WASHINGTON, Oct 11 (Reuters) - Russia, the world's second biggest oil exporter, plans no deliberate cut in oil production and can sustain a long-term oil price of $50 per barrel, Finance Minister Alexei Kudrin told reporters on Saturday.
Oil prices have touched 13-month lows in a flight from risk and signs of slumping energy demand. The price fall has caused some members of the Organisation of the Petroleum Exporting Countries (OPEC) to call for a production cut.
'We do not need a cut beyond the output growth slowdown that is already taking place,' Kudrin said in Washington where he was meeting finance ministers from the Group of Sevel industrialised nations.
Russia, who is not an OPEC member, is experiencing a slowdown in oil production growth due to depletion of oil fields and lack of investment. The government earlier announced tax breaks for the oil industry to boost production.
The Urals, Russia's main export blend, traded at about $71 per barrel on Friday, but the average price this year, which is used for budget calculations, is well above the $70 per barrel at which the budget is in balance.
Kudrin said Russia may see a fall in fiscal revenues starting next year due to the lower oil price but can sustain a further fall to $50 per barrel in the long term if it restricts the use of oil revenues.
'Even if the oil price falls to $50 per barrel we will still have a normal life,' Kudrin said. Russian stocks have fallen 66 percent this year and the government announced a package of measures worth over $200 billion to support the market.
Kudrin said Russia's economic growth rate may fall to 7.0 percent this year and 5.7 in 2009 compared with 8.1 percent in 2007, noting a slump in demand for some Russian industrial goods from China.
During the years of record high oil prices Kudrin, despite political pressure to spend the oil windfall on infrastructure and humanitarian projects, implemented fiscal reform that set aside all energy revenues.
OBSTACLE REMOVED
Part of the money is then used to cover the rising deficit of the budget, stripped of energy revenues, with the target size of such transfers set at 3.7 percent of gross domestic product.
The rest of the money is flowing into two funds -- the Reserve Fund designed to cushion the budget in case of a fall in revenues and the National Wealth Fund (NWF), set to become Russia's first sovereign wealth fund.
Kudrin, who until recently resisted pressure to use the NWF domestically, said the fund will supply 175 billion roubles ($6.7 billion) earmarked by the government for purchases of Russian shares and corporate bonds in 2008.
'The main obstacle (to using the NWF at home) -- the excess of money in the economy -- has been removed. Now we have a liquidity deficit,' Kudrin said, explaining the turnaround in his position.
Kudrin said the government's agent -- the state-controlled Development Bank -- will start placing the money next week in line with investment strategy based on corporate ratings. He said the government was not seeking to support the market.
'The state is not a speculator... it does not seek to change the market situation. This would amount to a distortion,' Kudrin said, adding that the government will hold shares and bonds for up to 15 years and not seek a quick profit.
Kudrin said the amount will equal 5 percent of the NWF's projected size by the year-end and the rest will be invested outside Russia. He said Russia's conservative investment strategy has paid off in the wake of the global crisis.
'We have the only sovereign wealth fund in the world which did not lose money during this crisis,' Kudrin said.
Kudrin said Russia's approach to handling the crisis, based on extensive use of fiscal and foreign exchange reserves, may change if the crisis lasts longer than expected. He said the government's generosity has already created the wrong expectations.
'It created a euphoria. Many bankers and oligarchs were coming to me expecting us to solve their problems. We are trying to create some rules which will apply to everyone,' Kudrin said.
(Reporting by Gleb Bryanski, Editing by Chizu Nomiyama) ($1=26.16 Rouble) Keywords: RUSSIA KUDRIN/CRISIS tf.TFN-Europe_newsdesk@thomson.com ak COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
Oil prices have touched 13-month lows in a flight from risk and signs of slumping energy demand. The price fall has caused some members of the Organisation of the Petroleum Exporting Countries (OPEC) to call for a production cut.
'We do not need a cut beyond the output growth slowdown that is already taking place,' Kudrin said in Washington where he was meeting finance ministers from the Group of Sevel industrialised nations.
Russia, who is not an OPEC member, is experiencing a slowdown in oil production growth due to depletion of oil fields and lack of investment. The government earlier announced tax breaks for the oil industry to boost production.
The Urals, Russia's main export blend, traded at about $71 per barrel on Friday, but the average price this year, which is used for budget calculations, is well above the $70 per barrel at which the budget is in balance.
Kudrin said Russia may see a fall in fiscal revenues starting next year due to the lower oil price but can sustain a further fall to $50 per barrel in the long term if it restricts the use of oil revenues.
'Even if the oil price falls to $50 per barrel we will still have a normal life,' Kudrin said. Russian stocks have fallen 66 percent this year and the government announced a package of measures worth over $200 billion to support the market.
Kudrin said Russia's economic growth rate may fall to 7.0 percent this year and 5.7 in 2009 compared with 8.1 percent in 2007, noting a slump in demand for some Russian industrial goods from China.
During the years of record high oil prices Kudrin, despite political pressure to spend the oil windfall on infrastructure and humanitarian projects, implemented fiscal reform that set aside all energy revenues.
OBSTACLE REMOVED
Part of the money is then used to cover the rising deficit of the budget, stripped of energy revenues, with the target size of such transfers set at 3.7 percent of gross domestic product.
The rest of the money is flowing into two funds -- the Reserve Fund designed to cushion the budget in case of a fall in revenues and the National Wealth Fund (NWF), set to become Russia's first sovereign wealth fund.
Kudrin, who until recently resisted pressure to use the NWF domestically, said the fund will supply 175 billion roubles ($6.7 billion) earmarked by the government for purchases of Russian shares and corporate bonds in 2008.
'The main obstacle (to using the NWF at home) -- the excess of money in the economy -- has been removed. Now we have a liquidity deficit,' Kudrin said, explaining the turnaround in his position.
Kudrin said the government's agent -- the state-controlled Development Bank -- will start placing the money next week in line with investment strategy based on corporate ratings. He said the government was not seeking to support the market.
'The state is not a speculator... it does not seek to change the market situation. This would amount to a distortion,' Kudrin said, adding that the government will hold shares and bonds for up to 15 years and not seek a quick profit.
Kudrin said the amount will equal 5 percent of the NWF's projected size by the year-end and the rest will be invested outside Russia. He said Russia's conservative investment strategy has paid off in the wake of the global crisis.
'We have the only sovereign wealth fund in the world which did not lose money during this crisis,' Kudrin said.
Kudrin said Russia's approach to handling the crisis, based on extensive use of fiscal and foreign exchange reserves, may change if the crisis lasts longer than expected. He said the government's generosity has already created the wrong expectations.
'It created a euphoria. Many bankers and oligarchs were coming to me expecting us to solve their problems. We are trying to create some rules which will apply to everyone,' Kudrin said.
(Reporting by Gleb Bryanski, Editing by Chizu Nomiyama) ($1=26.16 Rouble) Keywords: RUSSIA KUDRIN/CRISIS tf.TFN-Europe_newsdesk@thomson.com ak COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.