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Sberbank of Russia Within March, the Sberbank of Russia has signed credit agreements with several companies: on March 10, an agreement with VympelCom on the opening of non-revolving credit line for USD 8 billion. and USD 250 million till the end of 2011 and 2012, respectively, and on March 26 an agreement with OOO Briz Construction Company on opening a credit line for USD 338 million for a period of 7 years.

On March 24 Sberbank of Russia has disclosed financial results for January-February 2009 in accordance with RAS (unconsolidated figures): the Bank net profit amounted to RUR 5.1 billion.

Corporate bonds market In March, the volume of the domestic corporate bond market in Russia (as per nominal value of securities in circulation) has grown after a short-term decline in January-February of the current year made RUR 1,663.8 billion, which is by 0.9 per cent more than the similar indicator of preceding month. Within the period from February 24 to March there were concluded by 29.4 thousand of transactions with corporate bonds in MICEX, totaling to RUR 34.3 billion. (as compared with 29.2 thousand transactions for the total amount of RUR 31.2 bln from January through February of the current year), what is the confirmation of the investors activity growth in the security market.Within February through March 24 the Russian market index of corporate bonds IFX-Cbonds was growing again (the increase has made nearly by 8 points (or 3.9 per cent) up to the maximum level of September of the last year.Herewith, the effective bonds yield has significantly decreased (from 21.41 per cent to 17.79 per cent), which is the maximum value over the past few years. (Fig. 6). The duration of the GKO-OFZ market portfolio as of March 24 was 436 days, what is 73 days less as compared with the late February of the current year.

FINANCIAL MARKET 28 In1 March, the total Effective yield amount of the registered Index IFX-Cbonds corporate bonds issues has decreased.In the period from February 25 to March 24 there were recorded 7 issues of corporate bonds, totaling to RUR 21.5 billion, what 0 is lower than the volume of January-February of the current year (as compared with that, from January 27 to February Fig. 6. Russian corporate securities index and average weighted 24, 9 issues totaling to yield dynamicsRUR 120.6 billion were recorded).The bulk of the registered corporate bond issues was made by the two series of bonds, issued by ERRD for the total amount of RUR 8 billion and one series of bonds, issued by OAO Amurmetal for the amount of RUR 6 billion.Upon a sharp decrease at the beginning of the year, the number of corporate bond issues has grown again.In the period from February 25 through March 24 there were placed 7 issues for the amount of RUR 45.4 bln. (within the period from January 27 to February 24 only one bonds placement was made for the amount of RUR 1 billion) (Fig.7). It is worth noting, that in this period, the large bond issues were placed by OAO Russian Railways (two series of bonds for the total amount of RUR billion) and ZAO VTB one series of bonds for the amount of RUR 8 billion); herewith, two emitters have placed inaugural bond issues.

In2 March the downgrading trend in the number of issues, recognized invalid due to non-placement of any security was observed in the period from February 25 to March the Federal Statistical Service for Financial Markets of Russia has recognized as invalid four issues of corporate 100 bonds, offered for public Total emission placement (versus five Amount of placed issues placements within January 27 February 24).Within February to March 24, as planned before, nineteen emitters have redeemed the bonded loans totaling to RUR 28.9 billion, including the bonds of OAO VTB Bank in the amount 0 of RUR 5 billion, OAO Maxy-Group for RUR bln and ZAO Trubnaya Fig. 7.Corporate securities primary placement dynamicsMetallurgy Company also 1 As per Cbonds company data 2 As per Cbonds company data Effective yield, % Index IFX-Cbonds of placed bond issues Total volume of placed bond issues, billion rubles Jul.Jun.Apr.Jan.Jan.Feb.Feb.Oct.Oct.Mar.Mar.Nov.Nov.Dec.Aug.Dec.May.Sept.- - RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES for the amount of RUR 3 bln.In April 2009 fourteen issues of corporate bonds redemption for the amount of RUR 12.6 bln is expected.In March, like in preceding months, a large amount of defaults and delayed performance of obligations (the so-called technical default) was noted. From February 25 through March 24 the default on offer (bonds redemption) was announced by three emitters (within January 27 - February 24 there were also three emitters) and eight emitters have failed to repay the coupon yield (there were seven of those in the preceding period).Herewith, it is worth noting that during the period under review, all issues of bonds were redeemed by the emitters on time or in the framework of technical default.

THE BUDGETARY AND TAX POLICY THE BUDGETARY AND TAX POLICY O.Kirillov, I.Sokolov March 2009 saw introduction of regular amendments to the 2009 federal budget, which has become increasingly focused on anti-crisis measures. With account of the amendments, it is envisaged that the federal budget revenue should tumble nearly at one-third vis--vis the earlier planned parameters, while the expenditure part, on the contrary, should grow.

By results of the year, for the first time since 2000, the federal budget should run deficit.

Table MAIN PARAMETERS OF THE FEDERAL BUDGET OF RF IN 2007-2009 (AS RB. M) 2007 February 2008 2008 February Revenue 7 764 553 1 340 486 9 258 061 447 Expenditure 5 982 166 923 776 7 560 873 691 Deficit ()/ Surplus (+) 1 782 387 416 710 1 697 187 -243 Source: the RF Ministry of Finance At its meeting on March 19, 2009, the RF government considered amendments to the federal budget. Its new parameters were designed proceeding from the projected volume of GDP of Rb. 40.42trln, the 13% inflation rate, and the average annual price of Urals of USD 41/barrel. When compared with the effective version of the 2009 federal budget law, the projected volume of revenues should slide from Rb. 10.93trln (31.23% of GDP) to 6.71trln. (16.6% of GDP). Over 60% of the fall is associated with the drain of revenues from the mineral tax and export customs duties that normally form the oil-and-gas budget revenues. It was revenues from the mineral tax nd export customs duties that were falling behind their respective figures of the prior year at most (at 3.1% of GDP and 3% of GDP, respectively) (Table 2). Despite a nearly two-fold fall of the oil-and-gas revenues (from Rb. 4.69trln to 2.57trln), the volume of the oil-and-gas transfer and the standard value of the Reserve Fund remained unchanged in the new draft of the budget and accounted, accordingly, for Rb. 253trln and 5.15trln. Given the current rate of collection of the oil-andgas revenues (they made up Rb. 422.74bn between January and February 2009), they will barely suffice to secure the oil-and-gas transfer. So, one should not bank on any additional revenues to the Reserve Fund. But because of a rapid depreciation of the Rb. over the past two months, as of March 1, 2009, the volume of the Reserve Fund has already accounted for Rb. 4.87trln, or 94.5% of that planned in the draft budget.

Table MAIN REVENUE ITEMS OF THE FEDERAL BUDGET OF RF IN 20072009 . (AS % OF GDP) January January 2007 2008 1 Budgetary revenues, total 23.91 29.58 21.84 29.1. Corporate profit tax 1.97 1.38 1.79 0.2. Uniform social tax 1.24 1.03 1.19 0.3. Taxes levied on merchandise and services 4.61 7.90 2.65 6.sold in the RF territory, including - - RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES Table 2 (contd) 1 3.1.Value added tax 4.27 7.42 2.35 5.3.2. Excise taxes levied on excised 0.33 0.48 0.29 0.merchandise 4. Taxes levied on merchandise imported in 2.76 2.50 2.75 1.the RF territory, including:

4.1 Value added tax 2.68 2.43 2.67 1.4.2. Excise taxes levied on excised 0.08 0.07 0.08 0.merchandise 5. Mineral tax 3.45 5.28 3.78 2.6. Import customs duties 1.50 1.33 1.47 0.7. Export customs duties 5.64 7.89 6.73 4.Source: the Federal Treasury of RF, the IET calculations In 2009, let alone the fall in the oil-and-gas revenues, one should expect the biggest drop in collection of revenues from the corporate profit tax, the personal income tax and the uniform social tax. This drop will be fueled by the aggravated financial health of Russian corporations, contracting business activity, a growing number of the jobless, and declining incomes from the labor and entrepreneurial activity. It is property-related taxes (the corporate property tax, the land tax, the vehicle tax) that will retain a greatest stability in the crisis conditions); however, should crisis developments in the economy persist for long, revenues from these particular taxes will be in decline, too.

The anti-crisis nature of the 2009 budget has manifested itself in reallocation of federal expenditures (it was proposed to scale back the earlier approved appropriations by Rb.

943.3bn) in favor of financing of priority avenues of the anti-crisis program approved by the RF government. Specifically, it is planned to spend Rb. 1.61trln on measures on stabilization of the financial market, support of certain sectors of the economy, and social support of the population. The banking system is going to receive an additional government support package worth a total of Rb. 300bn.; the agrarian sector is to receive Rb. 45bn via Rosselkhozbank and another 25bn via JSC Rosagrolizing, and 17bn. in subsidies to regional budgets to reimburse for the agrarian producers interest on loans; small businesses will receive Rb. 6.2bn; JSC Russian Railways 50bn; automakers 39bn; and the military and industrial complex 70bn.

These measures have not come out of the blue they were implemented to some degree over recent years. But in the present circumstances they formed the Schwerpunkt for the government. Hence, the attempt of a comprehensive remedy to the pressing challenges in the noted areas. But these measures are somewhat late already, and they are not preventive ones, as the production slump and the fall in entrepreneurial activity have been already there. It is unlikely that the government would be able to reverse the trend, even by means of additional infusions of public funds, while there are no guarantees of their efficient use.

As concerns the social component of the anti-crisis package, it is intended to carry out pro-active employment policy measures (with Rb. 43.7bn allocated to this effect), raise unemployment benefits (Rb. 33.9bn), use the maternity capital to repay mortgage loans (Rb. 26.3bn). As a compensation for thus lacked revenues, the state extrabudgetary funds should receive Rb. 388.5bn and the RF Subjects - Rb. 150bn in additional interbudgetary transfers.

The aggregate volume of the federal budget expenditures ultimately grew at Rb. 667.3bn.

vis--vis the initially approved volume and now has been planned to amount to Rb. 9.69trln.

It is for the first time in the 2000sthat the federal budget will run a Rb.2.98trln. deficit THE BUDGETARY AND TAX POLICY (7.45 of GDP). So, the growing budgetary expenditures will cause a mounting pressure on the Rb., which can be counterbalanced by tighter monetary and credit policy measures.

Table 3 presents the data on the federal budget expenditures broken down by main items. In January 2009, expenditures on items Interbudgetary transfers, Social policy, and General government matters were cut, accordingly, at 0.83, 0.48 and 0.37 p.p. of GDP vs. January 2009. Notably, cuts by the item Interbudgetary transfers in January 2009 became possible by pruning grants-in-aid and subsidies to the RF Subjects and municipal entities at 2.5% of GDP against January 2008, while transfers to budgets of the government extrabudgetary funds were up at 1.6% of GDP over the same period. Meanwhile, the expenditure item National economy was up at 0.35% of GDP in the period between January 2008 and January 2009. Other changes did not exceed 0.1% of GDP.

Table MAIN EXPENDITURE ITEMS OF THE FEDERAL BUDGET OF RF IN 20072009 . (AS % OF GDP) January January 2007 2008 Expenditures 18.39 16.72 17.82 15.General government matters 2.50 1.83 1.97 1.of which: servicing the public debt 0.44 0.52 0.36 0.National defense 2.56 1.17 2.45 1.National security and law enforcement 2.05 1.98 1.97 2.National economy 2.13 0.47 2.41 0.Housing and utilities 0.91 0.00 0.30 0.Environment 0.03 0.01 0.02 0.Education 0.91 0.34 0.84 0.Culture, cinematography and mass media 0.22 0.11 0.21 0.Healthcare and sport 0.60 0.13 0.66 0.Social policy 0.66 0.71 0.69 0.Interbudgetary transfers 5.84 9.97 6.30 9.Source: the Federal Treasury of RF, the IET calculations The governments refusal to continue the practice of drafting a three-year budget is particularly noteworthy. Under the present uncertainty, it is impossible of course to ensure a high quality of the three-year budgetary planning. But one should realize that a comeback to the annual budget is a setback on the path towards development of the strategic budgetary planning, as it derails the publics appreciation of the governments long-term budgetary and fiscal policy and does not allow one to transition to medium-term public contracts, nor it helps one lay down the foundation for enhancement of transparency of financial provision of the public investment expenditures.

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