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. Last Updated: 07/27/2016

Cabinet Gives Exporters a Boost

Warning that overdependence on natural resource exports could lead to another financial crisis, Prime Minister Mikhail Kasyanov on Thursday approved a plan to provide nearly $1 billion in financing and other kinds of support for exporting manufacturers.

"If the current structure and volume of exports and imports remain the same, in a couple of years a financial and economic crisis could become possible," Kasyanov told a Cabinet meeting, according to the government's official web site, www.government.ru.

"[The export support plan] could be launched next year," said Deputy Economic Development and Trade Minister Maxim Medvedkov, whose ministry developed the plan, adding that the plan needs refining.

Kasyanov also ordered Medvedkov's ministry, together with the Finance Ministry, to define by Dec. 1 the roles and sources of financing for Roseximbank and Roseximgarant, which will become the state's export bank and export insurance agency, respectively.

Under the plan, Roseximbank could get a $50 million boost in capital through a new share issue, approved by the government this summer.

Roseximbank's capital was about144 million rubles ($4.6 million) as of the first quarter of 2002, according to Interfax Rating Agency.

The plan also foresees capitalizing Roseximgarant with up to 51 billion rubles ($1.7 billion), according to local news agencies.

Kasyanov said the export structure should be overhauled within four years, a timeframe economists called extremely ambitious.

"It is a very good long-term goal, but systemically it will be a big problem," said James Fenkner, chief strategist at Troika Dialog. "In the Western markets there is overcapacity in a lot of manufacturing sectors, so they don't need Russian goods."

Half of the revenues in next year's $72 billion budget are expected to come from oil and gas alone, supplemented by metals and other raw natural resources.

So far this year, some $37 billion worth of foreign goods have been imported, which is about 50 percent more than manufactured exports. Imports could continue to squeeze many domestic goods if inflation rises and the ruble appreciates, making imports relatively less expensive.

Economists said while the export structure held the economy captive to fluctuations in the oil price, the economy is not on the verge of a collapse. However, they said budget problems would probably begin if the price hits $17 per barrel and crisis conditions could arise at $10, which is about a third of the current price.

"There are no indications for total crisis. Perhaps a crisis in the banking system, with corporate insolvency, but not a macroeconomic crisis," said Alexei Moiseyev, economist at Renaissance Capital. "[Kasyanov's] statement seemed somewhat political, that it is politically necessary to support manufacturers of highly-processed goods."

World Bank economist Christof Ruhl also saw no indications of a looming crisis. "I see a slowdown in growth," he said. "The economy has hit capacity. ... Investment rates are low, so growth is low."

The government hopes the creation of an export bank and a export insurance agency could help shift the structure of exports.

"For exporters of goods like televisions, an ex-im bank wouldn't help, but for exports of goods that take a long time to produce, such as ships, it could help," Moiseyev said.

"Russia's main exports are goods like oil that don't need a guarantee, though if it's part of a strategy of fostering production in Russia, that's fine," Ruhl said.

In addition to guaranteeing exports, subsidizing interest rates for exporters and insuring risks, the government needs to continue forging ahead with its banking sector and administrative reform plans, economists said.

"The environment should be changed so that all would-be entrepreneurs have the same chance to get investment capital, that is, people's savings," Ruhl said.

"A much more realistic proposal, and one that is more in Russia's hands, is to develop a large consumer base like in most developed countries," Fenkner said. "That means small business development and financial intermediation in Russia, not offshore. ... But given the political calendar, the 2003-04 elections, nothing really major is going to take place."