Russian government to borrow again, first time over decade.

MOSCOW, April 3 (By Itar-Tass World Service writer Lyudmila
Alexandrova) -- Russia is about to start borrowing from foreign lenders
again, for the first time over the past ten years. The Russian government'
s presidium last Thursday set a cap on 2010 foreign loans - 17.8 billion
dollars.

In the meantime, as follows from the Bank of Russia's statistics, the
country's foreign debt at the beginning of 2010 reached 470 billion
dollars. A greater share of the indebtedness is in the corporate sector -
non-financial companies owe about 300 billion, and banks, about 126
billion. The state owes less, about 44 billion.
"Today it is to early to speculate the country has walked into the
debt trap already, but the risk of getting into it is quite real," says
the daily Nezavisimaya Gazeta.
The main reason why Russia may start living beyond its means again is
the need for plugging the deficit hole in the federal budget, currently
estimated at about three trillion rubles. Whereas last year the shortfall
was compensated for with Reserve Fund money, now this source will be not
enough. It is sheer mathematics. Deduct the whole Reserve Fund from the
estimated budget deficit - and there will remain precisely one trillion
rubles or even slightly more - the amount that will have to be found
somewhere.
Borrowings on the foreign markets will be equivalent to 525 billion
rubles. The rest will be raised inside the country.
Experts believe this is a very good time to borrow abroad and the
authorities' intentions are very well-reasoned. It is very important to
ensure, though, this should not become a tradition for years to come. The
more you borrow, the higher the rates get.
Deputy Prime Minister Alexei Kudrin said that there would be a road
show in the United States, Europe and Asia on April 21-22. The results
will determine the amount and dates for the placement of the first issue
of Russian state bonds. They will be both medium term and long-term ones
and denominated in foreign currencies.
The financial terms of the bonds' placement, including interest rates,
will be determined later, depending on the situation on world financial
markets.
Kudrin is certain the loan will be a beneficial one.
"So far we have had a very good income-and-spending ratio. We have
followed the planned scenario, so we expect that the terms of such
placement will be good," he said.
The chief of the monetary and credit policies and banking sector
department at the Center of Macro-Economic Analysis and Short-Term
Forecasting, Oleg Solntsev, is quoted by the daily Novyie Izvestia as
saying he agrees with the idea the moment of accessing the market is very
well-timed.
"Yields on Russian eurobonds are now at their all-time record-lows,"
he said.
Solntsev foresees positive influences on the country's corporate debt,
too.
"The state securities will not phase out private borrowers. On the
contrary,, they are likely to support them and to help them gain better
treatment in the West and to promote positive attitude to investments into
Russian debt liabilities," the expert said. "Although a different question
may arise. Do we really need another influx of debt capital into the
private sector?"
The main problem is not about Russia's borrowing this year, but about
what it is going to do next. According to the parameters of the approved
three-year budget the deficit in 2011 is to make up four percent of the
GDP, and in 2012, three percent, so very little will be left of the
Reserve Fund, if at all.
In the meantime, just several years ago the Russian federal budget had
a surplus, although oil prices were even lower than they are today. Why
don't the ends meet then?
"We kept building up spending year in year out, while the incomes saw
no very big change," the leading expert of the Economic Expert Group,
Yelena Lebedinskaya, told the media. "The crisis caused the incomes to
plummet, while spending surged. One should remember that incomes will keep
falling on and on - not in real terms, but as a share of the GDP. This is
a question about spending. If we leave it as it is, then we shall have a
deficit."
The analyst believes that borrowings will have to be made at least
till 2015. It is by that time that the Ministry of Finance hopes to do
away with the budget deficit.
Simultaneously, the Russian companies and government will have to pay
to foreign creditors about 123 billion dollars this year. The huge debt
payments by the private sector and the soaring state debt hinder the
necessary investments into the economy and slow down its recovery, a group
of independent Russian economists said at last Thursday's round-table
discussion of the foreign debt payment outlook.
The question is how dangerous it is to make borrowings in today's
situation, when the economy stalled?
This year's large foreign debt payments, many analysts say, will
greatly slow down the recovery of the national economy. If the private
sector has to pay out about 100 billion dollars, then investments for many
companies will be ruled out. It is not accidental that by the end of last
January investments into fixed assets had fallen by 7.4 percent in
contrast to those on the same date a year ago. And without investments
economic growth will be impossible.
However, as senior researcher Sergei Pukhov, at the Development Center
of the Higher School of Economics, has told the daily Rossiiskaya Gazeta,
on the foreign market there is great demand for Russian securities, and
the related risks are easing.
These debts are "very insignificant," particularly so, when placed
next to those of other countries. The debt pressures on the state are
minimal. The state debt at the beginning of 2010 did not exceed eight
percent of the GDP.
On January 1, 2002 Russia's foreign debt was a little over 146 billion
dollars, and now it is 470 billion dollars. In fact, the foreign debt has
been up 3.2 times, argues the director of the strategic analysts
department at the FBC company, Igor Nikolayev.
"The foreign debt of the state will keep growing, and very quickly,"
he warns. "The government assumed very high social liabilities and there
will be great problems with honoring them over years. We are caught in a
trap. The government will have to borrow."
The director of the Stock Market Development Center, Yuri Danilov,
shares this concern. In his opinion there are several problems that make
the debt situation still worse, but they have failed to be resolved by the
government to this day. There is the problem of "bad debts" the government
bought out from Russian companies during the crisis, but it has no idea of
what is to be done to these debts and how to walk out of the corporate
capital.
For changing the investment climate there must be the political will.
Danilov believes that any other scenario is hardly possible, because the
course towards modernization has already manifested itself. If the current
level of the aggregate debt grows 50-100 percent and Russia remains within
the safe range, the policy of modernization - unheard of in the country's
history - will require 20-30 times more resources than Russia will be able
to find on the foreign markets. If that is the case, says the analyst, the
government will have to start borrowing on the domestic market.

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