President of Russia Dmitry Medvedev: (Addressing Deputy Prime Minister and Finance Minister Alexei Kudrin.) Alexei Leonidovich, I would like to know your assessment of the situation with provision of credits to the real sector of the economy, to our enterprises, above all, the situation with ‘long money’, long-term credits. What has been done so far, what are the problems at the moment, and what needs to be done now to ensure that our manufacturers have access to long-awaited credits, especially long-term credits?
And a second question: a while ago, I discussed with colleagues the possibility of providing state guarantees, because the global economic and financial crisis has led to a radical devaluation of assets all around the world, including our companies’ assets, and this of course creates problems for them to obtain credits. This situation calls for new responses, including by providing guarantees under set conditions, more favourable conditions than those that have been traditionally required for the provision of state guarantees.
So, these are the two questions I would like to hear your views on to start with.
Deputy Prime Minister and Finance Minister Alexei Kudrin: Dmitry Anatolyevich, banks’ ability to lend to the real sector, including longer-term loans, is linked to how stable is a resource base the banks themselves have. Their main resources are household deposits, companies’ deposits, and borrowed funds on the markets. In order to make this base stable enough for the banks to be able to make loans for the long term, interest rates for household deposits need to be higher than the inflation rate, so that people will want to keep their money in the banks. The Central Bank has therefore taken measures related to the increase in the refinancing rate. This will make bank deposits more attractive. Banks are also now increasing interest rates on household deposits. This will do a lot to stabilise the banking system’s work and make it possible for banks to get the resources they need to make long-term loans.
Over these coming days we will also draft decisions for approval on the provision of state guarantees for loans to companies with the aim of making loans more secure, including credits for two or three years. The state should be ready to allocate a limit of up to $300 billion roubles [more then $10.7 billion] for these guarantees. If necessary, we could raise the limit for guarantees for companies. These guarantees would come in addition to the collateral that the companies themselves make available to the banks. We will share the risks with the companies and with the banks that make the credits available. I think that in this way we will be able to reach a critical mass in terms of guarantees, and this will do much to boost the provision of loans to the real sector of the economy.
We are also looking at other measures to improve banks’ balances and stabilise their resource base. This includes additional measures to buy up mortgage loans from banks, and this will also help them build up their resource base. We hope that all of these measures together will be in effect by the end of this year or right at the start of next year, and that this will bring about a real improvement in the situation with credits for the real sector, including long-term loans.
Dmitry Medvedev: Good. This new system of state guarantees you mentioned needs to be set out in law then. If by-laws, government resolutions and orders are enough then they should be passed swiftly. If amendments to the laws are required, this should also be done rapidly and we should use our contacts and good relations with a number of the parties in the State Duma to help make sure that these decisions go rapidly through the whole parliamentary procedure.
Now I have a question for Sergei Mikhailovich Ignatiev, as chairman of the Central Bank. Please tell us about the situation today with the outflow of household deposits, which has considerably increased of late, unfortunately, as a result of the negative trends on the financial market. This situation puts psychological pressure on people of course and pushes them into withdrawing their money, but a number of measures have been taken in response nonetheless. Moreover, it is very clear that we are not in fact facing some kind of insurmountable difficulties ahead in our development, and this has calmed the situation somewhat. I would like to know how things stand today.
I would also like to hear about another matter too. A little while ago, we talked about increasing banks’ capitalisation so that they would be able to work more actively, and so as to end the crisis of confidence in the banking sector. We planned to use the Deposit Insurance Agency in this work. This mechanism has now been established. Has it begun work? What is the current state of affairs?
Chairman of The Central Bank Sergei Ignatiev: Dmitry Anatolyevich, as far as the outflow of deposits is concerned, there was indeed a significant outflow of household deposits from the banks in October, and this of course did create some tension in the banking sector’s work. Fortunately, the situation has improved considerably since then. There was practically no outflow of deposits in November. Our latest information suggests that was even a certain inflow of deposits. But of course the situation varies from one bank to another. Some banks have deposits coming in, while others are seeing an outflow. For the banking system overall however, there was a small inflow. We expect this inflow to increase in December.
As for legal entities’ funds in accounts in the banks, in October there was an outflow, but in November there was a sizeable inflow. I think therefore that the situation in the banking system is stabilising.
Regarding capitalisation of the banking system, a law was passed in October that makes it possible to provide subordinated loans to banks that meet certain criteria, and under this law the Central Bank has already accorded a subordinated loan of 300 billion roubles [more than $10.7 billion] to Sberbank [Savings Bank of the Russian Federation]. Furthermore, Vnesheconombank [state corporation “The Bank for Development and Foreign Economic Affairs”] has made considerable funds available in the form of subordinated loans to Vneshtorgbank [VTB Bank] and Selkhozbank [Russian Agricultural Bank]. Requests from other prominent banks for subordinated loans from Vnesheconombank are currently being examined. The Deposit Insurance Agency has received additional powers following the adoption of amendments to the law and is actively involved in the work to help the banks currently experiencing financial difficulties improve their situation.
What is also important to note is that the number of banks experiencing financial difficulties has stabilised and is not growing now.
Dmitry Medvedev: What you said just now about the outflow situation shows that confidence in the banking system has been restored overall. This is very important for the economy to be able to function normally, and it is important for the banking system itself, of course.
Regarding the subordinated loans, we are indeed carrying out this work. The Government is working on this. I think that we will have to step up these efforts. This also has to do with what Alexei Leonidovich [Kudrin] spoke about just now, that is, getting the needed loans to the individual consumers, because this is the most important issue right now. We have organised loans to the banking sector, and now we clearly need to step up our efforts on the end of the chain.
(Addressing Economic Development Minister Elvira Nabiullina.) Elvira Sakhipzadovna, my question is this: the year is coming to a close and I would like to hear from you what macroeconomic results we can expect. The year got off to a good start, but has come to a very complicated close. So, what kind of growth rate are we looking at, and of course there is the inflation rate too – an important indicator that the whole country is following.
Economic Development Minister Elvira Nabiullina: The growth rate for the January-October period came to 7.5 percent. This, of course, reflects the high growth rate over the first half of the year. If we implement effectively the measures taken to improve the financial sector’s and other economic sectors’ health, and go ahead with the additional measures spoken about just now, we should have an economic growth figure of around 6.8 percent for the year as a whole.
The latest inflation figures are as follows: prices rose by 0.8 percent in November, and this makes for overall inflation of 12.5 percent. We expect a final figure for the year as a whole of around 13.5 percent. This is a high figure of course, and we need to do everything possible to bring the inflation rate down in 2009.
I want to add that we have made an important decision to increase the funds allocated to subsidising exports of industrial goods. We proposed doubling these funds and have added another 6 billion roubles [more than $214 million] to support our exporting companies, above all those not exporting raw materials.
Dmitry Medvedev: I want you to pay your utmost attention to the macroeconomic situation that is taking shape. These are not abstract concepts but are things that are an important part of our people’s lives. They feel the direct impact of these factors, above all inflation, on their lives. Of course we need to try to bring down inflation. I think that we have a decent chance of success. We need to look at developments overall, because you know that in the context of the global financial crisis a number of countries are worried now not about inflation but deflation, which also has very serious consequences for economic development. So, we need to try to gain perhaps even some kind of advantage from the economic situation, from this crisis that is making the weather in financial systems all around the world at the moment.
Igor Ivanovich [Shuvalov, First Deputy Prime Minister], we spoke a few days ago about the situation in the different economic sectors. I know that the government has put you in charge of this work and you have been meeting with representatives of the different sectors. It is important now to work not just on specific sectors but also on specific companies in cases where needed, because it seems there will be no getting by without this kind of targeted aid, even though we realise that this is an emergency measure and should be used only in limited fashion.
I have two questions for you in this respect. A while ago, I gave an instruction on stabilising the price of aircraft fuel and asked for an investigation to be made into the schemes that had emerged in this sector and that had led to a real increase in prices at a time when everywhere else in the world the cost of aircraft fuel was falling. What has been done, and how do you think we should organise loans to airlines so that they can buy the needed quantities of fuel and ensure that our people are not left stranded in airports, waiting for their plane to get fuel?
My second question concerns one of our national priorities – the development of agriculture. For several years we have increased investment in developing the livestock industry, and we have achieved some decent results. Livestock has increased and we have organised a system of loans. This is something we need to maintain. So, what do you think we should do to continue developing lending to livestock producers and to agriculture sector businesses in general? The money that has been coming into the rural areas has played a very positive part. And we know, what’s more, that the global financial crisis has come hand in hand with unfavourable trends on the foodstuffs market.
First Deputy Prime Minister Igor Shuvalov: Dmitry Anatolyevich, over these last months the situation with the airlines has been difficult indeed. The Government tried to take a systemic approach in response, and then we turned to targeted assistance for specific airlines. What decisions have we taken at present?
The Federal Anti-monopoly Service has issued a decision limiting the hold on the market of companies that impose high monopoly prices on aircraft fuel. Specific charges have been brought against many companies and in some cases fines have been imposed.
At the same time, the Finance Ministry and the Transport Ministry have proposed a scheme whereby credit resources will be made available to the biggest carriers and companies that are most financially stable. The loans will be up to 30 billion roubles [around $1.1 billion].
These loans will be made available primarily to the biggest companies such as Aeroflot and Transaero, the new aviation company being established under the aegis of State corporation Rostechnologii [Russian technologies], and also other carriers that meet the financial stability requirements.
Regarding other carriers that have accumulated debts now, we are working directly on this issue to ensure that their debt burden does not increase, and that they can fulfil all their obligations towards those who have bought tickets. In the event that a company is unable to carry out flights, bigger companies will take over their routes and obligations. We are keeping close watch on this situation.
Regarding the state programme for agriculture development, given that credit has become so expensive lately, agricultural businesses are worried that they will not be able to carry out in full the investment programmes they planned a while back, expecting a completely different cost of credit resources. In this respect, the Government has decided to allocate an additional 7 billion roubles [more than $250 million] to subsidise interest rates on loans accorded to agricultural producers. This money, which will come from the federal budget, will offset the current increase in interest rates.
As far as small and medium business investment projects go, we are also giving them our attention and they too will receive the necessary resources. Companies face almost no obstacles in getting short-term loans at the moment.
Dmitry Medvedev: Keep all of these issues under control, because in this situation the Government needs to be in direct and regular contact with the producers. This is the course of action we need to follow, and this is what other countries are also doing to overcome these problems.
Looking at small and medium business, of course we need a general decision, an overall solution that will make it possible to support these businesses today.
I wanted to say one more thing about our projects, our national priorities. We have been working on this together, working actively. We already have some results, and we need not only to maintain them but also to build on them as much as we can, regardless of the financial crisis.
In this context, I want to hold a meeting of the Council for National Projects at the end of the year. I would like the Government to draw up proposals on how to continue implementation of all four national priorities in the difficult situation on the financial market.
I stress once again that our aim is to not only maintain the pace of development we have achieved but, where we can, to achieve new results.