Kudrin Says Pension Fund Next Up for Stocks

The government plans to invest some money from the Pension Fund in the Russian stock market, amid a major outflow of foreign capital, Finance Minister Alexei Kudrin said Sunday.

The Cabinet will soon submit a bill to the State Duma that would allow a portion of the fund's government-managed $13.5 billion to be invested in the domestic market, Kudrin said at a meeting of central bankers and finance ministers in Washington.

"Prices are favorable to enter these assets," he said at the meeting, organized by the World Bank and the International Monetary Fund. He did not say how much of the Pension Fund's money would go toward buying stocks.

Kudrin also dismissed reports that the crisis had fractured the government, saying he had not opposed any of the proposed measures to help keep the financial markets afloat.

The 30-company MICEX Index has fallen by nearly two-thirds from its peak in May, hitting a three-year low last week amid an outflow of capital estimated at $74 billion by BNP Paribas.

Kudrin also cautioned that the financial crisis would slow growth in Russia next year, which in turn would help contain inflation.

The government earlier decided to tap into the National Welfare Fund and spend 175 billion rubles ($6.8 billion) to buy local stocks. Kudrin said Sunday that the figure represented a mere 5 percent of the fund's projected value at the end of the year.

He also stressed that purchases by the two funds were not intended to reduce the market's volatility, after ratings agency Standard & Poor's last month criticized Kudrin for suggesting that the welfare fund might be used to support slumping financial markets.

"Our participation in the market will have a completely different goal, which is to make good investments," he said. "Nevertheless, our presence on the market will have some healing effect."

The stock market may take years to rebound and bring a return on the investments, Kudrin said. "Maybe we will have to wait three to five years for the assets to grow, but that's okay," he said.

Vneshekonombank, or VEB, the state-owned development bank, held 96.6 percent of the Pension Fund, or 353.7 billion rubles, at the end of second quarter. Currently, VEB can invest the funds only in Russian government bonds.

The bank, which also manages the welfare fund's money, will likely receive instructions to buy stakes of no more than 5 percent, Kudrin said. The purchases will be spread out over several months, with VEB acting as the government's broker until a special government agency is created later this year.

Guidelines on which stocks to buy will take into account the volume of a company's listed stock, but the information will remain off-limits to the public, he added.

The finance minister, who has long advocated fiscal austerity, took credit for proposing "most" of the country's recent anti-crisis measures.

"When I defended the oil fund, I always said we can spend it during the crisis. Maybe I was expected to always say that we should not spend the oil fund, but this is wrong," Kudrin said, Reuters reported.

Kudrin announced a day earlier in Washington that the government would probably cut its projection for the Urals blend of crude, used to calculate the budget, to $90 per barrel from $95, the figure it assumed for this year's projections. He has previously said the budget will maintain a surplus even if the price falls to $70.

The government assumes an average oil price of $50 per barrel in its long-term budget strategy through 2023, Kudrin said, adding that it was not planning to cut production.

The benchmark WTI crude price has dropped by almost half from an all-time high of $147 per barrel in July.

Kudrin also warned that the country's gross domestic product growth would likely drop to 5.7 percent next year because of lower investment. Additionally, China and some other trade partners have been reducing their orders for Russian exports, he said.

That prediction is a downgrade from the government's most recent estimate of 6.7 percent growth. The economy is expected to grow 7 to 7.5 percent this year, Kudrin added.