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Lending to Ukraine, Belarus more effective than investment in own infrastructure - expert

January 13, 2014, 16:53 UTC+3 MOSCOW
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MOSCOW, January 13. /ITAR-TASS/. Lending to Ukraine and Belarus is more beneficial macroeconomically than investing state funds in major infrastructure projects inside Russia, the head of the Russian Presidential Academy of National Economy and Public Administration (RANEPA), Vladimir Mau, told Itar-Tass.

“I approve of these decisions in terms of macroeconomics. They are a more efficient allocation of funds than investing state capital in large construction projects with vague, often unforeseeable results,” Mau believes.

He added the economy was able to respond to investments depending on its available resources - if there are none, price hikes and import increase ensue.

Mau believes that investing in large infrastructure projects may influence the production potential only once the projects are ready. However, construction requires labour force, which is scarce in Russia. The rate of unemployment is very low. There will be great demand for equipment that Russia does not produce on its own. This means, the expert believes, Russia would have to place contracts with foreign manufacturers and attract foreign labour force.

“The Russian economy is at the breaking point of its production capacity. Therefore, financial infusions in the economy will not help us construct more, but will attract more labour force or make us use foreign contractors for the production of equipment, or just bring about hike prices all over the country, because too much money will be chasing too few goods,” the expert explained.

Following Russian-Ukrainian consultations on December 17, the two countries’ presidents signed a deal for Russia to buy Ukrainian Eurobonds worth $15 billion at the expense of the National Wealth Fund (NWF), a transaction to be organized by VTB Capital. Later, however, Russian Finance Minister Anton Siluanov added other sources could be used for the bond purchase, “depending on the variability of resources in 2014,” but the NWF would make up most of the amount. The $15 billion sum would be confirmed over 1.5 years, Siluanov said said.

Ukraine has already received the first tranche as Russia bought $3 billion worth of two-year Eurobonds with a coupon of 5 percent per annum. The bonds will be on the market until January 1, 2016.

Besides, on December 25 Russia and Belarus agreed a $2 billion bailout for Belarus in 2014. As Siluanov explained, a 10-year state loan at 4 percent per annum will make up $450 million of this amount, while the rest would be allocated neither from the budget nor from the NWF and depend on the opportunities, Siluanov said.

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