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. Last Updated: 07/27/2016

Oil Wealth to Be Kept in Bonds

Russia, struggling to make up its mind about how to invest its oil wealth during its election cycle, will keep the cash in top-rated bonds for now and not invest in shares, officials said Thursday.

Russia plans to split the $148 billion rainy-day fund into reserve and growth components on Feb. 1, 2008, between the parliamentary elections in December and a poll in March to elect a successor to President Vladimir Putin.

"This is not a technical question, it is a political question. There should be a consensus in the government about what we need the fund for," Sergei Shvetsov, head of the Central Bank's open market operations department, told a conference.

The conservative Reserve Fund, equal to 10 percent of the country's gross domestic product, will invest in bonds rated no lower than "AA" while the $19 billion National Wealth Fund, or NWF, is earmarked for investment in equities.

Even before the split, the government tapped the NWF for 300 billion rubles ($12.3 billion) in 2007 for infrastructure investment, denting the government's reputation for financial prudence.

The new budget code says the NWF may be used to co-finance voluntary pension savings. But the government is split over whether only the fund's investment returns may be drawn on to help fund pensions, or its capital as well.

"Until we have a clear understanding of the timetable for withdrawals from the fund, we believe it is better to stick to a conservative strategy," said Dmitry Pankin, head of the Finance Ministry's debt department.

Pankin also noted that stocks were seen as a less liquid asset than bonds, which makes their conversion into cash in case of emergency more difficult.