Translated material
Putin-Keynes plan
Russian authorities are buying back shares and increasing guarantees for private deposits
Against the backdrop of the ongoing financial crisis, Russian authorities continue to take emergency measures to reassure both investors and bankers, as well as ordinary depositors. On Friday, Prime Minister Vladimir Putin announced that the state will place 175 billion rubles in securities of Russian companies by the end of this year. The same amount is provided to support the stock market in 2009. On the same day, the State Duma first approved a bill providing for an increase in 100% compensation for citizens' deposits from 100 to 200 thousand rubles. Then the deputies changed their minds and decided to raise the bar to 700 thousand rubles. The current efficiency of parliamentarians is certainly worthy of respect, especially if we remember that the State Duma has been trying to adopt the law on deposit insurance in its various variations for more than ten years.The new government measures, together with all previous ones, are aimed at overcoming the financial crisis. But while the State Duma’s decision to increase 100% reimbursement of deposits can probably help reassure citizens, the government’s purchase of securities is unlikely to stop the collapse in the stock market. The point is not only that the amount of 175 billion rubles. will not be enough, but the fact is that until the panic in the world stops and trust between investors begins to be restored, no measures in one single country will help.
Initially, deputies planned to increase 100% insurance on deposits to 200 thousand rubles. from the current 100 thousand. At the same time, for deposits over 200 thousand rubles. Payments of 90% of the deposit amount were expected. At the same time, you are guaranteed to receive more than 700 thousand rubles. regardless of the size of the contribution it would be impossible. On Friday morning the corresponding bill was passed. But since the situation changes very quickly in a crisis, already in the middle of the day parliamentarians adopted another bill. It provides for the extension of a 100% guarantee to all deposits up to 700 thousand rubles. Those depositors who have a large amount of funds on deposit will also receive 700 thousand rubles from the Deposit Insurance Agency (DIA). Thus, the previous, less generous scheme immediately sank into oblivion.
Vladimir Putin managed to praise the deputies for their efficiency, who, even before the State Duma’s decision, promised citizens to increase the amount of full compensation to 700 thousand rubles. According to the prime minister, parliamentarians “take a very responsible approach to resolving issues and quickly make decisions that are proposed by the government to curb threats arising in global financial markets.”
As Deputy General Director of the DIA Andrei Melnikov told Vremya Novostey, about 98% of all private deposits fall under the new law. Currently, about 6 trillion rubles are concentrated in Russian banks, almost half of which is in Sberbank. According to Mr. Melnikov, “payments of 700 thousand rubles. -- is the maximum amount that the agency can pay without risking the sustainability of the insurance fund." In his opinion, “increasing the amount of payments to depositors should reassure the population.”
However, the very fact that the state urgently decided to sharply increase the amount of 100% coverage on deposits is indicative: the authorities understand that what is happening now in world markets is perhaps only the tip of the iceberg, and are demonstrating determination to prevent depositors from panicking.
As for Mr. Putin’s proposal to allocate 175 billion rubles. to support the stock market, back in early October, Deputy Prime Minister and Finance Minister Alexei Kudrin hoped that the state would not have to buy back shares of Russian companies from the market. Russia and the International Monetary Fund called on Russia and the International Monetary Fund to refuse support for the stock market. However, the prime minister thought differently. According to him, business representatives asked him about this measure.
However, experts are quite skeptical about the government’s actions to currently stabilize stock markets.
“The Russian authorities have already done a lot to prevent the crisis,” says Yaroslav Lisovolik, chief economist at Deutsche Bank. -- Now the state has decided to buy back shares from the market, which indicates that previous measures may not be enough. Nowadays, state intervention in the financial system is growing all over the world; we see that this is happening in more economically developed countries than Russia. Economists at Deutsche Bank predict a return to the era of Keynesianism, a macroeconomic theory based on the need for government participation in regulating the economy.”
If we evaluate the impact of the measure for the state to purchase shares of Russian companies, then, according to Mr. Lisovolik, this instrument in itself is not very effective. “It is impossible to counter the wave of instability that has covered the entire global financial system with a few billion dollars,” says Mr. Lisovolik.
“The amount is 175 billion rubles. not big enough to seriously support the market. In addition, these funds will most likely go to individual securities, in particular to state-owned companies - Gazprom, VTB, Rosneft, Sberbank. If trading on Russian stock exchanges resumes on Monday, these shares may not fall. But when the whole world is collapsing, it’s hard for us to resist, and these funds are unlikely to be enough,” MDM Bank trader Evgeniy Volkov told Interfax.