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. Last Updated: 07/27/2016

Ministry Sees Fund in Bonds

The government will keep its $151 billion stabilization fund entirely in sovereign bonds next year and will not invest a $19 billion subfund in corporate debt or stock, a top Finance Ministry official said Tuesday.

The fund will be split Feb. 1, 2008 into a Reserve Fund, which will act as an insurance policy to cover any budget deficit caused by a fall in energy prices, and a more growth-oriented National Welfare Fund.

"The National Welfare Fund will be invested in sovereign bonds with a rating not lower than 'AA' in 2008," said Dmitry Pankin, head of the ministry's debt department.

The decision indicates that Russia will not join the ranks of countries like China or Singapore, which have large sovereign wealth funds, leading to some concern over possible aggressive acquisition strategy and low transparency.

Ahead of March's election, pressure is mounting to spend some of the wealth on improving life for ordinary citizens.

The initial plan was to start investing the National Welfare Fund in corporate paper on Feb. 1, 2008, but the government is still struggling to make up its mind about how to use the fund and whether to spend the return on the fund's investment or the fund itself.

The stabilization fund was created in 2004 to cushion the budget from a fall in oil prices but has since outgrown its original goal, prompting a debate about what to do next with the oil windfall.

The government tapped the National Welfare Fund for 300 billion rubles this year, even before its creation, to capitalize a number of development institutions, which for now are mainly being used to provide liquidity for the banking sector.