Bloomberg News

Russia May Limit State Companies' Foreign Borrowing

November 16, 2005

Russia's Finance Ministry wants to limit the amount of money state companies can borrow from foreign banks and investors to help slow the pace of inflation, a senior ministry official said today.

There shouldn't be a full ban, just limitations for up to two years, said the official, who asked that his name and title be withheld. Companies should have to convince the government that they need to borrow money and if they do, they should split their borrowing between the foreign and Russian markets.

State-run OAO Gazprom and OAO Rosneft are borrowing billions of dollars through Eurobond sales and from banks such as ABN Amro Holding NV and JPMorgan Chase & Co. (JPM:US) at a time when officials are already struggling to cope with the inflationary pressures of record dollar revenue inflows from energy exports.

Foreign borrowing adds to the current account, the official said, noting that the government has difficulty ``sterilizing cash'' and also urging state companies to borrow with the other.

Russian bonds, loans and international stock sales have surged to a record $59 billion this year, more than double all of 2004 as companies make acquisitions or refinance existing debt. ABN Amro is the biggest arranger of these transactions with 10.2 percent of the market, followed by Morgan Stanley and Citigroup, according to data compiled by Bloomberg.

The official said a ban would not work because the domestic market can't handle borrowings of more than $15 billion.

`First Goal'

Russian central bank Chairman Sergei Ignatiev won parliamentary approval today for a second term in office and said his ``first goal'' will be to cut the inflation rate and sustain growth.

``I believe we should gradually lower our responsibilities on restricting the ruble's strengthening amid a high inflow of foreign currency and concentrate on fighting inflation,'' Ignatiev said.

Russia, second only to Saudi Arabia in oil exports, initially targeted an inflation rate of 8.5 percent for this year and revised the forecast in March after consumer-price growth accelerated in the beginning of the year because of fuel and food costs. Finance Minister Alexei Kudrin told reporters in Moscow today that he sees an end-year inflation rate of between 11 percent and 11.5 percent.

To contact the reporter on this story: Torrey Clark in Moscow at tclark8@bloomberg.net.

To contact the editor responsible for this story: Tim Coulter at tcoulter@bloomberg.net.


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