Kudrin: 'Our capital market is still a weak link'
With the Russian financial system having been exposed during the global financial chaos of a year ago, and kept on life support through state intervention since then, the key government member responsible for it was not in a mood to be gentle.
Alexei Kudrin pulled no punches and placed no rosy view on the nations feeble financial infrastructure, chaotic banking sector, and multitude of often nefarious banking players, and sounded a note of warning once again over the implications this had for the national economy, currency, and the ability of the real economy to access funding it needs, as the global economy rebounded and global interest rates moved higher.
"For the moment, in this global economy our capital market is still a weak link,"
"Volatility will be felt on our equity markets, in our currency exchange rate and in our trade balance."
As the main driver of an upcoming sovereign bond issue flagged as high as $18 billion, Kudrin was an authoritative voice when he noted that governments would become soon become significant borrowers in global capital markets and that when they did this would put significant strain on the global financial system, and that Russia would be likely to face a capital outflow.
"As soon as they begin raising the rates, the emerging markets – and Russia is one of these – will lose part of their capital."
Russian state owned development bank Vnesheconombank, or VEB, continued a role it has been playing for the last 15 months of lifeguard for the financial sector, emergency lender of last resort for those who borrowed in the global markets – because the Russian one couldn’t access the funding they need – and guardian of tomorrows economy. It has promised to inject around $2 billion to support small and medium size businesses
Andrey Sharonov, Executive Director at leading Russian investment bank, Troika Dialog, noted that with the systemic weaknesses of the Russian banking system, it was vital VEB play an active role.
“Institutions of economic development should compensate this lack of basic institutions, should mitigate risks of investors, should increase the attractiveness of the Russian economy, and finally should provide, together with private investors, some resources for this project to be implemented.”
The European Bank for Reconstruction and Development, announced it would place €1 billion into Russian nanotechnologies, as well as provide Russian banks with €500 million to lend to smaller businesses. Head, Thomas Mirow also provided advice on minimising economic volatility of the type the Finance Minister was referring to when calling for deeper domestic capital markets.
“Certainly an effort to deepen local capital markets in Russia, so providing the possibility, for instance, for Small and medium sized companies to borrow in roubles instead of dollars which would mean that Russia would create a solid framework, for instance, for pension funds to invest into a local capital market.”
The conference, intended to focus on the modernisation of Russia’s economy, shone light on a key pressure point that is likely to wilt and short circuit any economic diversification unless it is addressed. And with major global central banks now starting to look to the upside on their interest rate settings, the time to take heed of the Finance Ministers warnings, before its too late, is rapidly drawing to a close.