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. Last Updated: 07/27/2016

Investors May See Billions Unfrozen

This year Russia may unfreeze so-called S-accounts holding billions of foreign investor dollars frozen after the 1998 domestic bond market crisis, a senior Central Bank official said Friday.

"I think the problem of the S-accounts should be closed. It is overripe," Oleg Vyugin, a liberal economist appointed last week as first deputy Central Bank chairman, said in an interview.

At present, foreigners can only use funds from the accounts for a limited range of local investment opportunities. They can effectively repatriate the ruble funds only by buying dollars at special auctions, where the U.S. currency is usually more expensive than on the market.

Vyugin was earlier this week approved by the State Duma as a member of the bank's board.

He said that more than 100 billion rubles ($3.2 billion) of S-account funds were invested in different assets.

It was not yet clear whether holders of these assets would like to sell them and repatriate the proceeds, he added.

Vyugin said the authorities should work out a mechanism to cushion the possible negative consequences of the funds flooding the market.

"I think it will not be sensible for holders of these assets to sell them and run away in a fit -- Russia now looks attractive," he said. "But we must provide for some sort of insurance mechanisms. What if we are mistaken? We do not want to deal a blow to the stock market. It is volatile as it is."

Andrei Germanov, deputy director of the securities department at Bank of Moscow, said that foreign investors will not actively sell any of the paper.

"The macroeconomic situation in the country is stable, and there is no reason to speak of a massive repatriation of these sums," he said.

However, Dmitry Dmitriyev, an analyst with United Financial Group, said investors will quickly take their money from the government bond market.

"Why keep money in low-earning ruble instruments when you can buy, for example, steadily growing Eurobonds, the risk of which is much lower?" he said. (Reuters, Vedomosti)