Russia should keep investing its oil and gas revenues abroad rather than trying to use them to prop up domestic growth, Deputy Finance Minister Dmitry Pankin said on Monday.
The investment of the newly-created $32 billion national wealth fund is a big issue in Russia, with the finance ministry saying the money should stay abroad, but others, including President Vladimir Putin, have said at least a portion of it could be used at home. “It’s easier to live and work in the Finance Ministry when there’s no money... If there is money, it’s much harder to find reasons why we can’t increase pensions, find money to build hospitals... and so on,” Pankin told the Russia Investment Roadshow in London. “At the Finance Ministry... we are sticking to a very careful approach. Now there are few reasons to talk about the need of investing this money inside the domestic economy,” he added, noting that investing money at home may only serve to further fuel inflationary pressures rather than helping growth.
Russia currently invests the oil wealth fund into safe-saven government bonds, but Pankin said investments in a broader range of instruments such as equities or corporate debt should be considered. The Finance Ministry is due to present proposals on wealth fund investments by Oct. 1, 2008.
Pankin later told reporters that inflation was one of the main obstacles for future economic growth in Russia, and that the economy may be growing too fast. Russia boasts a $1.3 trillion economy after around a decade of oil-fuelled boom. But while high energy prices help growth, they have combined with global food inflation to help push up consumer prices.
Prices are already up more than 5% since the start of the year and last week the Economy Ministry hiked its 2008 inflation forecast to 9-10% from 8-9.5%. Pankin said careful management of government spending was a key tool in fighting inflation.
Pankin said Russia’s financial and monetary authorities stand ready to give more liquidity to the domestic banking system, although this risked worsening inflation problems. He added that the recent reduction in short-term capital inflows into the country could make the task of fighting inflation easier. (Reuters)