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from the state-bank-needs-cash-infusion dept.
Bloomberg reports that a state bank used to pay for "special projects" in Russia may require an $18 billion bailout due to the effects of sanctions and low oil prices:
For years, Vladimir Putin used Vnesheconombank (VEB) to pay for "special projects," from the Sochi Olympics to covert acquisitions in Ukraine to oligarch bailouts. Now, the state bank needs a rescue of its own and it could be the Kremlin's costliest yet. VEB was supposed to be the financial supercharger of the Russian president's state-directed capitalism, using its government backing to raise billions at low rates on western markets and pumping them into ventures the Kremlin wanted funded, some concealed from public view with code names like "Lily of the Valley."
Hit by Western sanctions last year, VEB has stopped new lending. The cost of its bailout could reach 1.3 trillion rubles ($18 billion), according to several senior government officials, ballooning the budget deficit at a time when plunging oil prices are forcing spending cuts. "The government can't just leave it alone to face the problems caused by the financial and economic situation in the country, speaking directly, by various kinds of sanction pressures," Prime Minister Dmitry Medvedev told a VEB board meeting discussing rescue options on Dec. 22.
The Finance Ministry has submitted proposals to aid VEB in 2016 to the government for approval, with some measures ready to be carried out in the first quarter, Svetlana Nikitina, an aide to the finance minister, said in Moscow on Tuesday. The plan provides for boosting capital to ensure the bank's ability to pay creditors, as well as supporting liquidity and cleaning up assets, she said.
Over the past eight years, VEB came to epitomize Putin's hybrid system that combined elements of market financing with tight Kremlin control, funding billions in industrial and infrastructure projects back in the days when oil prices were high and foreign credit was easy.
But U.S. and EU sanctions imposed in 2014 over the Ukraine crisis cut off VEB's access to international financial markets, leaving it without a source of cheap funding and facing as much as $16 billion in foreign-currency debt just as the ruble began its plunge. At the same time, falling oil prices accelerated Russia's slide into recession, pushing many of VEB's projects deeper into the red.
(Score: 2) by frojack on Thursday December 31 2015, @06:40PM
Oh, the horror, a book keeping penalty!!
But you did prove my main point when you said:
. Their debt to foreign lenders won't be in rubles.
That means, as I stated, that their payments in foreign currencies are already dis-joined from the the ruble. You stated that this allows the debt to appear as a greater percent of GDP. My point is that they don't care, and needn't care.
As long as they have the foreign currency, it really doesn't matter how low the ruble goes, or how high the debt goes relative to GDP in rubles.
Because your debt is no longer measured against GDP but rather against your foreign receipts.
(Which is a good thing for them, because in theory, the ruble floats relative to foreign currencies, (since early 2014), but it is allowed to do so only within a very narrow range. Then the stat bank steps in an refuses to allow further float.)
This might matter in a totally floating currency. But that's not the case.
Which is ultimately why Putin is bulldozing foreign cheese and forbidding huge quantities of imports, first of food, then clothing, then cars, and a whole host of things. He's trying to shore up his balance of payments.
No, you are mistaken. I've always had this sig.
(Score: 1) by khallow on Thursday December 31 2015, @09:50PM
That means, as I stated, that their payments in foreign currencies are already dis-joined from the the ruble. You stated that this allows the debt to appear as a greater percent of GDP. My point is that they don't care, and needn't care.
As long as they have the foreign currency, it really doesn't matter how low the ruble goes, or how high the debt goes relative to GDP in rubles.
"As long as". When that is no longer the case, such as when the debt is large relative to the means of getting that foreign currency and they suddenly find their ability to trade in foreign currency significantly impaired (such as due to trade sanctions for the invasion of Ukraine), then it indeed becomes a huge problem for Russia.
Because your debt is no longer measured against GDP but rather against your foreign receipts.
I think you missed the part of my post where their foreign receipts are just not that large relative to their debt.
Which is ultimately why Putin is bulldozing foreign cheese and forbidding huge quantities of imports, first of food, then clothing, then cars, and a whole host of things. He's trying to shore up his balance of payments.
As canny as a drowning man. I don't see such desperation as support for your argument.