MOSCOW. (Anatoly Gorev, financial analyst, for RIA Novosti) The final decision to set up a Development Bank has not yet been made, although the law on its activities was initially expected to be passed by parliament and signed by the president in 2006.
The delay, however, does not mean that the project will not go through, experts say. The matter has been postponed but not forgotten. Most analysts are positive that a Development Bank will be created in some form. After all, there is a clear need for a powerful state institution controlled by the government that would carry out industrial policies, finance long-term projects (designed for five years or longer) and support exports.
In fact, Russia has several banks that carry out these functions, and the very term "development bank" is nothing new for this country (just like in any developed economy). At present, there are three financial institutions that fund long-term and expensive industrial and agricultural projects, and support exports. They are Rosselkhozbank, the Russian Bank of Development and Roseximbank. All of them, however, have a problem that a super development bank should not have: their capitalization is not high enough. According to independent expert estimates, as of June 1, 2006, the own capital of the Bank of Development was just above 6 billion rubles ($225.73 million), that of Rosselkhozbank was 5 billion rubles ($188.11 million) and that of Roseximbank less than 2 billion rubles ($75.24 million).
If the government's plans to set up a Development Bank go through and the Russian Bank of Development and Roseximbank are merged with Vnesheconombank (VEB), the new bank will have an authorized capital of about $2.5 billion. Moreover, it will have permanent access to state sources of financing, which will allow it to support domestic producers more effectively than its predecessors did, said Yelena Matrosova, director of the Yunikon center for macroeconomic research.
High capitalization will not be the only advantage of the new Development Bank. A bill drafted by the Economic Development and Trade Ministry would give it a special status. The bank will be a state-owned corporation and will not be subject to the standard regulations of the Russian Central Bank. This alone will give it more freedom of action than commercial banks in Russia have. In addition, the Development Bank will not be seeking to make a profit, just to break even, so it will be able to offer lower interests rates than those on the market.
Of course, there will be another distinction from commercial banks. The Development Bank will have a narrow specialization and will not service private investors. Experts say that this idea gave rise to a lot of arguments at one point, because the core of the future super structure is to be formed by Vnesheconombank, which at present manages the pension accruals of a large majority of Russians. Giving up these funds will be a huge sacrifice, but that might be the price to pay for reaching a compromise between VEB and another Russian state-owned bank, Vneshtorgbank (VTB). The rivalry between them has been obvious, and VTB has been known for its ambition to become the manager of pension accruals. If the new Development Bank (and, consequently, VEB) loses the right to deal with individuals' money, VTB will have a chance of inheriting the pension accrual functions of its rival.
The Development Bank's advantages seem obvious: it will solve problems of financing long-term investment projects and alleviate tensions between two giants on the national banking market. Yet experts already predict difficulties that might accompany the future merger of several state-owned banks. The Economic Development and Trade Ministry, for example, is aware that VEB, the Russian Bank of Development and Roseximbank have differences not only in management and structure, but even in corporate governance. Independent experts add that the Development Bank may inherit some well-known shortcomings of state-owned banks, such as their poor corporate governance, opaque and prolonged decision-making process, etc.
Nevertheless, most analysts view the initiative to set up a Development Bank as a positive move on the part of the Russian authorities. On the one hand, it conforms to international practices, as similar institutions have long been operating successfully in many countries (the German Credit Bank of Reconstruction, the U.S. Export-Import Bank, the Chinese Bank of Development, etc). On the other hand, the Russian economy needs an adequate industrial policy that will ensure its diversification, including into high-tech spheres. The hope is that the Development Bank (which, in fact, will be a state-owned investment fund), based on institutions with extensive experience in financing different economic sectors, will help achieve these goals.
The opinions expressed in this article are those of the author and may not necessarily represent those of RIA Novosti.
