Russia's Finance Ministry launched a push on Wednesday to cap foreign borrowing by big state companies to curb huge inflows of money which are pushing inflation above target.
The proposal, revealed by a senior ministry source, came as the government stepped up its search for ways to fulfil President Vladimir Putin's order to reduce inflation, which remains stuck in double digits.
But it did not feature in a catalogue of inflation-busting measures proposed in a strategy document put together by the Economy Ministry, while central bank head Sergei Ignatyev said the key to curbing price growth was strict fiscal discipline.
Officials forecast that inflation will end this year at up to 11.5 percent, barely changed on last year, as Russia's bumper oil export revenues drive annual growth in the money supply of close to 40 percent.
They are concerned that heavy foreign borrowing by so-called "quasi-sovereign" companies, above all gas monopoly Gazprom, will fuel inflation by further adding to the cash sloshing around in the Russian economy.
"We propose doing this for a year or two until the inflation situation stabilises," the Finance Ministry source said, speaking on condition of anonymity.
"Essentially we are talking about large monopolies, and these limits would not affect their competitiveness."
Gazprom recently took out a $13 billion loan from Western banks to finance its takeover of oil firm Sibneft, nearly doubling its debt load.
State borrowing, by contrast, is falling as Russia has drawn on a fast-growing budget stabilisation fund, flush with oil revenues, to pay off $18 billion in foreign debt this year.
Latest central bank figures - which predate the bulk of the sovereign repayments and the Gazprom loan - show that Russian public foreign borrowing fell in June to $91 billion from $97 billion at the end of last year.
Over the same period, borrowing by banks and companies rose by $20 billion to $130 billion, pushing up Russia's total foreign indebtedness to $230 billion.
INFLATION FIGHT:
Russian retail prices could rise by 9.5 to 10 percent in 2006 under unfavourable economic conditions, the Economy Ministry warned in its strategy paper.
"In order to hold inflation in a range of 8-9 percent, it will be necessary to take additional anti-inflationary measures while at the same time achieving rapid growth in the supply of goods and services," the paper said.
Proposals included a review of the cut-off price at which windfall oil revenues flow into the stabilisation fund, with a view to reducing it from the level of $27 per barrel which will take effect next year.
To boost demand for money, the paper suggests doubling banking deposit insurance to 200,000 roubles ($6,937), limiting the right of savers to demand the early return of term deposits and marketing government savings bonds to retail investors.
But the paper did not refer to any cap on foreign borrowing by state corporates, suggesting there may be disagreement in the government over the best approach.
BUDGET DISCIPLINE:
Russia's government should observe strict budget discipline and avoid additional spending to meet its 2006 inflation target, said Ignatyev, who won the unanimous approval of parliament on Wednesday for a second four-year term.
"We are in a position when a lot depends on the budget discipline because of high oil prices," said Ignatyev.
"Our budget plays a crucial role in determining inflation and the real effective exchange rate of the rouble," he added after a debate where he was grilled by leftist deputies demanding more funds for the "real economy" and social needs.
Economists have criticised the central bank's policy of targeting both inflation and the real effective exchange rate, a competitiveness gauge using nominal exchange rates and inflation levels in Russia's trading partners.
Russian government spending is budgeted to rise by over a fifth next year, more than halving the budget surplus to 3.2 percent of gross domestic product as more money is allocated to public sector pay, social benefits and investment projects.
"Fiscal policy will play a key role next year. It is very important to have a budget surplus in order to sterilise excess liquidity," said Yaroslav Lissovolik, economist at United Financial Group in Moscow.
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