Deripaska Sees Answer in 'New Deal'

MTDeripaska called for more state investment in infrastructure and housing.
As it battles the financial crisis, the country needs a "New Deal" similar to the one that lifted the United States out of the Great Depression in the 1930s, Oleg Deripaska said.

Regarded as one of the oligarchs closest to the Kremlin -- and one of the highest-profile victims of the country's stock market crash -- Deripaska said Russian companies should cut capacity rather than wait for a rapid recovery, and the state should seek resources for a major infrastructure renewal.

"A new partnership between the state and the business community is needed," he said in an interview during a tour of Latin America with President Dmitry Medvedev last week.

Deripaska, whose business empire piled up an estimated $20 billion of debt as it grew, has been drastically hit by a 75 percent fall in share prices since their May peak.

Since many of his bank loans were guaranteed against shares, lenders have been calling in debts. Deripaska was forced to give up stakes in German construction firm Hochtief and Canadian car parts maker Magna last month and used bailout money from the Kremlin to avoid losing a stake in metals giant Norilsk Nickel.

Deripaska's empire was the biggest single beneficiary so far of a $210 billion government rescue package, receiving $4.5 billion to help repay foreign debt. But the 40-year-old businessman says state handouts are not enough.

"We can bet on investment in housing and infrastructure," Deripaska said. "Investment in housing, roads, schools and utility services will help keep afloat a chain of other sectors such as construction materials, machine-building, metallurgy.

"Such projects will also help to employ people who will lose jobs in other sectors," he added.

Deripaska's recipe is very similar to the one used by U.S. President Franklin D. Roosevelt, who used state-funded infrastructure projects to create jobs and boost consumer demand in the years of the Great Depression.

Infrastructure renewal would directly benefit Deripaska, whose business interests grouped under the Basic Element holding company range from construction, resources and aluminum to car making, machine building and financial services.

"There will be losses from the crisis indeed, the task is to make them minimal," Deripaska said.

"Businesspeople should trim their businesses, leaving only structures that will be needed in the next 15 years, while the government should attract new resources," he added.

Last month, Medvedev admitted for the first time that the financial crisis had spread to Russia's real economy and that it could face a sharp rise in unemployment. Analysts predict a sharp fall in living standards as well.

"The state should help those who suffered most," Deripaska said. "We [businesspeople] will survive one way or another, while the crisis may ruin many ordinary people."

The Kremlin says massive reserves accumulated in the years of the oil boom give the country a safety cushion to ensure a soft landing during the crisis.

But falling oil prices and support for the national currency, industries and financial sector are rapidly draining the reserves, which currently stand at $450 billion, $150 billion below their highest point in August.

"I am pretty sure that we will see the price of oil at $35 per barrel," the billionaire said. "One big problem is that companies are cutting back on exploration. That means they will have no resources when it comes to boosting production."

The price of Urals crude has fallen 67 percent since this year's July 3 high to $43.07 a barrel on Tuesday.

Deripaska said many of his business colleagues think that they just need to survive the storm by relying on government support and waiting for things to return to their original precrisis state.

"Some of them are trying to save production capacities and keep prices high, waiting for a [recovery]," he said.

"This makes it difficult for others to restructure. For instance, high domestic prices for metals do not allow the production of cheaper cars.

"The hand of the state should become visible and solid," Deripaska added. "It is the government's responsibility to find the right balance between supply and demand, to find a price balance. This requires manual control."

Deripaska said government infrastructure projects could not only create new jobs but also encourage consumer demand.

"We are a lucky country in a way," he said. "As opposed to the West, where most basic consumer demands are already met, Russians tend to spend rather than to save once they get money in their hands."

"For instance, in more than 12 million families, more than one generation lives under the same roof. There is a huge objective demand for housing, and people will buy apartments if they are offered them at reasonable prices," he said.

"The same goes for cars and many other things."