(Summary) Last Friday, the S&P rating agency downgraded the US credit rating out of fears over the increased budget deficit and the state debt. The rating was downgraded by one step -from AAA to AA+. The reaction of the Russian authorities to this event was formulated by the deputy head of Minfin [Ministry of Finance], Sergey Storchak. "This is such a mild correction, that it may be ignored from the standpoint of managing investments for a long-term period," he said. In his opinion, the American debt market continues to be the most liquid and one of the most reliable. The deputy head of Minfin believes that the downgrade in rating was primarily a signal to the US itself, and not to investors who invest in its debt securities. "The bell has sounded, but this is a signal sooner not to investors, but to the borrower. We, being an investor, understand that this is a signal to the borrower," he said. Storchak added that Russia adheres to a policy of safety of investments. "If the (yield on American debt securities -Nezavisimaya Gazeta) grows, this is good. But the main thing is that the reliability of investments not decline," he emphasized. The deputy minister expressed the opinion that recently reached agreements between the Republicans and the Democrats in the US on reducing the budget deficit and the debt ceiling were a purely technical decision, not a systematic one. "That decision did not create the systematic task of creating a stable trend and reducing the budget deficit," he stated. Storchak emphasized that the two branches of power in the US were unable to assume very strict obligations, leading to discontinuation of the practice of financing the country's current obligations at the expense of borrowing. In his opinion, S&P reduced the rating most likely based on this circumstance.
Full Text (1137 words) Nezavisimaya Gazeta website, Moscow, in Russian 8 Aug 11/BBC Monitoring/(c) BBC Text of report by the website of heavyweight Russian newspaper Nezavisimaya Gazeta on 8 August [Article by Sergey Kulikov and Mikhail Sergeyev: "Russia Losing Billions of Dollars" (Nezavisimaya Gazeta Online)] Russia losing billions of dollars Downgrade in US credit rating devalues currency reserves and deals a blow to raw material markets. The downgrading of the US credit rating evoked a sharp reaction in Beijing and Delhi, while official Moscow is pretending that nothing special is happening. But independent economists insist: Russia has already lost part of its reserves as a result of the weakening of the dollar. Next will be a blow to the world oil market, where prices may decline due to the financial storm caused by the review of the standard ratings and standard percentage rates. Last Friday, the S&P rating agency downgraded the US credit rating out of fears over the increased budget deficit and the state debt. The rating was downgraded by one step -from AAA to AA+. The reaction of the Russian authorities to this event was formulated by the deputy head of Minfin [Ministry of Finance], Sergey Storchak. "This is such a mild correction, that it may be ignored from the standpoint of managing investments for a long-term period," he said. In his opinion, the American debt market continues to be the most liquid and one of the most reliable. The deputy head of Minfin believes that the downgrade in rating was primarily a signal to the US itself, and not to investors who invest in its debt securities. "The bell has sounded, but this is a signal sooner not to investors, but to the borrower. We, being an investor, understand that this is a signal to the borrower," he said. "No, we will not review the volume of our reserve investments, because there is not a big difference between AAA and AA+," Storchak said in an interview with Interfax. We may recall that today, the structure of the Reserve Fund and the National Welfare Fund consists 45 per cent of dollars, another 45 per cent of euros, and 10 per cent of pounds sterling. Storchak added that Russia adheres to a policy of safety of investments. "If the (yield on American debt securities -Nezavisimaya Gazeta) grows, this is good. But the main thing is that the reliability of investments not decline," he emphasized. The deputy minister expressed the opinion that recently reached agreements between the Republicans and the Democrats in the US on reducing the budget deficit and the debt ceiling were a purely technical decision, not a systematic one. "That decision did not create the systematic task of creating a stable trend and reducing the budget deficit," he stated. Storchak emphasized that the two branches of power in the US were unable to assume very strict obligations, leading to discontinuation of the practice of financing the country's current obligations at the expense of borrowing. In his opinion, S&P reduced the rating most likely based on this circumstance. However, far from all countries had such a mild reaction to the rating downgrade. The largest creditor of the US -China, with reserves of 1.15 trillion dolars - lashed out with harsh criticism of the American authorities. "The time is past, when the US could ensure solving its problems -which it is creating itself -by means of credit," the official PRC agency, Xinhua, announced on Saturday. "There must be a new reserve currency in the world, which would replace the dollar." The reaction of India to the US rating downgrade was also negative, while Japan and South Korea expressed the assurance that American state bonds continue to deserve confidence. However, many Russian economists believe that the rating downgrade is a confirmation of the financial losses for those who held dollar assets. "The credit rating is the appraisal of the risk of losing money. But in the present case, we may say that the rating downgrade happened post-factum -that is, it reflects the losses of foreign investors which have already been incurred," believes the chief economist for the Troyka Dialogue Company, Yevgeniy Gavrilenkov. "These losses are associated with the weakening of the dollar by 12-14 per cent in comparison to the m ain world currencies. Thus for example, the weakening of the dollar means that Japan, which holds around $900 billion in American securities, has lost on the order of 100 billion dollars." In his words, Russian losses are significantly lower because of the lower volume of reserves and the high inflation. According to the data publicized on 2 August, because of the exchange rate difference, the National Welfare Fund lost over R108 billion from 1 January through 31 July. The Reserve Fund lost R39.92 billion for the same reason. For the nearest perspective, Gavrilenkov is predicting a storm on the financial markets, which will be associated with a review of the base interest rates and level of risk. Up until now, interest rates throughout the world have been associated with the American standard in one way or another. Because of the change in this standard, markets will be in for a painful period of adaptation. Among other things, a rise in interest rates is also possible. According to Gavrilenkov, world oil prices -the main indicator for Russia -will hardly decline in the nearest time. "In the short-term plane, the surplus liquidity will maintain high oil prices, even despite predictions of a slowing of the world economy and threat of a new recession," the economist believes. In the long-term perspective, the level of world oil prices will depend on the future consensus on a model of economic growth. Not all experts are convinced that high world oil prices will be retained. "Moscow may suffer as a result of the decline of speculative prices, one of which may specifically be the world oil market," believes the president of the Neokon Company, Mikhail Kazin. In his words, the oil futures market is today overheated by 1.5-2 times as compared with the real demand. The danger of a decline in oil prices is indirectly confirmed also by the market declines in Arabian oil-producing countries, which continued on Saturday and Sunday, the economist says. "The downgrading of the US rating is one of the manifestations of the general world crisis, which must end in a significant change in the ratio of world prices, most likely not in Russia's favour," Khazin believes. The director of the Department of Financial Economic Expert Studies of the 2trade.ru company, Dmitriy Pushkarev, told Nezavisimaya Gazeta that the plans for change in the structure of reserves must be publicized not by the deputy head of Minfin, but by the head of the department himself -Aleksey Kudrin. It is specifically he, along with the Central Bank, that will determine the balance of currency reserves. Credit: Nezavisimaya Gazeta website, Moscow, in Russian 8 Aug 11
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