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Kudrin: Russia Facing Serious Budget Risks

Alexei KudrinMOSCOW. Oct 7 (Interfax) - Former Russian Deputy Prime Minister and Finance Minister Alexei Kudrin had a meeting with investors and analysts during a VTB Capital forum on Friday, during which he told them about his plans and about risks he sees for the Russian budget and economy at the present time. In opening the meeting, VTB (RTS: VTBR) President and Board Chairman Andrei Kostin introduced Kudrin as the dean of the arts and humanities department at the St. Petersburg State University, a participant in the meeting told Interfax.

In commenting on his future plans, Kudrin said he decided to take a timeout and will decide what he would do in a couple of months. Another source told Interfax that, when asked when he would make a decision on his new job, Kudrin "replied dryly that this will happen in several months."

"It seems to me he has already made a decision to return (to government service). But nobody knows yet what exactly he will do," he said.

In the opinion of one of the investors, "what counts most" is the understanding that Kudrin will return to government service. "He is the only one who understands what fiscal deficit is. All the rest do not even think about this," he said.

The investor said if he had held Russian sovereign bonds, he "would have sold them immediately" after learning about Kudrin's dismissal. "Kudrin is the only one who can pursue a sensible financial policy," he said.

"If Kudrin returns as the head of the Central Bank or - in the future - as prime minister, both would be positive for us," the investor said.

Another participant in the meeting said that, when asked about his role in Vladimir Putin's team, Kudrin replied that he was still "thinking" about this.

The meeting also touched upon the budget policy and prospects for investments in Russia.

Kudrin said he saw "great risks" for the budget. "When the new budget was being drafted several months ago, the sovereign debt risks in Europe were not considered. If these risks are taken into account, (Russian) economic growth will be even worse than was expected," one of the participants cited Kudrin.

Russia should have a very low sovereign debt, because heavy dependence on oil prices produces greater risks than other developing economies face, Kudrin said.

The ex-finance minister is of the view that the current oil price is at a peak now and will go down in the foreseeable future. An average oil price will not be higher than $100 per barrel, he said.

Kudrin also insisted that "Russia cannot endure budget deficit higher than 3% of GDP, because financial markets do not exist then," an Interfax source said. Kudrin also called for reducing government spending.

The latest events in Europe and the United States have a great impact on the Russian economy, Kudrin said. "He said that the risks are high and that nobody cared about them six months ago. They (the Russian authorities) understand that capital outflow depends on the situation in Europe, and capital outflow is worsening," the investor said.

One more participant said Kudrin "all the time criticized the budget policy dictated from above and said that the country cannot have such expenditures with a budget depending on the oil prices."

In particular, Kudrin admitted that the tax system in the mineral production sector is imperfect. "He said that the equalizing system in relation to old and new mineral fields was introduced because of a significant corruption element existing at the end of the 1990s and in early 2000s. This is an obvious imperfection. However, it is still unclear how it can be overcome," the investor said.

Kudrin also discussed outcomes of his work as finance minister, including the assignment of investment ratings to Russia, the reduction of its debt, and its recognition as a market economy. "Kudrin sees that there is a good basis for steady growth of Russia's investment appeal, given a sensible economic and budget policy. On the whole, he has an optimistic outlook on the country's development and the drawing of investments," a participant in the meeting said.

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