MOSCOW. (RIA Novosti economic commentator Nina Kulikova)
Russia's profits from its oil and gas exports started to grow with the rising prices on global markets several years ago. The significant flow of petrodollars into the country necessitated the creation in 2003 of a special fund to keep extra returns from oil sales. It was named the Russian Stabilization Fund and was designed to save petrodollars for the future when oil prices fall bringing Russian profits down.
The Stabilization Fund accumulates funds if the price for Russian Urals oil exceeds $27 per barrel. In March-April 2006, the average Urals oil price was $60.9 per barrel. Unsurprisingly, the Stabilization Fund has been growing dynamically. As of May 1, 2006, it was estimated at $65 bln. According to the Russian Economic Development and Trade Ministry, it may accumulate over 100 bln euros by this year's end.
At the same time, it has long been debated what to spend the money on. Some Russian experts believe it is pointless accumulating the money instead of making it work. For example, for upgrading the economy. Russian Economic Development and Trade Minister German Gref said the money could be invested in infrastructure and innovative projects. Others are categorically opposed to using the Fund on the Russian market fearing inflation. This is the current official position of Russia's financial authorities. However, an exception was made in 2004, when it was decided to inject a part of the capital into the Russian Pension Fund and pay off the country's foreign debts ahead of time.
Late in April, the Russian authorities finally decided how to use the Stabilization Fund. Under a government resolution, its capital can be regulated in two ways. First, it could be converted in foreign currency - U.S. dollars, euros, or British pounds - to be deposited in the Russian Central Bank. Second, it could be invested in bonds of 14 countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal, Spain, Great Britain and the United States.
This is a key decision for Russia. Until recently, the Stabilization Fund money had been kept idle provoking numerous debates on whether to spend it or not. The government resolution finally authorized its use, though not as effectively as many had expected. Foreign bonds are not very safe, though they do pay a 4-5% interest a year. The index is much lower than the returns from shares in foreign private corporations. However, the Russian Finance Ministry has not allowed converting the Stabilization Fund money into shares so far because the latter are more risky assets. As a result, the official stand is as follows. Keeping the Stabilization Fund money intact is of paramount importance now, and making profit from it is secondary.
However, the Finance Ministry is likely to expand the range of instruments for investing the Stabilization Fund money. This practice is widely used in the West: for example, money from the Norwegian Oil Fund or the Kazakh National Fund can be converted into shares.
