October 3, 2013, 5:33 PM
Russia to Grab Pension Money, Temporarily
By Andrey Ostroukh
MOSCOW–Russia’s government is temporarily seizing $7.6 billion in savings from non-state pension funds while it carries out inspections, a move critics say looks like a “confiscation” aimed at plugging a hole in next year’s state budget.
Prime Minister Dmitry Medvedev told ministers Thursday that the government needs to check that the money Russians channel to private pension funds is safe. To do this, it will seize 244 billion rubles ($7.6 billion) from non-state pension funds and put them into the state pension fund.
Pension funds hold more than $100 billion in assets. Nearly half of that is mandatory savings managed by state-run bank VEB. Non-state pension funds and funds affiliated with state-controlled companies hold the rest.
Government officials say they’ll just hold the money on the state pension fund’s books for a year while the checks are carried out. But analysts say they suspect the government will be tempted to use the money to plug shortfalls in the pension system, instead of channeling funds from the state budget, as it has previously.
That’s because Russia’s budget is in need of money as the economy is struggling with low growth amid weak investment and demand for its commodities exports.
The government is scrambling to find other sources of income to help it fulfill spending pledges by President Vladimir Putin. State-controlled companies have reacted coolly to proposals that they pay out 35% of their profits as dividends rather than the current 25%, which would help bring more money to the budget.
Experts say the government’s pension maneuver could be another way to cover the shortfall.
“If they say they won’t spend this money, then why are they booking it?” former finance minister Alexei Kudrin said Wednesday on the sidelines of an international investment forum in Moscow.
He said the move was “exceptionally unfortunate” and could harm Russia’s investment climate.
Russia has tried for years with limited success to reform its pension system.
Analysts say the pension move came suddenly and hasn’t been clearly explained. It’s not clear yet how the funds will be reimbursed in the future.
“It has now been perceived by the public as a very strange way of solving next year’s budget issues. It’s a dangerous step as it can shatter social and economic pact between the government and households,” said Vladimir Pantyushin, economist at Barclays in Moscow.
Vladimir Kolychev, chief economist at VTB Capital, an investment unit of Russia’s No.2 lender VTB, said that it looks like that the seized money will be channeled to pay pensions next year, which would help reduce the federal budget deficit.
Russian officials frequently tout Russia’s low debt and small budget deficit as a sign of the country’s strength, in contrast to higher levels of debt and deficits in most Western economies.
Russia’s Finance Ministry sees the budget deficit at 0.7% of gross domestic product this year and 0.5% next year.