If it is endorsed by the cabinet and then approved by parliament, a new government financial organization may appear in Russia early next year with an authorized capital of $2.5 billion. It will be created by the merger of Vnesheconombank (VEB), the Russian Bank of Development, and Roseximbank. VEB will play the key role in the merged entity.
The idea of setting up a development bank that will later be tasked with management of the investment fund is nothing new. It was first voiced more than a year ago by the Economic Development Ministry. At that time, however, the proposal to set up a super-organization on the basis of VEB was rejected by Finance Minister Alexei Kudrin. Officially, his ministry did not agree that the development bank's functions would not include those of a debt agency. The true reason, however, was the long rivalry between VEB and Vneshtorgbank (VTB), which is believed to be patronized by Kudrin.
Apparently, this rivalry is now diminishing. Perhaps, this is because the two Russian super-banks have managed to divide their spheres of influence. VTB has ambitious plans to capture a significant share of the retail market, i.e. mortgage and consumer loans. It has been declaring itself the "No. 1 bank" on the corporate loans and investment banking markets with increasing frequency. VEB, on the other hand, has focused on foreign debt management. If it is merged into a development bank, it will finance investment projects and support non-commodities exports. These operations will bring in billions of dollars, so the VEB management's ambitions will be satisfied.
It is also possible that VTB and VEB have made peace for different reasons. The former now has other problems to deal with, particularly Sberbank. The two giants have so far failed to decide who will be the first to hold an IPO in 2007 and, therefore, who will have a better chance of succeeding.
VTB, however, may get a consolation prize from the above-described merger: retirement-pension accruals left in the hands of the state management company, which is represented by VEB. At present these account for about 98% of total accruals. The VTB management did not like the fact that the money was managed by VEB from the very beginning. The new bill stipulates that the development bank will not invest pension accruals, which means that this function will be delegated either to a specialized agency or - the market does not rule out this scenario - to VTB itself.
What will this mean for future retirees? Experts say that their situation may improve. The law prohibits VEB from investing this money in high-profit, and consequently risky, assets. Almost all money it manages is invested in government securities, whose profitability has been gradually falling. As a result, the profitability of the investment portfolio has been just 0.5%-1% above annual inflation. As of September 1, 2006, it was a mere 4.69% at an annual rate, while inflation for the year at that time stood at 7.2%. If pension management is transferred to VTB or another player, investment rules could be slackened, experts hope.
This scenario would be beneficial both for the new manager (supposedly, VTB) and for the accruals' owners, as well as for the government. The Finance Ministry has long warned that the amount of government securities is not unlimited and soon there will be nowhere to invest pension accruals. Provided, of course, the previous restrictions remain in force.
