Russia will keep its $151 billion Oil and Gas Fund entirely in sovereign bonds next year and will not invest a $19 billion sub-fund in corporate debt or stock, a top Finance Ministry official told Reuters on Tuesday.
The fund will be split on February 1, 2008 into a reserve fund, which will act as an insurance policy to cover any budget deficit caused by a fall in energy prices, and a more growth-oriented National Wealth Fund. "The National Wealth Fund will be invested in sovereign bonds with a rating not lower than 'AA' in 2008," said Dmitry Pankin, head of the ministry's debt department.
The decision means that Russia will not join this year the ranks of countries like China or Singapore, which have large sovereign wealth funds leading to some concern in the developed world over possible aggressive acquisition strategy and low transparency.
The initial plan was to start investing the NWF in corporate paper on February 1, 2008 but the government is still struggling to make up its mind about how to use the fund and whether to spend the return on the fund's investment or the fund itself.
The stabilisation fund was created in 2004 to cushion the budget from a fall in oil prices but has since outgrown its original goal, prompting a heated debate about what to do next with the oil windfall. The government tapped the NWF for 300 billion roubles this year, even before its creation, to capitalise a number of development institutions which for now are mainly being used to provide liquidity for the banking sector.
Ahead of the poll to elect a successor to President Vladimir Putin pressure is mounting to spend some of the oil wealth on improving life for ordinary Russians. Economists see the fund as a key policy achievement of Putin's eight years in office.
The government's leading fiscal hawk and an architect of the fund, Finance Minister Alexei Kudrin, has so far opposed any plans to tap the fund but his position has weakened after his deputy Sergei Storchak was charged with fraud.
Stochak, Russia's foreign debt negotiator and supervisor of the rainy day fund, could face 10 years in jail if convicted of attempting to embezzle $43 million in connection with a failed attempt to recover a debt from Algeria. Analysts say the prosecution may reflect a struggle between Kremlin factions for control over the state's vast cash hoard.