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. Last Updated: 07/27/2016

Deputies Approve $18.5Bln Bailout

The State Duma took less than two hours Thursday to approve a raft of bills allowing the government to spend more than $18.5 billion bailing out troubled banks and supporting the plummeting domestic stock market.

Meeting in an emergency session, lawmakers overwhelmingly voted in favor of amendments to this year's federal budget, passing the changes in both their second and third readings. A law that would let the Central Bank handle corporate bonds and shares breezed through the chamber in all three readings.

The laws are part of a government rescue package worth more than $210 billion to keep the economy afloat amid major capital outflows and a crisis on the domestic credit market. Net private capital outflows may reach $20 billion this year, the Central Bank estimated recently, in stark contrast with the previous forecast of $40 billion in net inflow.

The lone dissension came from the Communists, who voted against all of the state-sponsored measures.

But the legislation is likely to be welcomed by voters, a majority of whom would like to see the state go even further in managing the crisis, according to a poll released Thursday.

A survey by VTsIOM showed that 79 percent of those polled would favor state regulation of prices, while 58 percent said it would be right to nationalize banks. Russia has some 1,200 banks, with state-controlled Sberbank accounting for one-quarter of all private deposits.

In a video address posted on the Kremlin web site, President Dmitry Medvedev said Thursday evening that Russia stood to gain from the crisis, which "inevitably" will lead to more competitive companies after consolidation in the banking, retail and construction sectors.

"We will be ready to take the necessary measures and provide additional financing for these purposes," he said. "The stability of the development of these sectors will facilitate the creation of new jobs."

Medvedev added that financial organizations must become more reliable, while industry will have to cut costs by upgrading technology and improving energy efficiency. He did not specifically address the measures passed in the Duma.

"Russia hasn't yet been caught in this downward spiral and has a chance of avoiding it. It must avoid it," he said.

Under the more than 500 billion rubles in budget amendments, the government will be able to allocate 200 billion rubles to the Deposit Insurance Agency, spend 175 billion rubles to support the financial market and economy and transfer 75 billion rubles to the Vneshekonombank to buy stocks. It would also have the authority to give 60 billion rubles to the State Mortgage Agency to refinance banks' loans.

Some of the money comes from the Investment Fund, a state vehicle to boost economic development, and eats into other spending programs, said Vitaly Shuba, first deputy chairman of the Duma's Budget and Tax Committee.

Smaller changes include letting the state divert more than 32 billion rubles to buy apartments from struggling developers — at the expense of sprucing up Sochi and Vladivostok. The cities will host the 2014 Winter Olympics and 2012 Asia-Pacific Economic Cooperation forum, respectively.

About 16.9 billion rubles will be spent this year to "eradicate the aftermath of the Russian-Georgian war," with 8 billion rubles for the same purpose in 2009.

The changes envision savings of 41.8 billion rubles this year by cutting costs, including 5.3 billion rubles on federal employees' salaries.

A separate bill will allow the Deposit Insurance Agency to save banks from bankruptcy by buying their assets or helping investors do so, said Vladislav Reznik, head of the Financial Markets Committee. If asked by the Central Bank to intervene, the agency could use the 200 billion rubles in state money or take out loans with the Central Bank, he said.

"Currently, the Central Bank can't do anything if it sees that a bank is in a dangerous situation," Reznik said.

Communist Deputy Boris Kashin said the spending would not have been needed if the Central Bank had conducted a more prudent policy.

"It's an attempt to patch over the errors in the policy and foresight by the Central Bank," he said. "Communists will not vote for this bill."

Deputies also approved a bill empowering the Central Bank to have more involvement in financial markets. While the bank previously could only deal in state bonds, the Duma voted to let it buy and sell corporate bonds and deal in short-term share repurchase, or repo, operations.

"The Central Bank will not engage in deals as a stock market player," Reznik said.

The measures need to be approved by the Federation Council and signed by Medvedev to become law.