President Dmitry Medvedev and Finance Minister Alexei Kudrin announced emergency economic measures Thursday, making available $29 billion in different measures to support for stock markets, banks and oil companies battered by the global financial crisis.
But Medvedev put off until next year a decision on whether to cut the country's value-added tax by one-third, to 12 percent - a move that has been lobbied for by big business and Economic Development Minister Elvira Nabiullina.
The measures to shore up the markets were announced at a meeting with senior economic Cabinet ministers and Central Bank Chairman Sergei Ignatyev, where Medvedev ordered 500 billion rubles to be set aside to help provide stability for the country's stock markets.
"This needs to be done immediately," Medvedev said.
Kudrin told reporters after the meeting that half of the money would be made available immediately, while a second infusion of 250 billion rubles would be introduced into the federal budget if deemed necessary, Interfax reported.
The announcement came ahead of Friday's reopening of the MICEX and RTS exchanges, which had been closed for almost two days. The government ordered a halt in trading to head off panic amid plummeting values in the country's worst financial crisis since the meltdown after the 1998 default.
The market plunge came at the same time that banks were struggling to overcome a liquidity squeeze, as interbank lending dried up on fears of default.
A day after the government provided an extra $11 billion in funds to major banks Sberbank, VTB and Gazprombank and the Central Bank slashed its reserve requirement from 5.5 percent to 1.5 percent on individual accounts, Kudrin said 60 billion rubles ($2.4 billion) would be poured into the federal Mortgage Credit Agency to help refinance mortgages on the books of commercial banks.
Ignatyev also said Thursday that the money freed up by the lowering of the reserve ration would be returned to the commercial banks on Friday.
Demand at banks for federal money appeared to ease Thursday as the Finance Ministry said it was able to auction off just 17.4 billion rubles of unspent federal budget money out of the 200 billion rubles available.
There was also good news for oil companies, which have been unable to cover production costs as hefty export duties imposed under conditions of record-high world prices continued to take a bite as world prices fell steeply.
Kudrin told the meeting that the cut in the export duties on Oct. 1 would be bigger than had initially been announced. The duties will be lowered to $372 per ton, instead of the figure of $485.8 per ton earlier cited, meaning savings of $5.5 billion for October and November.
The export duties are usually calculated based on the world price over a period of two months, but Kudrin said the recent falls had prompted the government to base the next cut on world prices over the last 17 days.
At a second meeting with economic ministers later in the day, Medvedev's attention turned to long-term tax policy, including the long-debated proposal to cut the VAT.
The government had decided to put back a decision in order to watch "dynamics on world markets and in the budget and the situation regarding oil prices, which are still falling," Kudrin said in nationally televised comments.
Supporters of a cut in the VAT say it would boost non-energy sectors of the economy and help the development of high-tech businesses, a priority regularly stressed by Medvedev and Prime Minister Vladimir Putin.
Kudrin has resisted the measure, saying the reduction of a tax that accounts for about one-third of federal budget revenues would put spending on health, education and infrastructure at risk.
"When oil prices are showing such volatility, it would have been quite risky to cut the tax that is the work horse of the budget," said Katya Malofeyeva, an analyst at Renaissance Capital. "It wouldn't have helped the stock market, its effect on the economy would have been unclear, but the danger for the budget would have been large."
While waiting on the VAT measure, Kudrin said there could be further tax incentives ahead for the oil industry.
He said the government would work out exact measures to stimulate oil production in the "near future."
Previous articles on the topic:
Russian stock market suspended due to sharp gains
Markets plunge as global financial crisis hits Russia
Medvedev denies a liquidity crisis
Russian economy solid enough to ride out world crisis
Medvedev says state can lift markets
Markets suffer in 'triple-whammy' week
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