Russia to invest $6.6b, Putin says

Moscow: Russia's government plans to invest up to 175 billion roubles ($6.6 billion, Dh24.25 billion) in its financial markets in 2008, starting this week, Prime Minister Vladimir Putin said on Friday.

"For a long time, economic players, a majority of Duma deputies, experts have been asking the government to devote a portion of its available resources to buying Russian shares rather than foreign," Putin said.

"Given the current complications in the Western economy, I believe today that this claim is justified," he said, referring to the US-rooted global financial crisis.

Putin called on the government to "put in an amount ranging up to 175 billion roubles this year. Moreover, the placement will begin this week and will be managed by Vneshekonombank," a major Russian state-owned bank.

In addition, "next year, no less than 175 billion roubles will be placed in reserve to stabilise our market," he said at a meeting of a government commission in charge of foreign investment.

Russian officials have already floated the possibility of offering support for the country's financial markets, which have been suffering from severe volatility since the middle of the year.

The main indices on Russia's two main stock exchanges, the RTS and Micex, have shed more than 60 per cent of their value since they peaked at historic highs in May because of the US-rooted global credit crunch.

Russia raised bank deposit guarantees yesterday as the banking crisis deepened, with one bank's licence revoked, another asking clients to repay mortgages and S&P putting 13 institutions on negative outlook.

With memories of painful savings losses of the 1990s and Soviet times still relatively fresh, authorities are working hard to support the banking system.

State-owned companies have already bailed out two mid-sized banks that fell prey to the crisis, and Prime Minister Vladimir Putin yesterday said guarantees on personal bank deposits will now cover 100 per cent of the first 700,000 roubles ($26,760), the equivalent of nearly 40 average monthly wages.

Flight of capital

The announcement came on a day of more news for the Russian banking sector, which has seen foreign sources of funding blocked by the global credit crunch, and the liquidity problems exacerbated by the flight of investor capital from Russia.

The sharp sell-off in shares - with Moscow bourses down 56 per cent since the start of August - has eroded the value of collateral used in repo loans, sparking wide-spread margin calls and leaving some organisations unable to meet obligations.

Standard & Poor's ratings agency put 13 of Russia's financial firms on negative outlook yesterday, including big players such as investment banks Troika Dialog and UralSib and Russia's largest privately owned bank, Alfa Bank.

"The outlook revisions reflect our growing concerns about the adverse impact of the ongoing domestic and international market turbulence," S&P credit analyst Ekaterina Trofimova said in a statement.

"We expect that higher funding costs and reduced access to the debt markets will continue to put pressure on banks, especially the small and mid-size ones and those which have sizeable amounts of debt maturing in the coming months."

Analysts and bankers say not all of Russia's 1,000-plus banks will be able to survive the crisis.

Berlin (AFP) German Chancellor Angela Merkel yesterday called for a framework of international market rules - in place of national regulations - to prevent financial crises like the one now threatening the world economy.

"The economy is in the service of people," not the inverse, she said, and the role of politicians was to show this "clearly."

Solidarity

Merkel who heads the conservative Christian Democratic Union party, said she was convinced that "the [German] social market economy model is the best rule imaginable in which people can fulfil themselves" in a spirit of "solidarity between the weakest and the strongest."

Speaking shortly before a meeting in Washington of G7 finance ministers on the crisis, she said: "We feel more than ever in these times that it is no longer enough to have national rules."

In a speech in Dresden in the east of the country, she said: "We need rules not merely for Europe but also internationally."