Road project a main document that has been signed today by President Putin and President Xi-Jinping?
Vladimir DMITRIEV: We believe that we’ll be able to reach more concrete arrangements by this September when we mark the end of the Second World War and when the head of our state visitsthe People’s Republic of China. This is a suitable format for us to sign relevant documents in the presence of heads of state. But it’s important that the China Development Bankis not the only partner for us. We have also signed an agreement in yuans today with EximBank of China. Sberbank also signed an agreement with the China Development Bank. Basically, these are breakthrough agreements in financial cooperation between banking institutions of our countries as they open up the way not only for trade but also for investment cooperation. In this sense, a lot has to be done. Last year they signed agreements at central banks’ level on currency swaps, they are still valid with regard to trade relations,credits are extended for a tenure of 1 year at most. Through intermediary of our partners from EximBank of Chinawith the National Bank of China and the Bank of Russia we are now holding talks about expanding the format of using national currencies with the help of swaps and apply them to investment transactions for a tenure of more than one year.
CORR.: Are you going to sign any other similar agreements on mutual payments?
Vladimir DMITRIEV: It is important that an agreement signed today is not a framework one. It is a concrete agreement and it is applicable to a credit transaction, which VEB is implementing in Khakassia. It’s a project on the construction of manganese plant on the basis of deposits in the Kemerovo region. We believe that our Chinese partners can fund a part of equipment, which will be imported fromChina and end products might be in demand in the People’s Republic of China. Another agreement we are considering with our partners among other things with EximBank of China is also tied to concrete projects. It’s not a framework agreement, these are concrete transactions to be funded in the regions.
CORR.: What kind of projects are they?
Vladimir Dmitriev: These are projects in small-scale power generationon the Kola Peninsula. Our Chinese companies are experienced enough in this field and they have pretty competitive equipment they are ready to supply and EximBank of China can fund this transaction. There is also a transaction in minerals production and primary processing. In this respect we have now a project we are considering together with Nornikel. So, there are a whole number of projects that can be funded by Chinese banks. Out of them,I’d like to highlight a project on providing affordable and comfortable housing which is very important in terms of socio-economic significance. We are implementing it with the China Development Bank and the said 8 billion dollars could be usedto fund the project in which capabilities of the Housing Mortgage Lending Agency and Vnesheconombank will be employed. Affordable and comfortable housing is a large –scale project. We’ll engage Chinese contracting companies in implementing it and ensure Chinese funding.
CORR.: An agreement on cooperation on the construction of the Moscow-Kazan high-speed railwayhas been signed. And VEB plans to somehow participate in this cooperation?
Vladimir DMITRIEV: We believe that this contract will be implementedincluding throughdebt financing. Chinese banks will fund supplies of Chinese advanced equipment and machinery to implement this mega project on the construction of a high-speed railway. So, Chinese banks need Russian partners which will raise financing to lend to Russian banks or to extend guaranteesagainst credit facilities to be raised by Russian companies. That is why we believe that there is a serious potential for cooperation between banks similar to the one we already have with Exim Bank of China and with the China Development Bank.
CORR.: How do you feel about attempts by the Russian Direct Investment Fund (RDIF) and the China Construction Bank to create a mechanism for raising Chinese investmentsfor Russian companies?
Vladimir DMITRIEV: In the current situation when our capabilities to raise foreign investments are limited, we rely on those countries that are ready to fund in national currencies and that did not join sectoral sanctions. This opens up additional opportunities for raising investments for projects ensured by debt financing. We have discussed this issue directly with the RDIF management and with the management of the Russian-Chinese Investment Fund. We can see opportunities for cooperating in implementing a whole number of projects where we provide a senior tranche to fund this debt financing project, with quasi-investment andquasi-equity financing being provided through using financial resources of the Russian-Chinese Investment Fund and the China Development Bank. I think that this scheme with mezzanine financing might be attractive – on the one hand it will reduce debt burden andon the other it will ensure pretty acceptable terms of funding these investmentprojects.
CORR.: My understanding is that it’sa matter of dozens of billion dollars?
Vladimir DMITRIEV: Given RDIF’s potential as well as capabilities of the Russian-Chinese Investment Fund and the China Development Bank with which we have signed this agreement today we can say that we deal with transaction worth about 10 and more billion dollars. Let’s show that this scheme works and that it can be used by Russian and Chinese banks to fund concrete projects where part of funding is carried out not only through debt but also through equity capital.
CORR.: Thank you very much.
Vladimir DMITRIEV: Thank you.
May 1, 2015
The state and state institutions can manage large funds efficiently. VEB’s activity is a vivid evidence of it. Last year, Vnesheconombank became the most efficient bank on the market for managing pension funds compared with private pension funds (PF). In his exclusive interview,VEB Chairman Vladimir Dmitriev told us about how they managed to achieve such a result as well as about possible funding of Russian investment projects in yuans.
According to the financial statements, Vnesheconombank’s loss in 2014 amounted to 250 billion rubles. Vnesheconombank Chairman Vladimir Dmitriev links financial losses to a growing economic crisis and Western sanctions.
-Good afternoon Vladimir Alexandrovich.
-Good afternoon Alexei.
-I’d like to start with the Bank’s financial statements for 2014. VEB acknowledged a loss of almost 250 billion rubles. How can you explain such results?
-In fact, under the international financial reporting standards (IFRS) we posted a loss of a bit less than 250 billion rubles last year. And this figure was not a surprise for us at all. You have to keep in mind that what we mean here is VEB Group’s consolidated financial statements which includes financial, non-financial companies and banks including those located outside the Russian Federation. Therefore, the loss was formed from these institutions’ activity. But it goes without saying that Vnesheconombank is responsible for the most part of this loss. But I’d like to start with our last year’s results. They are rather impressive for us.We increased our assets by 17 billion rubles to a bit less than 4 trillion rubles.
Our loan portfolioincreasedsignificantly by more than 40% to more than two and a half trillion rubles. And I’d like to stress a higher quality of this portfolio where as compared with 2013 we changed significantly its structure in favor of extending long-term credits at interest rates that are lower than markets ones and suit our creditorswell. Now funds extended to our customers in our Bank’s assets account.for68% as opposed to 56% in the aggregated assets in 2013. This is a result of the strategy, which was approved by our Supervisory Board last year – “Vnesheconombank’s Development Strategy until the Year 2020”. It provides for a basic scenario of development in accordance with which we are to build up our loan portfolio and influence investment climate as well as key sectors of the Russian economy.
Let’s get back to our financial results. In fact, we posted a loss of 250 billion rubles under the International Reporting Standards with regard to our whole Group. Nonetheless, we shouldn’t forget that Vnesheconombank, Russia’s entire economy and banking system had to operatelast year under very difficult conditions – a growing economic crisis, sanctions implications, limited borrowing opportunities, increased credit rates, the ruble’s dramatic fall. So, we had to revaluateour expenses. We were forced to revaluate bonds, this is something about 20%, and the revaluation of foreign currency position brought about a loss of 30 billion rubles. As we have to apply the international financial reporting standards, a number of transactions including those related to entering into capital resulted in a negative revaluation. For example, a transaction with the Sukhoicompany which was conducted in the interests of supporting the Russian aviation industry, specifically, Sukhoi Superjet-100 resultedin a negative revaluation in the amount of 15 billion rubles. But the largest burden and the biggest part in this negative revaluation and in the final financial resultwere caused by the need for creating reserves. These reserves are against our loan portfolio.And here Olympic facilities account for a large share. And the negative result is also related to the situation in Ukraine.It is no secret that we have a subsidiary in Ukraine with regard to which we posted a negative result due to the reserves it created against its assets in Crimea and in the South –East of Ukraine. But having posted losses for the previous year, we are planning our activity in such a way as to halve this negative result by the end of this year by working activelywith our loan porertfolioand improving work with bad debts qualitatively.
-You’ve just said about forming reserves. You’ve got a good capital adequacy ratio, if you were a commercial bank, I would say your bank is a success history. But is this the case when we mean VEB? VEB is a special bank.
-You’ve touched upon a very important and pressing theme talking about capital adequacy ratio. In the second half of the last year, to be more exact, since autumn, measures for providing VEB with the state’s supporthave been put into effect. In fact, as opposed to commercial banks, which have their own shareholders and can raise natural and legal entities’ funds we are barred from engaging in this kind of activity by the Law “On the Bank for Development”. So, the main source of capital for us, especially under tense conditions, is the state. Epoch-makingdecisions were taken for our Bank in the second half of the last year. They include the conversion of NWF deposits into two-tier capital and at the end of the year, we received a subsidy 30 billion rubles factually a monetary contribution to Vnesheconombank’s capital. Of course, these measures allowed us to ensure financial stability of our indicatorsas well as financial strength of the Bank itself. And as opposed to the beginning of the year when our capital adequacy was less than 10.5%, we managed to reach a ratio of 14.3%. It’s a good safety cushion.But it’s not the time to relax taking into account that the market remains turbulent. So, we should pursue an exclusively conservative policy both in terms of lending and in terms of operating on stock markets.
-Is it a good or a bad thing that VEB is usually put on a par with commercial banks? You’ve got Basel-3 regulation and the Law “On the Bank for Development” as its regulatory standard which you should honor. How are you feeling here?
-You are right. Sometimes they try to compare VEB with commercial banks. But we are not a commercial bank at all. Because we are a development institution, we are a special bank. As far as a number of operations are concernedwe vary substantially from commercial banks. It is known that last year our loan portfolio was divided into two parts: development projects proper and the so called special projects where credits are not in line with requirements for usual credits that are extendedon condition of reimbursement, serviceability and tenor (our activity’s main principle is breakeven). These credits do not comply with certain standards. But on the other hand, they are aimed at implementing key projects that are marginally loss-making. But the state does this consciously being aware that no other institution can fund these projects.
-Is this an adaptation to new realities? Or was it a planned strategy?
-Most probably, these are the consequences of the crisis in 2008 and 2009. At that time, we had to rehabilitate commercial banks on an ad hoc basis in the absence of relevant legislation and save enterprises that were in a pre-default state but they played an exclusive role for some industrial sectors and socio-economic situation in various regions. Vnesheconombank played a positive role at that moment. This year the situation with regard to the enterprises we rehabilitated is optimistic. As far as Vnesheconombank’s loan portfolio as a bank for development is concerned, it varies significantly from commercial banks’ portfolio. The difference is that these are long-term credits and interest rates we offer to our customers are in line with their financial model and this is usually project financing where there are risks associated with the lack of collaterals, a project proper and a project’s initiator. The practice shows that in most cases commercial banks are not willingto implement such projects. Vnesheconombank is an institution whose mission is to fund such projects.
-Traditionally people believe that everything that is associated with the state, for example, financial resources, state administration is not efficient. It’s quite the opposite in case of VEB. This proves that the state and government institutions can manage large funds efficiently, for example, pension savings. They are managed by Vnesheconombank and it’s one of its main lines of activity. VEB was the most efficient bank on the market for managing pension funds compared to commercial banks. I hear that the year ended rather successfullyWhat can you say about managing pension funds?
- Yes, we achieved a positive result as compared with many non-governmental pension funds and managing companies and we posted an income of a bit less than 3% with regard to our extended investment portfolio. Of course, we should keep in mind that we were in an increased turbulent market zone and a serious uncertainty associated with debates about a reform of the pension system.Thank goodness, the Government made a decision that the funded portion would be retained, we sent our recommendations and now we are actively involved in in discussing the future of our pension system. And we would like contributions to the funded portion cancelled in 2014 to be returned to the pension system. It should be also kept in mind thatuntil the end of 2015 would be pensioners will have the right to choose either non-governmental pension funds or a state management company, that is, Vnesheconombank. And if Vnesheconombank’s proposals are accepted andimplemented we’ll be able to have 300 billion rubles of long money in our portfolio annually. This money will be invested in real sectors of the Russian economy. We should keep in mind that in the past years we formed a significant portfolio of long money that was invested in the Russian economy. Last year, 200 billionrubles worth of bonds were bought out from such issuers as the Russian Railways and a number of other corporate issuers.
-What’s going on foreign markets? It’s natural that under the conditions of sanctions Russian companies’ access to foreign capital markets, the more so with state participation is severely limited. Nevertheless, in the foreseeable future we’ll have to enter them. What are the prospects here?
-We should admit honestly that foreign markets are closed for us as well as for other banks and companies that are affected by sanctions
-That is, Western and Eastern ones in general?
-No, I’m talking about the countries that imposed relevant sanctions against us. You know that our subsidiaries are operating in the Persian Gulf zone - they are raising funds from national wealth fundsof respective states. We are actively operating on the markets of South-East Asia above all with our Chinese partners. We have strong long-time relations with the China State Development Bank. Our Chinese partners honor obligations under agreements concluded earlier and they are readyto fund us against specific projects with Chinese content. I’m sure that in the near future we’ll sign the first investment agreement on financing a project in Russia inyuans. So, we are acting actively. But taking into account that a large amount of funds in our loan portfolio were raised on Western markets - on the markets of the US And Europe. We do not hope that in the near future we’ll be able to refinance our credits on these markets. But on the other hand we realize that we have to form our own market for borrowings and fund our customers in rubles so that they buy equipment, manufacture products for export and for the domestic marketand make payments to Vnesheconombank in rubles.
-What do you expect of the year 2015, and will it be difficult for VEB to post profit?
-I think that we’ll post a loss for this year, because the situation remains volatile and uncertain. It will be less than in 2014. Many credits are in the process of refinancingand this creates additional risks to forming reserves. Nevertheless, we’ll be building up our loan portfolio and we’ll expand our presence on the stock market. And the main thing we expect from 2015 is a launch of the projects we started to fund as soon as we became a Bank for Development.
-Vladimir Alexandrovich thank you for finding the time coming to us.
-Thank you Alexei.
The interview was conducted TV Channel Russia 24 host Alexei Bobrovsky.
Vnesheconombank First Deputy Chairman, Member of the Board P.M. Fradkov’s interview to Vedomosti newspaper
Philipp Sterkin, YelizavetaBazanova
April 22, 2015
“My ambitions are to boost Russian exports”
The Fradkovs are a dynasty of government officials: they work as functionaries and state bankers. Petr Fradkov has been with Vnesheconombanksince he was a student. His dad helped him to get a job with Vnesheconombank, he admits. So far, he doesn’t have any ambitions to repeat his father’s success and become Prime Ministerbut he is following his father’s path – foreign economic ties (his father’s track record ranges from foreign trade to foreign intelligence). Since 2011, Petr Fradkov has been in charge of the Export Insurance Agency of Russia (EXIAR). Since 2011, the Agency has insured export supplies worth more than $6.5 billion. Now he is going to engage in non-financial export support by way of simplifying procedures, consulting and helping to tap new markets. In his interview to Vedomosti he is trying to explain how exactly he is going to go about this.
-Did your father help you in your career?
Yes, he surely did.He helped me with advice and suggestions at the start of my career.
-And what about moving up the career ladder?
-After graduation, I started working as an expert for a respected institution, namely, VEB. It was the first career push.
-Your father served as Prime-Minister, what ambitions do you have? Would you like to occupy the same position?
-Not bad (laughing). You took me by surprise. I’ve never even thought about such a prospect. (laughing). All my thoughts are associated with supporting exports. My task is to combine interest with implementing ambitious plans.
-So far, your ambitions are to boost Russian exports.
-Now your father is involved in foreign intelligence, he is the head of the Foreign Intelligence Service. You are responsible for exports. Do you somehow discuss your work?
-I can’t discuss his work. (Laughing)He is interested in exportsafter all it’s a question of foreign trade in which he was involved in his young years.
We don’t see much of each other, so there are many things to discuss besides work.
-Would you like to join the Russian civil service?Are there any offers?
-I haven’t been a civil servant. So far, I haven’t received any offers, so there is nothing to discuss.
“He let this theme through himself”
What’s the main aim of a Russian Exports Center being set up?
-It has become clear in the past two years that there is a need to consolidate services for exporters. We were active in working directly with exporters both when we launched EXIAR and as part of a road map to support exports, (the road map “Support for Access to Foreign Countries’ Markets and Exports Support”, it was approved by Resolution of the Russian Government dated June 29, 2012, № 1128-r Vedomosti). It is one of the road maps that wasworked out in due time as part of the national entrepreneurial initiative. Unfortunately, in those times exports were not perceived as a key priority. Nevertheless, a task of creating conditions for export activity was formulated and they started to implement it. Nowadays the third revision of this road map was approved by the Government in early April. And we could clearly see that for addressing this task we need to create a unified exports support system. Until that time we segmented our work from various points of view. We successfully worked on financial exports support instruments includingVnesheconombank'sundertakings. It established EXIAR, restructured Roseximbank but this is far from being sufficient now.
Exports support system requires both financial and non-financial measures. And it was the work on the road mapthat was an underlying factor in our strenuous efforts to form an exports support system. We held lengthy discussions with First Vice Premier Igor Shuvalov who took charge of the work and with Andrei Belousov who started to work on the road map and is taking part in developing it and with line ministries and ministers in person. And as a result it became clear that we can’t createan adequate exports support system using only financial assistance rendered by EXIAR and Roseximbank. On the other hand it makes no senseto developnon-financial instruments separately. We need a unified management system. A decision was made to set up anappropriate institution – a Russian Exports Center. And now we are taking strenuous efforts to launch it. On April 13, Dmitry Medvedev signed a decision to establish an institution within Vnesheconombank.
How did you take this sort of decision with Shuvalov?
A Russian Exports Center is Mr. Shuvlov’s initiative. I think he explored this theme thoroughly,if I may say so, he let it through himself. At the meetings, he often cited experts’ opinion about China that didn’t isolate itself under the conditions of sanctions in the late 1980-ies and on the contrary liberalized its exports - legislation, a support system etc. Mr. Shuvalov’s backing made things easier for us including a decision on a corporate structure,Igor Shuvalov was in favor of creating an exports center on the basis of VEB, given its mandate as a development institution, with EXIAR and Roseximbank to be transferred to the Center in order build up a unified system of strategic exports management within VEB. We enjoyed full unanimous support here.
-An original idea was to create many support pointswithout any overlap points and now an idea to unify has emerged. Sometimes from the outside it appears that separate points do not function well.
-Nobody says about poorly functioning points, what is meant here is the absence of a unified system. After some years, we can see better how the exports support system should work more efficiently. New things are coming into being. In recent years, we have launched an export insurance mechanism as well as an exports subsidy mechanism. These are new things. A lot has beendone in terms of finance, it’s a new stage as regards our road map. This is just a new system, a new quality. And it is too early to say thatit will replace the bad one.
“A stereotype that exports are nonexistent is not true”
-You say that the idea came into being two years ago but now the economic situation and the situation with exports have changed.
-It wasn’t an idea to set up a center two years ago, it was a matter of systematic exports support. It became clear that the then exports support was not in line with requirements and needs of Russian exporters. At present, we have institutions and agencies, which provide nonfinancial support for exports – export transactions support on foreign markets, identifying demand for domestic products, studying operational specifics on various markets. Matters related to export contracts execution are also within their competition. In the past, even exporters who wanted to be supporteddidn’t apply to the state for help because the exports support system was not structured enough. We arrived at a conclusion that we should create a system of one window through which exporters would able to receive a whole range of services to support their products on foreign markets. This system will be a sort of assistant, a broker between exporters and institutions without taking functions from institutions.
-What do you mean by a broker?
-Broking is a reaction to the fact that functions to support exports are performed by various institutions. The Center being set up will be a partner for exporters in receiving a whole range of services. When exporters apply for support, they will not need to know how this mechanism operates but they can be consulted on any matter. And as result it won’t take them long to receive financial support and a range ofnon-financial services. Non-financial services will be offered by institutionsat the request of a Russian Exports Center and they will choose form of cooperation.
-What non-financial services will be offered to exporters?
-A list is rather long. For example, assistance in customs clearance, export VAT-refund execution.
-The Russian Federal Tax Service is responsible for this.
-In most cases small and medium-sizes exporters do not simply know howto execute documents on refunding VAT.
Butwe have an accelerated tax refund system.
Nevertheless, problems arise even today both of technical and substantive nature. We are working on a procedure for exporters to apply to the exports center and then the center and FTS will use their own regulatory procedure to settle a given problem. The same applies to the customs service and market promotion issues.
For example, we have a system of trade missions abroad. There are more than 50 of them. But in practice few exporters cooperate with them and it’s not because trade missions do not want to work with exporters – in most cases exporters do not simply go there and trade missions are not in a position to address specific tasks for business.
This exports support center will be also responsible for promoting Russian products to foreign markets as well as for processing exporters’ requests jointly with trade missions thus developing jointly trade mansions’ project business competence.
-It’s hard to imagine that trade missions are capable of assisting greatly in promoting products to the market.
-There are always two approaches here – you can close and break up quickly what was in place for yearsand you can try to reform on a step by step basis. One of the reasons to set up such a centeris to introduce andapply all state mechanisms for them to start operating as a single market mechanism. Surely nobody says that trade missions should become commercial organization with comprehensive market competence – it is not possible. The center will assign a task to trade missions both directly and by asking specific questions with regard to promoting a specific product made by a specific manufacturer to specific markets.
An estabblished stereotype that there are no exports and that Russian exports are not competitive is not true. One of the center’s goals is to form and support a continuous flow of various projects of all kinds of companies.
-In order to advise on various matters you need a large staff. Are you going to employ specialists on the staff or are you going to hire them on an outsourcing basis.
-There is no doubt that there will be a combination of both. We wouldn’t like to create another garbage-like structure that would be responsible for everything. We presume that there won’tbemany people at the firststage, we don’t need a numerous team. Our center will focus on developing non-financial instruments and EXIAR,Roseximbank and VEB will be responsible for providing financial support.
There are many non-financial lines of activity for example providing support for access to the market, protection of intellectual property, certification, permission documentation etc. And there is no doubt that one and the same expert won’t be able to specialize on France and on Yemen at the same time, we won’t have expertson each line of activity, on each country but we’ll have a group of highly qualified experts on specification and special regulation and we’ll have a special group on taxation and currency control and as far as highly specialized matters are concerned we’ll turn to outside experts.
“Ministries will never be customer-oriented”
-How are you going to capitalize this center?
-So far, a decision has been taken that VEB is to capitalize the center became it is being set up in its structure. The Bank will be the center’ssole shareholder. EXIAR’s and Roseximbank’s shares will be transferred to the center. At a pilot launch stage, it will be enough for us to use our own financial resources. Our center is being set up not to make money on exports, so we don’t plan to charge money for our work from exporters at an initial stage. Maybe, if the center’s performance proves to be super-efficient and exporters confirm that the center is of great help for them in terms of financial resources, consulting and promotion and if the center develops a unique market product, we’ll explore the possibility of receiving commission for our work but this won’t happen at the current stage. So, we are going to discuss this issue with the government and experts later.
-Maybe, the center should operate on a semi-commercial basis?As a rule when I pay, I expect to be served well and those who serve me will try to do their best.
-All the exporters we talked to, showed their interest but their interest and their readiness to pay are different things. Now we should start working and the closer we are to specific project matters the easier for us to see if we need paid services.
-You’ve mentioned that you hold meetings with exporters, you had a meeting with Mr. Shuvalov but the center is oriented not for big business but I’m sure big business participated in the meeting with Shuvalov?
-When we met with Mr. Shuvalov, we focused on medium-sized companies. But nobody says that we won’t provide support for big business. But let’s be realistic – big companies are capable of addressing their problems on their own they have their own funds. Our mission is to inform small and medium-sized companies about instruments, about existing opportunities.
-How can you inform so many exporters – it’s a very difficult problem.
- It’ a difficult but manageable question. I have experience from working at EXIAR.Just imagine, three years ago a mechanism came into beingwhich nobody could in principle understand. Can you imagine if a new concept of “credit” had emerged only three years ago? Now everybody understands this concept and even now sometimes questions arise. And there appeared a concept of export insurance. Sometimes people reacted aggressively as if it had been another attempt to trick people out of their money. But we did our best to communicate by giving explanations, holding dozens, hundreds of workshops as well as meetings with exporters and financinginstitutions. I held this kind of meetings myself, so I believe that our center’s functions, above all at the first stage should include communication with regions: we should tell them about financial and non-financial instruments, hear regions and get to know their needs, identify required changes in their business environment to address issues of supporting exports on a systemic approach. We don’t have such a structure now, we have only a list of ministries which work in their niche.
-This is what the Ministry of Economic Development is designed for.
-On the one hand it is, but on the other, it is not. Look for example at the distribution of powers in the Ministry of Economic Development, the Ministry of Industry and Trade. The Finance Ministry, the Federal Tax Service, the Federal Customs Service as well as the Federal Service of Financial and Budgetary Supervision and many others operate in the exports sector.
-German Gref often criticizes the public administration system and he proposed setting up a center to manage reforms outside of ministries and you also made a decision to set up a new institution on the basis of several existing ones which appear to be functioning inefficiently. All this testifies to the fact that the existing administrative machinery is not capable of meeting the interests of market players?
-Here I mean a different thing and to my best knowledge, this is the case with very many countries. Ministries will never be customer-oriented. A ministry’s goal is to perform clearly defined state functions. Ministries are responsible for rulemaking and law enforcement. Ministries do not have customer-oriented and service functions. So, we’ll have to lobby businessmen’s interests at those ministries too.
-Sanctions are a main motivator
-Who will be in charge of the center?
As a decision was made that this structure is being set up in VEB because VEBis a bank for development and since I’m responsible for exportsI can’t rule out that I’ll be in charge of the new center.
-You’ll be in charge of the center and Vnesheconombank First Deputy Chairman at the same time.
-Yes, I will – interaction with VEB is of crucial importance.
-How are exporters surviving under the conditions of sanctions? How do you help them?
-As far as sanctions are concerned-it’s to a great extent a financial issue. I can’t see any opportunities her to offer any non-financial services there isn’t much room here. Probably we’ll focus on legal matters related to exports if we don’t mean dual-purpose products, and there won’t be any legal problems.Subtleties emerge when we talk about funding exports, we are dealing with them,for example, we help exporters to find financial solutions for reentering other markets. Will sanctions limit the center’s activity? No, they won’t. On the contrary, exporters need additional assistance. We can say that sanctions have become a main motivator for our increased efforts to support exports. So far, we can’t see any problems directly related to raising financing for export transactions in the financial sector. Many projects are moving forward but with a focus on other markets – CIS, South-East Asia and Latin America.
-Are there any interesting contracts made on the Asian market?
-Yes, there are. Quite a few. Last year exports to the Asia Pacific region countries including India amounted to 110 billion dollars and foreign trade turnover with the region according to the customs is by volume the second after Europe. There are many large-scale projects, for example supplies of Russian-made turbines and there are also many small-scale projects worth hundreds of thousands of dollars and these segments of supporting small- and medium-sized exports should be enhanced.
- We often hear that China is our partner. But bankers and companies say one and the same thing – nobody is waiting for us in China, nobody is going to provide financing, China focuses on the development of its domestic market. What do you think about promoting our exports to China?
-China is a counter agent and we have to hold lengthy and detailed negotiations with it. Before I moved to EXIAR, I was responsible for raising funds at VEB. We performed long and detailed work with the Chinese – tens and hundreds of meetings. But after making a decision, nobody works as fast as our Chinese colleagues. As a result, we raised a significant amount of Chinese funds and nobody extended credits for such periods and at such interest rates. We export products to China but the amount of exports is insignificant. China is undoubtedly a top priority line of activity and here an issue of cultivating relationship is of crucial importance.
-How many contracts did you make on SukhoiSuperjet 100, how many did you plan and is anybody ready to buy Sukhoi Superjet-100 aircraft?
-As of today, VEB together with EXIAR implemented a project on the supply of SukhoiSuperjet -100 aircraft to Indonesia and a major project on the supplies to Mexico. Now we have supplied 13 aircraft and at least seven aircraft have been ordered. The projectis good but at the same - time, it is complicated in terms of funding. It is funded by a foreign bank together with VEBand we are using coverage of three export-credit agencies – EXIAR, Coface (France) and Sace (Italy). Now we are in talks with Mexicans on the supplies of another 10 aircraft. We are also working on the issue of supplies to other Asian countries - to Vietnam and Laos.
-Don’t you think it would be easier for small-sized companies to receive assistance and set up production facilities as part of import substitution policy instead of entering foreign markets?
-In order to enter foreign markets youneed production facilities that is why I believe thatimport substitution and export activity are links of one and the same chain. I can see maximum synergy here.
-According to statistics, import-substitution policy resulted in the decreased level of non-raw materials exports – because Russian analogues are more expensive or they are non-existent.
-I wouldn’t link this directly with issues of import substitution. During 2014, the amount of non-raw materials exports was250 billion dollars and the total exports – 500 billion dollars. Maybe some parameters fell but a significant part of exports accounts for non-raw materials exports. The only question is which is more import exports or imports.
-Which is more important for you?
-Of course, I believe that exports are.
-This means that you go along with the Ministry of Economic Development.
-I go along with the task that was set before me.
“Everything that doesn’t have to do with raw materials”
-Does the center have any priorities in terms of sectors?
-Everything that doesn’t have to do with raw materials.
-If you help everybody, you help nobody.Shuvalov says all the time that we should choose priorities.
-As far as our center is concerned I can’t see any needfor prioritizing addressees to be supported. Those who will turn to us will be supported whether they are medium-or-small-sized exporting enterprises. EXIAR, VEB and Roseximbank have certain priorities of support, they include a criterion of high added value and the amount of exports project itself. The center is a universal support instrument for all exporters.
-Think for instance of IT sector with the highest added value, as they don’t have significant funds they move their business from Russia to Belarus, to Kazakhstan, Israel and even farther to Singapore, because these companies can’t see any environment for developing their business in Russia. What should be done to stop this process, will it be within the competence of the center being set up?
-This is a function we would like to develop and the center would contribute to it. We need a structure/a center with this competence, which iswell-versed in this environment. Wedon’t have such a structure now, figuratively speaking, a Ministry for Exports and there isn’t such a center that would somehow accumulate all the issues related to exports. All these issues are fundamentally different and they can’t fall within the competence of one and the same ministry. One of the center’s task is to be such an institution which is due to its expertiseand by law will act as an initiator of changes influencing Russian enterprises’ export activity.
-How would you size up the demand for Russian exports? What countries enjoy high demand?
-It varies a lot. We see the highest demand in CIS countries, South-East Asia, Indonesia and lately in Latin America.
-What effect from the center’s operation do you expect in the coming 2-3 years?
-This is a systemic simplification of exports regulations, a simplification of exports procedures and a growth in non-raw materials products as a whole. The President set a task of 6% growth of non-raw materials exports per year, so we’ll have to work hard.
-Here the center’s contribution may besignificant but it mustn’t be very significant in principle? After all, KPIs are more concrete?
-There are no digital indicators because the center won’t be responsiblefor “units”. Non-financial KPIs will be linked to indicators and results of the road map. The logic is as follows: goals and indicators that are included in the road map, are separately referred to institutions. The center should help to achieve them and this should increase exports.
-How would you rate yourselves?
-We’ll conduct customer satisfaction surveys.
-How would you rate EXIAR’s performance?
-During the last year EXIAR has supported non-raw materials exports for an amount of 4 billion dollars covering commercial and entrepreneurial risks. The exports include the supplies of SukhoiSuperjet -100 aircraft to Mexico, high-tech power engineering equipment to Poland, subway carriages to Belarus, grain harvesters to Kazakhstan and many other products. EXIAR supported a total of 112 exporters. The company is three years old and it achieved such impressive results. A task was set to increase exports by 50% annually in the next three years. The main thing is that a system has been set up, more than 100 projects are being implemented, exports supplies are increasing. This is our evaluation criterion.
-Did you conduct customersatisfaction surveys of EXIAR’s performance?
-Such a survey is now underway. This is one of EXIAR’s KPIs. Businessmen who turned to the Agency for support view their cooperation with it pretty positively. Now there is a great number of opportunities both for exporters and for commercial banks. EXIAR has become a real source of raising financial resources. Banks are being refinanced at the Central Bank against EXIAR’s insurance policies and this is very important under the current conditions of the financial market. They are being refinanced at preferential interest rates this is a 100% innovation for us. We created it from scratch for the banking system, it is a new type of credit security which allows banks to be funded on a preferential basis. It’s very good for customers to pledge EXIAR’s insurance policies.Now a decision has been made to insure 100% of some transactions thus removing risks from exporters and banks and proposals were submitted to the State Duma for extending guarantees. As a whole a process is going on.
Author: Alexandr Ivanter
Why is the project financing mechanism stalling?
The current models of organizing budgetary investments, debt financing of major projects and money supply in the economy are not in line with the needs of the economy. The number of proposals and institutions are on the rise and they are eroding the liberal status quo.
The most important point of the federal budget crisis revamping became the audit of investment government expenditures - federal target programs (FTP) and the Federal Recipient-Oriented Investment Program (FROIP). The amount involved is significant: the volume of funding FTP was 937 billion rubles and FROIP without taking into account government defense procurements – about 1.6 trillion rubles. In the old good pre-crisis days a significant part of the federal budget expenditures were channeled through the FTP/FROIP mechanism ( at the peak of 20% in2008) and then the scale of using these instruments started to go down gradually and nevertheless we are now talking about each tenth ruble of government expenditures. Furthermore, this money is not for sandwiches – 54% of FTP spending is government capital investment and 19% is spending for R&D.
FTP under a microscope
In mid-March,the Government held a special meeting devoted to analyzingthe situation with government programs. In his keynote address, Economic Development Minister Alexei Ulyukaevspoke of homeopathic improvements in achieving target indicators of the programs as compared with 2013 and focused on the unresolved problems. According to the Ministry of Economic Development the performance of government customers, that is, line ministries and institutions can be rated as highly efficient or above an average level only with regardto 27 FTP (out of 45 open ones). The most problematic FTP is “Development of Russian Cosmodromes for 2006-2015. There is a lame duck inside it – a subprogram of constructing the VostochnyCosmodrome in the Amur region. Last year, cash expenditures under this program amounted to less than a third of those planned, namely, 8 billion rubles out of 25.3 billion. The Government believes that the main reason for the current situation is a low level of organizational management by general manager Spetsstroi and the absence of as-built documentation. The issues of funding the VostochnyComodrome have already formed the basis of several criminal cases. In the most high-profile case, former head of DalspetsstroiYuryKhrizmanwas arrested last autumn (he is charged with embezzlement).
Finance Minister Anton Siluanov’s stand is not to include non-important projects in this year’s FROIP. Projects without design specifications and estimates and with regard to which no tenders were held are not to be started at all and appropriate allocations are to be redistributed to the anti-crisis fund.
A new revised version of the federal budget for the current year provides for a ten-percent (up to 25.9 billion dollars) reduction in the program of constructing the VostochnyCosmosdrome.According to experts, a total reductioninprograms of budgetary funding of capital investments will exceed a 30-percent “record” of 2009.
But a proportional frontal crisis reduction is the worst thing you can come up with. “A logic of reductions must be not only arithmetic but also a managerial one insome other forms of development with due regard to changing conditions”, believes Director General of the Federal Project Finance CenterAlexandrBazhenov.
A radical idea
Management by objectives (MBO) is one of the most common and dynamically developing methods in managing budgetary expenditures in the world. The first MBO elements were developed in the US in 1949 in the system of budgetary planning. They made it possible to link government expenditures with their expected results. MBO is widely used in the budgetary process by Great Britain, Canada, France, New Zealand and a number of other OECD countries.
Since the early 2000s, attempts to link budgetary expenditures to their resultswere made repeatedly in Russia. In practice, they managed to do it partially with investment expenditures through federal target programs.
The introduction of FTP in the practice of the budgetary process was designed to spend budgetary funds to achieve concrete measurable results and ensure efficient interaction between various institutions and non-governmental players to accomplish these results. And a long-term nature of the programs was to guarantee required budgetary funding outside the budget cycle.
There is no doubt thatthe use of FTP yielded positive results. Budgetary funds were spent more efficiently. But the quality of implementing many programs varies significantly, a number of them suffer from serious problems:delays in schedules of stated goals, shortfalls in implementing policy measures, problems and delays in raising non-budgetary financing. Moreover, largelythere are no institutions and procedures for evaluating efficiency of FTP including an analysis of alternative options of achieving program goals.
An obvious development line of MBO principle of managing budgetary expenditures is to include expenditures onmaintaining property assets in federal ownership to be created in FTP. To this end, planning periods within long-term target programs should be expanded to a duration of a government property asset’slife cycle.
At the end of the last year, Vnesheconombank Chairman Vladimir Dmitriev made a non-trivial proposal for changing FTP functioning model radically. In his opinion, funds of federal target programs could become a source of Vnesheconombank’s additional capitalization, with Vnesheconombank becoming an operator of some programs. Vnesheconombank’s Chairman stressed that such a measure would make it possible to reduce the cost of funding for projects in those sectors where investments are unprofitable at a current level of market interest rates. “Taking into account a complicated situation with government finances in the mid-term prospective, we offer a number of solutions to lessen the budgetary burdenand at the same time increase the efficiency of government investments Mr. Dmitriev said in his exclusive commentary to Expert magazine. VEB proposes itself to the state as an instrument for expert analysis and for implementing concrete projects on a reimbursable basis within FTP. We are ready to provethat some FTP projects could be funded by the state on a reimbursable basis, given purpose-oriented use of funds.Specifically, VEB offers a new model of working with FTP. Instead of spending 100 billion rubles in the form of non-reimbursable budgetary investments, the state could provide VEB with a loan worth 20 billion rubles in its capital for a period of 15 years at two percent per annum and using this 20 billion we’ll raise 100billion rubles of project financing and provide a project with funds in full at an acceptable interest rate. This is a classical operational model of Soviet Promstroibank. It operated successfully in the USSR and I see no obstacles to using it again. Today, under the conditions of sanctions,it’s difficult to raise funds on the market and this increases the value ofbudgetary resources. So, instead ofbudgetary money, VEB could become an operator of investing financial resources of the National Wealth Fund.
Certainly, not all programs and even not all expenditures inside programs are suited to be transferred to a reimbursable principle of funding. Nevertheless,this idea requires careful consideration.
In the last half a year an increasing number of unorthodox measures of monetary and fiscal policy have been under discussion in the expert community and some of them are already being implemented.
Above all, in March they started to use monetary resources of the National Wealth Fund to provide support for such strategic investment projects as projects on the reconstruction of BAM and Transsib, the construction of a Central Circular Automobile Road and a Nuclear Power Plant in Finland.
Two funds of government financing for long-term capital-intensive projects in the real economy at interest rates lower than market ones are at the launch stage now. Firstly, this is the Russian Fund for Technological Development designed to fund purpose-oriented expenditures on projects for an amount from 50 to 500 million rubles at a pre-investment stage at an interest rate of 5% per annum for a period of five-seven years. The Fund has already received more than 600 applications for funding, 27 of them were accepted for further consideration and submitted to comprehensive expert examination.
And secondly, a mechanism for project financing which focuses on projects in the amount ranging from 1 to 20 billion and the cost of financial resources for final borrowers is to be determined according to the following formula “a key interest rate of the Central Bank plus one percentage point”. Preferential final interest rates are guaranteed by a special procedure for refinancing projects at the Russian Central Bank (at a rate equal to a key rate minus one percentage point) and by raising a 25-percent budget guarantee.
And a proportionof borrowed funds should be in the range of 80% of a project’s value.
A main principle of project financing is sharing of risks between a project’s participants. As a result, it becomes possible to carry out a larger project than each of participants could afford separately.
An interdepartmental commission with the participation of representatives from the Economic Development Ministry, the Ministry of Industry and Trade, the Ministry of Agriculture, the Energy Ministry, the Transport Ministry and the RF Government Office was set up to implement a model of project financing. VEB’s subordinate role in the commission is rather discomforting (its representatives can attend the commission’s meetings in advisory capacity). From our point of view, VEB is competent enough to conduct comprehensive audit and expert examination of projects. The Bank performed these functions well as part of the Government Investment Fund in 2007-2008, so it’s difficult to understand why the Bank had been relieved from performing these functions. As of today, VEB managed to become one of authorized banks participating in implementing a program of project financing.
A program of supporting investment projects on the basis of project financing was approved last October. They have already selected seven projects to include into the program (most of them are in the agricultural sector) for a total amount of 73 billion, out of them borrowed funds account for about 50 billion rubles. But a launch of concessional lending mechanism is blocked because of the need to ensure guarantees. At a meeting of the Government last Monday, Prime Minister sharply criticized the situation with guarantees: “The situation with guarantees hasn’t been resolved so far and it’s bad.How long will this situation continue? Agencies blame each other and then they all put the blame on VEB, on commercial banks. What then?Where’s money? Where are guarantees?” Our informal survey of several authorized banks showed that bankers consider the need for guarantees in the mechanism under consideration tobe excessive and artificial. It’s enough to have a sieve of projects in the interdepartmental commission and banks’ own expert examination in order to launch concessional project financing.
We can hear even more radical proposals for making qualitative changes in the Bank of Russia’s monetary policy paradigm in order to expand channels of injecting money into the economy. This is what VEB Deputy Chairman Sergei Vasiliev proposes, “One of issue channels is for the Central Bank to buy VEB’s bonds issued to fund concrete projects.
An inflationary effect from this measure will be very insignificant and the most important thing is that this money won’t get into the foreign exchange market.
Under the current conditions of sharply limited access to foreign capital markets by Russian banks and companies, life itself prompts this decision. An alternative is to fall into a full-scale recession, that is, a self-sustaining contraction of economic activity.
A mechanism for moving to such a model of refinancing long-term investment creditsforVEB’s end borrowers by the Bank of Russia has been already launched today although it’s scaleis extremely small in the macroeconomic scale ( projects worth 20 billion rubles are being examined now).
A launch of concessional lending program is blocked because of the need for guarantees. Authorized banks consider these guarantees to be an excessive requirement.