Zee Beam News

03.09.2005 RBC News - The Russian Stabilization Fund amounted to RUR707.5bn (around USD25.26bn) on March 1, a source close to the Russian Finance Ministry told RBC. As of February 1, the Stabilization Fund rose to RUR647.2bn (around USD23.11bn) from RUR522.3bn (around USD18.65bn) as of January 1.
As Russian finance minister Alexey Kudrin earlier said, RUR74bn (around USD2.64bn) of the amount of Stabilization Fund's money exceeding the RUR500bn (around USD17.85bn) level will be allocated for financing the Pension Fund deficit under the law on the federal budget. Other funds are to be accumulated till they total RUR160bn (around USD5.71bn), which are to be spent on state debt settlement, he added.
Kudrin also stressed, that the Stabilization Fund could be spent on increasing pensions in 2005. Extra budget revenue is first to be allocated for increase in pensions, he elaborated on. The Stabilization Fund will be used for financing pension only if extra budget revenue lacks for this target.
Moreover, currently the possibility of using the Stabilization Fund for paying compensations of lost budget revenue if VAT is cut is being discussed. On January 1, the VAT rate was cut to 18 percent from 20 percent. Earlier the Finance Ministry announced its decision to lower the VAT rate to 16 percent starting January 1, 2006 with the possibility of canceling benefits on VAT. The issue is being negotiated on now.
Prime Minister Mikhail Fradkov insists on cutting VAT to 13 percent. The government office believes that the use of the Stabilization Fund for targets like this one could result in extra economic growth of 1.5-2 percentage points. The Finance Ministry and the Economic Development and Trade Ministry oppose this idea.
Finance Ministry experts point out such negative impacts of this use of the Stabilization Fund as a higher pace of increase in money supply. If in 2005 RUR400bn (around USD14.28bn) are spent this way in 2005, it could result in additional growth in money supply of 8 percent and in annual increase of 36 percent instead of earlier targeted 26-30 percent. This could spur the inflation rate by 1.5 percentage points in 2005. If the Stabilization Fund is allocated for debt servicing the real effective ruble exchange rate might strengthen 1.5-2 percent in 2005. The Finance Ministry is afraid of forecasted decrease in oil prices cutting oil exports revenue, of which the Stabilization Fund consists.
The Stabilization Fund was has been formed since January 1, 2004. Extra federal budget revenue from high oil prices is transferred to the fund.