We should be more active in Russia
Time has come to reduce the Central Bank’s key rate in the Russian economy. Dmitry Pankin, Chairman of the Management Board at Eurasian Development Bank (EDB), is sure of this. In an interview to RT at the Sochi forum, Pankin told how EDB would increase its investment portfolio by an extra US $1 billion in 2017.
In 2016, EDB had a profit of more than US $160 million. What investment projects helped to ensure this? What factors does the bank pay attention to when selecting a project for investment?
First, we have significantly cut all our costs. Second, we’ve changed the bank’s financial model. Earlier we had Eurobonds with a coupon of around 5% and invested free money in American treasuries (RT: U.S. debt securities) with an interest of 0.1%. Do you imagine what a business it was? We paid 5% for the money we raised and earned half a per cent on our placements! We have bought our securities back and, as a result, reduced coupon costs and improved the efficiency of our treasury. We decided to invest more in Russian and Kazakh issuers, in market securities. We have also revised our loan portfolio and made the interest rate correspond to the market.
What are EDB’s investment priorities in 2017?
At present, Kazakhstan accounts for about 45% of our investment portfolio and Russia 30%. I believe we should move towards balancing their shares, however not by reducing loans to Kazakhstan, but through more active work in Russia.
We are now negotiating our participation in the construction of the Central Ring Road around Moscow and reconstruction of the water and wastewater treatment plant in Saint Petersburg (the total value of this project is RUB 8 billion).
How will the bank’s investment portfolio change this year?
EDB has two portfolios: the bank’s one (US $2.5 billion) and that of the Eurasian Fund for Stabilisation and Development (over US $4 billion), which comprises many financial credits extended to Belarus, Armenia and Tajikistan. The objective with respect to our portfolio in 2017 is to increase the loans by an extra US $1 billion.
At the Gaidar Forum in January you said that the Russian economy accounted for 85% of GDP of the Eurasian Union. What are the shares of other countries?
Russia is followed by Kazakhstan with 11% of GDP and Belarus with 4%. We would like to see a more even distribution in order to balance the structure, like, for example, in the EU in the case of Germany, France and Italy. What do we propose? We propose participation in the bank’s projects as an option to invest in the Eurasian Economic Union countries. We are ready to offer preferences, but you need to invest in our projects.
The Eurasian Union is definitely interested in foreign, especially Asian, investments. However, the EAEU market’s regulation is, to put it straight, not that simple. What are the main attractive factors for, for example, China or Vietnam in the Eurasian economies?
The customs issues are being vested with the EAEU. This means that if a country wants to approach the Kazakh or Russian market, for example, it needs to communicate with the Eurasian Commission. This is not national regulation and for this reason China, Vietnam and other countries are interested in contacts with the Eurasian Commission. However, for the time being, they are more interested in approaching the market or, in other words, selling their products.
Let’s return to the Russian economy. In February, the Ministry of Finance began currency interventions in the domestic market. How will these actions by financial authorities influence the exchange rate?
The Ministry of Finance’s currency interventions are necessary to balance the budget. If the budgeted oil price is US $40 per barrel and the current rate is US $56 per barrel, it is important that the Ministry uses these additional sources of income, arising from high oil prices, not for expenses, but to replenish the reserves. It is very important as concerns the stability of the budget system. However, I don’t think that this process will influence seriously the foreign exchange rate because the Ministry of Finance is working with the domestic market through the Central Bank. Technically, the Central Bank can sterilise the effect of the Ministry of Finance’s interventions with its internal transactions.
In my opinion, the size of the key rate is more important for the foreign exchange policy at the moment. The fact that the Central Bank maintains it at a level of 10% stimulates an inflow of speculative short-term capital, which is first invested in the roubles, but then is withdrawn. We believe that it is time to reduce the key rate.