The US does not default

Russia will not reduce the share of dollar assets in its reserve funds

The share of dollar assets in the Reserve Fund and the National Welfare Fund will not change. Russian Finance Minister Alexei Kudrin told reporters about this yesterday after a meeting of the working group of the United Russia faction as part of the zero reading of the budget. After all, the United States (unlike Russia) always pays its debts even in conditions of the deepest financial turmoil.

Currently, the share of dollar assets in which the Ministry of Finance stores the funds' funds is 45%, the same amount is for investments in euros, and the remaining 10% is in pounds sterling. Just since the beginning of this year, the American currency has fallen in price against the euro by 30%, which has given another reason for discussion about whether Russia should reduce its investments in the dollar. Another reason for discussing this topic is the financial problems of the two largest American mortgage agencies Freddie Mac and Fannie Mae , in whose bonds the Russian government invests.

Yesterday, Mr. Kudrin once again stated that the Ministry of Finance is not going to review the investment structure. “We are absolutely correct and conservative in placing our reserves,” he said. “We will maintain a 45% share of dollar assets.” According to him, Russia “does not support the dollar, it solves its own problems: it places assets denominated in foreign currency in more profitable ones.” The fact is that the assets in which the funds’ funds are placed are the most conservative: these are government securities and quasi-government assets with a high “AAA” reliability rating. “Such assets practically cannot go into default or bankruptcy,” Mr. Kudrin emphasized. -- The United States has never defaulted and has never suspended servicing of its bonds. This was true during the collapse of the American economy in the 1930s, during the war, and during the deep decline of the dollar in the 1980s.”

Russia, as you know, defaulted twice - in 1917 and in 1998. “In this regard, Russia still needs to learn to avoid such defaults for the rest of its life,” said the head of the Russian financial department. Previously, the Ministry of Finance has already made statements that “in terms of their credit quality, the debt obligations of Fannie Mae and Freddie Mac are actually not inferior to US sovereign debt obligations and continue to have the highest credit rating that meets the requirements necessary for placing gold and foreign exchange reserves.” In addition, according to Mr. Kudrin, the Russian economy now suffers more not from the situation on global financial markets, but from inflation, which has already exceeded 8% per annum since the beginning of the year. “The Russian problem remains the same, inflation,” he said. The rise in prices, Mr. Kudrin explained, leads to the fact that, despite the nominal increase in production, consumption decreases, since the population can afford less with the same amount of money as before, in conditions of inflation. Inflation is the main reason for the decline in trade turnover, increase in loan rates and decline in investment, he concluded.

Recently, US Treasury Secretary Henry Paulson assured reporters that Freddie and Fannie have enough funds to survive the crisis in the housing market. And for now, the government does not intend to provide financial support to these agencies unless absolutely necessary. However, if the need arises, the authorities will be able to lend to Freddie and Fannie. The corresponding provision must be approved by Congress this week. In an interview with Bloomberg Television yesterday, Mr. Paulson recalled the importance of both agencies to investors: “We're not just talking about the housing market, we're talking about the capital markets. This goes much further than just two financial companies, Fannie Mae and Freddie Mac, and has implications for all investors in the United States and around the world.” These words, obviously, were supposed to convince investors that no one was interested in the catastrophe.

Natalia ROMANOVA