Government working on measures to assist industry during the crisis
The Cabinet has refined the details of an anti-crisis assistance package for the real sector of the economy. Deputy Prime Minister Sergei Ivanov announced that government support will only be given to banks that are supporting companies in the real sector.
At a meeting on October 17, the Cabinet refined the details of an anti-crisis assistance package for the real sector of the economy, announced earlier at a meeting chaired by President Dmitri Medvedev. Deputy Prime Minister Sergei Ivanov announced that government support will only be given to banks that are supporting companies in the real sector, especially high-tech and defense sector enterprises.
Finance Minister Alexei Kudrin noted that the Russian economy is dependent on exports of raw materials and minerals – and demand is falling. “Consequently, the capitalization of Russian enterprises will also be lower,” said Kudrin. Enterprises have already experienced difficulties obtaining new loans at previously-used interest rates, and pressure from banks seeking to alter the terms of existing loans. Sales volumes are falling, finished products are building up in warehouses, and the circle of consumers with the capacity to pay is contracting. On October 16, President Medvedev met with ministers to discuss the basic provisions of an anti-crisis assistance package for the real sector. On October 17, a government source said that the capital of a number of Russian companies may e increased in order to alleviate the consequences of the crisis for the real sector: “There may be additions to the capital of companies in the real sector – such as leasing companies, aircraft-building companies, shipyards, and the auto industry. The government is considering such measures.”
Ivanov said that the government proposes to use the federal budget to provide financial assistance to the most significant organizations in high-tech sectors by means of the state buying shares in these enterprises. He stressed that there is no intention of nationalizing the enterprises: shares will be purchased “only if both sides consent.” As a former defense minister, however, Ivanov took evident satisfaction in emphasizing defense sector enterprises. According to Ivanov, the government is working on proposals for 100% pre-payment of state orders within the framework of federal targeted programs and state arms procurement.
Trust Bank economist Yevgeny Nadorshin: “Such payments are usually made with considerable delays. It often happens that a project is completed before any money at all is received from the state.”
For high-tech and defense sector enterprises, Ivanov promises targeted loans to cover cash flow shortages, at “economically justified” interest rates of 8-9%. These loans should be tied to existing contracts. AvtoVAZ President Boris Aleshin described Ivanov’s proposals as “very important.” According to Aleshin, support is needed for chaing the business model involved in working with intermediaries: “Trade credits need to be allocated to auto dealers.”
Airlines can also expect some concessional terms. At present, they have to pay 100% in advance when buying fuel. But Ivanov added that Russia has too many airlines: “Some seem to believe that if they have one plane, they’re an airline.” Ivanov was equally critical of bank numbers: “There are too many of them, and if some banks disappear, the air will be cleaner – since they are actually money-laundries rather than banks.” Ivanov’s comment may be regarded as expressing the government’s view. When the authorities adopted a package of measures to support the banking system, Gennadi Melikian, senior deputy chairman of the Central Bank, warned that by no means all banks would get support. Ivanov said that banks can count on state support as long as they don’t change their credit terms for lending to enterprises.