Moskovsky Komsomolets
Unions attack ‘populist’ Medvedev
Mikhail Shmakov, chairman of Russia’s Federation of Independent Trade Unions (FNPR), slammed the government's proposed 2012 reduction in insurance contributions from 34% to 30% as a “retreat” and “populism.”
Businesses are continually complaining that they have to push the payroll into the “shadows” and cut jobs because of the excessive tax burden. In other words, they unwittingly oppress the very workers whose interests the trade unions should be representing. In spring, Russian President Dmitry Medvedev ordered the government to reinstate the previous levels – from the current 34% to last year's 26%. The government failed, and suggested a reduction to 30%. But even this compromise does not satisfy the FNPR.
Apparently, union bosses still see business as the enemy. “We insist that the Pension Fund’s problems can only be resolved by raising wages and canceling populist decisions to cut contributions to social funds,” Shmakov said yesterday, adding that until revenue sources are found to cover the Pension Fund deficit created by these decisions, contributions must not be reduced.
The FNPR also rejected wage increases resulting from moving to a longer working week. Yesterday, trade union associations joined the Confederation of Labor in refusing to recognize the legitimacy of agreement between individual trade unions and billionaire leader of the political party Just Cause Mikhail Prokhorov, representing the Labor Committee of the Russian Union of Industrialists and Entrepreneurs. The parties had reached agreement on labor law reform.
“Organizations that signed the agreement represent less than 1% of union members and may not act on behalf of the trade union movement in Russia,” reads an FNPR statement. Those who framed the agreement claim that the entire document can be reduced to simplifying the dismissal procedure and the 60-hour working week. “The current Labor Code allows you to work more anyway with things such as overtime,” said Andrei Isayev of United Russia and chairman of the Duma Committee on Labor. “Admittedly, you would have to pay higher wages.” Regarding proposed changes to the Labor Code, Shmakov said: “We won't have anything to do with this foolishness.”
Vedomosti.ru
Russian ruble bolstered by U.S. debt ceiling uncertainty
By yesterday’s closing bell, the bi-currency basket price had fallen by 10 kopeks, to 32.95 rubles. The last time the ruble was so high was in December 2008. Yesterday, the ruble fell two kopeks against the dollar, to 27.52 rubles to the dollar in next-day settlements, but gained 25 kopeks against the euro, to 39.61 rubles.
The reasons lie in the climbing oil price and the stalemate in talks on raising the U.S. sovereign debt ceiling. The United States will have to default unless legislators approve a higher debt level.
An oil price of $115-$117 per barrel easily allows ruble appreciation, said Stanislav Chernyakov, director of the treasury department at the International Financial Club (MFK) bank. Oil prices influence the exchange rate with a three-month lag, he added, and the oil price three months ago was $120 per barrel. “Therefore, we are seeing the impact of the petrodollars that exporters earned three months ago,” Chernyakov said. Due to high oil export revenues, the Russian bi-currency basket may fall further, to 32.70-32.80 rubles.
Yevgeny Gavrilenkov, the chief economist at Troika Dialog, said that U.S. sovereign debt was the main reason behind the strengthening ruble.
This is why the dollar is weakening against all main currencies, said UFG Wealth Management analyst Anton Tolmachev. He said the appetite for risk is falling, increasing the demand for protective assets including raw material currencies, and that the “trend is unlikely to change soon.”
Nikolai Podguzov from VTB Capital said there are several factors supporting this supposition: speculations about the U.S. debt ceiling, expensive oil and slowing capital flight.
The situation on the markets also has an impact. We are now at the end of the tax period, Podguzov noted. This week, the balance on correspondent accounts and deposits plunged to less than 1 trillion rubles ($36.4 billion), the Finance Ministry deposits were repaid (over 78 billion rubles or $2.8 billion), and today is the profit tax payment deadline. There is insufficient ruble liquidity to make all of these payments.
Taken together, this “calls for greater initiative in generating ruble liquidity,” write Nomos Bank analysts. “Against this backdrop, exporters are likely to continue to sell foreign currency, further strengthening the ruble.”
However, this is unlikely to last long, as the bi-currency basket value has approached the level when the Central Bank usually starts buying foreign currency, Podguzov said.
Due to the strengthening ruble, the dollar-denominated RTS index exceeded 2,000 points on Wednesday but later slumped by 0.58% to settle at 1,976. The ruble-denominated MICEX index fell 0.92% to 1,706.
Izvestia
Middle class to plug pension deficit
Russia’s Pension Fund deficit, which is to reach 400 billion rubles in 2012 due to the introduction of a lower insurance contribution rate, may be covered by 40%, says the Ministry of Healthcare and Social Development. This rests on parliament adopting a bill that introduces a 10% insurance contribution payment on annual incomes over 512,000 rubles.
“That would see the Fund gain an additional 160 billion rubles,” Yury Voronin, State Secretary and Deputy Minister of Healthcare and Social Development, said on Tuesday. “That will not, of course, plug the entire gap in the pension budget, but still will be a help.”
The Ministry is also mooting a return to the old system of calculating pensions from one’s employment record and earnings as a way of further improving things in the pension sphere.
As Voronin said, people are constantly asking the ministry to go back to the tried and tested procedure as that way, they have a clear understanding of how much they will get in retirement. Employment and pay records are the most comprehensible guidelines, the deputy minister believes.
Since the 2002 reform, pensions have been set by the following formula: insurance premiums paid throughout one’s working life are added up and the total is divided by the “survival period” (the time one is expected to draw one’s pension). Currently, it totals 17 years, will be raised to 18 years in 2012 and to 19 years in 2013.
Now the Ministry proposes returning to the approach under which pension size depended on one’s length of employment.
So far, experts have not yet arrived at a precise formula. But the deputy minister does not rule out a return to the pre-1998 procedure.
“Then, the length of service set for women was 20 years and for men, 25 years. That would give them a pension of 55% of their previous earnings. Each year of extra work added 1%, to a ceiling of 75%,” Voronin explained.
He said these plans are not final and the ministry is open to other options. But experts are already examining the scheme’s benefits and drawbacks.
“If we return to the concept of pensions based on employment records, we will say goodbye to what was achieved by the 2002 reforms,” says Sergei Smirnov, director of the Institute of Social Policy at the Russian Higher School of Economics. “Perhaps we should introduce a minimum service period. Also, we could use different gear ratios, one each for 10 years of employment, 20 years or 30 years. Employment records are useful, but not an all-decisive factor.”
Other experts see some positive points in the idea. Theoretically, it does away with the need to raise the retirement age because people will have an interest in working longer. But this factor will play a role if only the decision is made to increase the length of service, rather than age.
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