Nezavisimaya Gazeta
Russia may lose billions due to U.S. rating downgrade
Standard & Poor’s downgrade of the U.S. rating from AAA alarmed China and India, while Russia claims the move is not dramatic. But independent economists say Russia has lost part of its reserves due to the weakened dollar and may stand to lose more if oil prices fall.
Russian Deputy Finance Minister Sergei Storchak said: “The change is so small that it is almost meaningless for long-term investment management.” He thinks the U.S. debt market remains the most liquid, and one of the most reliable, in the world and that the downgrade was a signal for the Untied States, not investors in its debt securities.
He told Interfax that Russia “will not restructure its reserves because there is no great difference between AAA and AA+.”
Russia’s Reserve Fund and National Wealth Funds currently consist of U.S. dollars (45%), euro (45%) and pounds (10%).
Storchak said Russia’s goal is to maintain investment profitability and that the recent debt limit deal reached in the United States was a technical, not a systemic solution, and hence will not stop the practice of borrowing funds to finance the country’s current obligations. He said this is most likely the reason why S&P downgraded the U.S. rating.
Meanwhile, China, the largest foreign holder of U.S. debt with $1.15 trillion of reserves, has severely criticized the U.S. authorities. “The good old days when the United States could just borrow its way out of messes of its own making are finally gone,” Xinhua said. Xinhua also suggested a new global reserve currency might be necessary to replace the dollar.
India’s reaction was also negative, whereas Japan and South Korea expressed their confidence in U.S. treasuries.
Many Russian economists said the downgrade only formalized the losses already felt by investors in U.S. securities.
“The main reason for lowering credit ratings is to warn investors that they risk losing money,” said Yevgeny Gavrilenkov, managing director and chief economist at Troika Dialog. “But in this case the downgrade only formalized losses investors had already sustained due to a 12%-14% weakening of the dollar against the main global currencies.”
As of August 2, the National Wealth Fund lost over 108 billion rubles ($3.8 billion) due to exchange differences and the Reserve Fund, 39.92 billion ($1.4 billion).
Gavrilenkov said the financial markets will have to adjust to the change in basic interest rates and risk level, and that interest rates may grow.
The global oil price, which is a crucial factor for Russia, is unlikely to fall, he said. “Excessive liquidity will keep oil prices up for the short term,” Gavrilenkov said. Longer term, oil prices will depend on consensus on the global economic growth model.
But Mikhail Khazin, president and founder of economic analysis company Neocon, said: “Russia may be hurt by a fall in the speculative markets, including oil.”
Kommersant
Russia’s debt policy focuses on non-residents
Russia’s Finance Ministry has drafted and sent to the government the guidelines for the national debt policy in 2012-2014. In the document they advocate raising the debt ceiling to 2 trillion rubles (over $70bn) a year.
The government needs the cash to cover the growing budget deficit and intends to borrow primarily from non-residents, promising to liberalize and modernize the debt market.
Before the 2008 crisis Russia borrowed about 2 billion rubles, or one-tenth than envisaged in this new plan. Since borrowing abroad is too costly, the government plans to focus on the domestic debt market, although it still has some “transitional period ailments.”
The budget deficit is expected to be 1.57 trillion rubles ($55bn) next year, with the government borrowing about 90% of that amount to plug the hole. However, although debt will grow from the current 9% to 17% of GDP by 2014, the ministry proudly added that Russia will still perform much better than developed and emerging economies, as Japan’s debt equals 220% of GDP, U.S. debt stands at 92% of GDP while Brazil’s is at 66%.
The Finance Ministry promised to modernize the internal debt market through improving liquidity and expanding the circle of investors. So far the “model market” is that for OFZ federal loan bonds, although it is admittedly too volatile and dependent on external factors. There are no conservative institutional investors on this market – mainly banks that buy the bonds for speculation.
The ministry plans to attract more foreign investors to the market by creating an international custody and settlement system, and described the lack of any such system as “the biggest infrastructural anachronism” of the Russian debt market. Right now, OFZs are traded only on MICEX, and to which only Russian brokers with custodian licenses have direct access. Foreign investors find this inconvenient and prefer to conduct their transactions through a single account with an international settlement center.
Also, trade in OFZs will start on stock markets from January 1; they are currently traded on MICEX’s government securities market. The ministry also pointed out that the existing regulatory ban on over-the-counter transactions with government bonds reduces the scope of potential investors and makes OFZ transactions more expensive. Other proposals are to introduce a centralized register of these securities’ ownership instead of some 40 institutions registering ownership now, and to harmonize the taxation of OFZ income with that on corporate bonds.
The Ministry said it will focus on issuing medium and long-term bonds in the next three years, while issues of securities with maturity in less than 12 months will be viewed as extraordinary measures. The ministry will focus on large issues with maturity at “standard” periods of 3, 5, 10, 15, and 30 years. This policy is preferable for investors because it allows them to hedge interest rate and exchange risks.
Izvestia
Bumper rice crop expected in Russia and worldwide
This year will see a record crop of rice harvested: globally and in Russia. The global rice harvest in 2011 will grow by 2.5% to reach 718.3 million tons, forecasts the UN Food and Agriculture Organization (FAO). Russia will harvest 1.2 million tons – one third more than last year, the Angstrem group and the Maryansky riceplant (Russia’s largest rice producer) expect.
World markets traditionally look to U.S. Department of Agriculture figures. The department, not to be outbid by the UN, also expects a record year. It is predicting a world crop of ready-to-consume rice of about 456 million tons against 450 million tons last year (the ratio of hulled to rough rice is 0.7).
Bourses were quick to respond to the bright outlook. Following these figures’ publication, rice prices on the New York Stock Exchange (NYSE Euronext) fell by 5% to 15%.
Rice is the most popular cereal in Russia. It accounts for more than 4 kg of the 10 kg of cereals eaten each year by the average Russian. Buckwheat comes second, at 3 kg a year.
In consumption terms, Russia follows, with a large lag, South East Asia, where rice is a staple foodstuff. Russia is also well ahead of Europe where cereals, including rice, are not consumed much. According to the Institute for Agrarian Market Studies, Russia consumes about 550,000 tons of rice a year. Most of it – 400,000 tons – is grown domestically.
There will be no problems with the crop this year. “Everything in our country depends on the weather, and so far it is not letting us down,” says Sergei Moskalenko, head of marketing at the Maryansky riceplant.
But despite the bumper crop, Russians are unlikely to see low prices. This is due to Russia’s system of prohibitive import duties on rice and rice products (0.12 euros per kg).
“Our market is a free operator and changes on it are not informed by world trends. Of course, the greater the harvest the more the consumer should benefit. Prices should fall. But I would not risk making any such bold forecasts. The world rice market is growing. But its increasing volume is connected more with rising consumption than market saturation. It would be a good outcome if the price stays stable,” says Oksana Linnik, commercial director at Angstrem.
Currently, a kilogram of rice costs an average of 35 rubles in the shops. “At best, we will not see these prices rise. As for there being grounds for a fall in prices, we have never had them,” agrees Vladimir Sadovin, general director of the Azbuka Vkusa chain.
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