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Bigger banking rescue will push the Russian budget into a deficit

Russia’s finance minister, Anton Siluanov, said rescue measures would swing the 2014 federal budget into a deficit of about $10 billion, roughly 0.7 percent of the nation’s annual economic output.
Russia’s finance minister, Anton Siluanov, said rescue measures would swing the 2014 federal budget into a deficit of about $10 billion, roughly 0.7 percent of the nation’s annual economic output. Bloomberg

Russia’s central bank said Friday that its bailout of Trust Bank — the first major lender to fail as a result of the sharp decline in the ruble — would cost about $2.5 billion, far more than previously expected, and the country’s finance minister said emergency measures to rescue the banking system would push the federal budget into a deficit.

The central bank had previously announced $500 million in direct aid to Trust Bank, but Friday it raised that figure to nearly $2 billion and said it would also provide a six-year loan of about $550 million to an “investor” bank that would step in to take control of Trust Bank.

Other banks are expected to need bailouts as a result of the recent currency crisis, which was brought about by a double whammy of lower worldwide oil prices and Western economic sanctions aimed at punishing the Kremlin for its policies in Ukraine.

Russian authorities have been scrambling to contain the damage, including a sharp increase in interest rates and aggressive spending of foreign currency reserves to shore up the ruble, which has stabilized in recent days.

Data released by the central bank Friday showed that the government’s overall stockpile of foreign currency reserves had fallen by nearly $16 billion to $398.9 billion. Overall, the Russian government has approved 1 trillion rubles — $20 billion — to rescue the banking system.

Speaking to journalists Friday, the Russian finance minister, Anton Siluanov, said the rescue measures would swing the 2014 federal budget into a deficit of about $10 billion, roughly 0.7 percent of the nation’s annual economic output.

“At the moment, we need to rescue systemically significant enterprises,” Siluanov said, according to Russian news agencies.

Senior officials, including Prime Minister Dmitry Medvedev, this week said increasing economic pain could be coming in the months ahead, including a recession and potentially crippling inflation. At the same time, officials have sought in recent days to reassure the public that, for the moment at least, the currency situation is under control.

The government also announced that it is using its control of five of the country’s biggest exporters, including the energy giants Gazprom and Rosneft, to reduce their foreign currency holdings as a way to prop up the ruble in coming months.

In addition to announcing increased aid for Trust Bank, Siluanov said he expected the state-controlled VTB Bank to receive nearly $2 billion in government assistance and Gazprombank would receive about $1.4 billion. He also said the government would be forced to rethink its budget, including military spending, as a result of lower oil prices.

The Russian budget is overly dependent on oil and gas exports. Other budget experts, including Siluanov’s predecessor, Alexei Kudrin, have also previously called for curtailing military spending, which has risen sharply under President Vladimir Putin. Until now, Putin has resisted such pressure and pushed for higher military salaries as well as an aggressive modernization program.

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