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30 Apr, 2008 04:47

Banks eye Russia’s National Wealth Fund

A tug-of-war is developing over Russia's newly-created National Wealth Fund, which is worth $US 32 billion. The country's Central Bank is keen to use it to build up Russian stakes in foreign firms, while some of the country's top corporate bankers want th

Until recently, Russia kept its huge reserves from oil revenues under lock and key in a Stabilisation Fund as a buffer against excessive inflation.

Around $US 130 billion will continue to perform that function but a small part of it has now been siphoned off into a National Wealth Fund to make some of the money work towards generating a profit.

Although Russian policy-makers are keen to make the new wealth fund active investment overseas, there is also a global credit squeeze going on, and several of the country's top banks want the cash used within the country.

The Chairman of VTB, the country’s second-biggest bank, Andrey Kostin, says the banking sector should get access to the fund as it’s becoming increasingly difficult to secure long-term loans from abroad.

“Part of it could be used domestically to provide longer-term liquidity for the Russian banking sector and the economy in general,” he stated.

However, the government is already providing liquidity to banks for up to a month through regular auctions, and several analysts and economists say it would be a mistake to do more.

“It's very important for banks to understand that they will not be able to rely long-term on budget resources. It has to be the development of the financial markets,” said Yaroslav Lissovolik, Chief Economist at Deutsche Bank.

Experts also say that if the government starts doling out funds to banks, it will face criticism for sectoral bias, and other industries will start clamouring for cash as well.