Stabilization Fund of the Russian Federation


Stabilization Fund of the Russian Federation

The Stabilization fund of the Russian Federation ( _ru. Стабилизационный фонд Российской Федерации) wasestablished by resolution of the Government of Russia on January 1, 2004, as a part of the federal budget to balance thefederal budget at the time of when oil price falls below a cut-off price, currently set atUS$27 per barrel. In February 2008 the Stabilization Fund was split into a Reserve Fund, which is invested abroad in low-yield securities and used when oil and gas incomes fall, and the National Welfare Fund, which invests in riskier, higher return vehicles, as well as federal budget expenditures. The Reserve Fund was given $125 billion and the National Welfare Fund was given $32 billion. Furthermore the Fund is to serve as an important tool for absorbing excessive
liquidity, reducing inflationary pressure and insulating the economy of Russia from volatilityof raw material export earnings, which was among the reasons of the Russian financial crisis in 1998. To prevent high inflation rates the fund is invested abroad only.

Aggregate amount of the Stabilization fund of the Russian Federation

Date in Billion US dollars in Billion rubles
01.30.2008 157 3,852
01.01.2008 156.81 3,849.11
01.12.2007 144.43 3,517.05
01.11.2007 147.60 3,649.25
01.10.2007 141.05 3,519.09
01.09.2007 132.91 3,409.07
01.08.2007 127.48 3,263.56
01.07.2007 121.68 3,141.35
01.06.2007 116.85 3,026.68
01.05.2007 113.70 2,920.50
01.04.2007 108.11 2,812.21
01.03.2007 103.55 2,708.85
01.02.2007 99.77 2,647.21
01.01.2007 89.13 2,346.92
01.12.2006 83.21 2,189.52
01.11.2006 76.62 2,049.30
01.10.2006 70.73 1,894.09
01.09.2006 64.73 1,730.64
01.08.2006 82.14 2,207.33

Recent developments

According to amendments to Russia’s budget code inspired by President Vladimir Putin’s budget address of March 2007 and passed in April 2007, in February 2008 the Stabilization Fund will be split into a Reserve Fund, which will be invested abroad in low-yield securities and used when oil and gas incomes fall, and a Future Generations’ Fund (later renamed the National Welfare Fund), which will invest in riskier, higher return vehicles, as well as federal budget expenditures. Unlike the Stabilization Fund, the new funds will also accumulate revenues from oil products and natural gas. [ [http://en.rian.ru/business/20070411/63487391.html RIA Novosti - Business - Russia's Duma approves Stabilization Fund transformation ] ] [ [http://en.rian.ru/analysis/20070427/64535324.html RIA Novosti - Opinion & analysis - Putin's address leaves philosophy aside ] ] [ [http://www.washingtonpost.com/wp-adv/specialsale/spotlight/russia07/russia.html International Spotlight: Russia ] ]

On May 21, 2007, President Vladimir Putin urged the government to pump surplus oil revenue into domestic stocks by buying Russian blue chips such as Gazprom and Rosneft, which have fallen since the beginning of the year, instead of foreign securities, which previously had been explicitly forbidden out of the fear of inflation. [ [http://www.iht.com/articles/2007/05/21/bloomberg/bxputin.php Putin wants oil revenue to go into Russian stock market - International Herald Tribune ] ]

Accumulation and expenditure

The Fund accumulates revenues from the export duty for oil and the tax onthe oil mining operations when the price for Urals oil exceeds the set cut-off price.

The capital of the Fund may be used to cover the federal budget deficit andfor other purposes, if its balance exceeds 500 billion rubles, Spending amounts aresubject to the federal budget law for the corresponding fiscal year.

As the capital of the Fund had exceeded the level of 500 billion rubles in2005, part of its surplus was used for early foreign debt repayments as well as tocover Russian Pension Fund's deficit. The details of these transactions in 2005 areas follows:

Transactions in 2005 billion USD
Early debt repayment to the International Monetary Fund 3.33
First debt repayment installment to the countries-members of the Paris Club 15
Paid to Vneshekonombank (VEB) for loans provided to the Ministry of Finance in 1998-1999 for servicing the state foreign debt of Russian Federation 4.3
Transferred to the Russian Pension Fund. 1.04

Investment Policy

Governance Structure

The Fund is managed by the Ministry of Finance of the Russian Federation("the Ministry of Finance") pursuant to procedure defined by the Government of theRussian Federation ("the Government"). Some functions of asset management maybe delegated to the Central Bank of the Russian Federation ("the Bank of Russia")in accordance with its agreement with the Government.

In accordance with the Fund's objectives its capital is to be invested in foreignsovereign debt securities. Securities' eligibility criteria are subject to theGovernment's approval.

The Ministry of Finance is empowered by the Government to establish theFund's currency composition and its strategic asset allocation in line with theinvestment policy for the Fund's management.

The Ministry of Finance may use one or both of the following schemesdefined by the Government to invest the Fund's capital.

Schemes defined by the Government to invest the Fund's capital
Investment in eligible foreign fixed income securities directly
Allocation to the Federal Treasury's accounts with the Bank of Russia inforeign currency with the total return of these accounts based on indicescomposed of eligible foreign debt securities and defined by the Ministry ofFinance.
The Fund assets are currently invested solely under second scheme(allocation to the Federal Treasury's accounts with the Bank of Russia).

Investment Guidelines

The Government determined that eligible debt securities for the Fundinvestment are to correspond to the following requirements.

Fixed income securities of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, the United Kingdom, and the USA, denominated in US dollars, euro, GB pounds (sovereign debt securities)
Issuer shall have a long-term credit rating at AAA/Aaa level (highest investment grade) from at least two of the following three rating agencies: Moody's Investors Service, Standard and Poor's, Fitch Ratings
Minimum amount outstanding of a candidate security: 1 billion US dollars, 1 billion euro, 500 million GB pound respectively
Securities shall be bullet
Securities shall have no call or put options
Fixed coupon type if a coupon bond
Not for private placement
Debt secuirities on the date of purchase will have a minimum remainingmaturity of 0,25 years and not to exceed 3 years.

The Fund assets are currently invested in the following currency composition:

US dollars 45%
Euro 45%
GB pounds 10%
Currency composition and the maturity restrictions are applicable to allFund's assets and are subject to revisions by the Ministry of Finance.

Reporting

The Ministry of Finance publishes a monthly report in mass media on theFund's accumulation, spending and balance and reports quartelry and annually to the Governmenton accumulation, investment and spending of the capital of the Fund.The Government will report quarterly and annually on Fund's accumulation,spending and investment of the capital of the Fund to the both chambers of the
Russian Parliament (State Duma and Council of Federation).

References

External links

* [http://www1.minfin.ru/stabfond_eng/stabfond_eng.htm Official website]
* [http://www.swfinstitute.org/fund/russia.php SWF Institute] Russia's SWF


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