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takyon [soylentnews.org] writes:

Bloomberg reports that a state bank used to pay for "special projects" in Russia may require an $18 billion bailout [bloomberg.com] 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.

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