Russia’s Rough Patch

Ashby Monk

Russia’s SWFs have been going through a rough patch; facing both financial and political troubles as of late:

Financial: It was reported that the country’s two SWFs saw their combined assets drop by $15.9 billion in December; apparently the government still depends on these funds to fill spending gaps:

“The Reserve Fund fell to $60.5 billion from $75.1 billion at the end of December, while the National Welfare Fund decreased to $91.6 billion from $92.9 billion.”

It was also reported this week that the Reserve Fund saw its assets drop by $75 billion (!) in 2009. Ouch.

Political: And when times are tough, there is always the threat of politicized investing. According to the Moscow Times, money from the National Welfare Fund will be used to finance Vneshekonombank’s (VEB) infrastructure projects. This is an odd development, as the National Welfare Fund was created to prop up the pension system (not prop up state owned enterprises). Indeed, this would be the first time the NWF would be used in this manner.

While the Ministry sees this as a profitable investment, a former Finance Ministry official says that the motivation is not commercial:

“The decision to place a part of the National Welfare Fund money with VEB is undoubtedly political, which means VEB needs the money for something.”

Apparently, VEB has been complaining about a lack of resources for some time, and this is a way for the government to get capital to its cash starved firm. Indeed, one critic said simply that this was a direct way to support a state corporation at taxpayers’ expense.

Rough times for Russia’s SWFs…

2 Responses to “Russia’s Rough Patch”

  1. 1 rachel January 16, 2010 at 2:19 am

    nice post. One of the reasons VEB needs more money is that its was used as a vehicle to prop up other SOEs and state banks some time ago. Actually the interesting thing is that earlier this year, VEB also got a transfer from the NWF – but in rubles to facilitate this other lending… now its switching to forex. Either way, doesn’t look good.

    The reserve fund, really is a stabilization not an investment fund. For now both are managed with Central bank assets and invested in very safe instruments. Good thing for Russia, else they might have been harder to tap.

  1. 1 | Money Supply | Economic news headlines Trackback on January 15, 2010 at 1:13 pm

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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