Russia's Finance Minister: Anton Siluanov: it's better to invest money in your own country: Interview with Ria Novosti

Yesterday 26 February 2024 Russia’s Finance Minister Anton Siluanov was interviewed by Ria Novosti that published numerous snippets but not the entire transcript, which was rather annoying. I checked again today and viola the entire transcript was now available for both me and you to read. The interview was given just ahead of the Minister’s trip to Rio for the BRICS Finance Ministers confab where they have some extremely important things to discuss that will be touched on below. Ria Novosti provided the following introductory note as a header for the interview:

The global economy is undergoing a tectonic shift, but such a transformation is not painless, according to Russian Finance Minister Anton Siluanov. In an interview with RIA Novosti, he spoke about the opportunities that global rebalancing gives to the BRICS countries, when they will be able to create an independent payment system, how the meetings of club members differ from the atmosphere of the G8, why the Ministry of Finance is most interested in economic growth, why it is necessary to support businesses risking their money, whether the budget rule will be adjusted and the NWF replenished, and also promised that any actions of the West with Russian assets will receive a symmetrical response. Interviewed by Mila Kuzmich and Dilyara Solntseva.

Questions are presented in bolded text. Bolded italics will be my emphasis. Interview:

- At the end of February, a meeting of BRICS finance ministers is expected. What initiatives will be discussed and what ideas will Russia come up with?

"This will be the first face-to-face meeting in a broad format, we will take the baton of the chairmanship. We have a standard agenda: we always discuss the development of the global economy, the economies of the BRICS countries, especially now that new members have been added. Saudi Arabia, UAE, Iran, Ethiopia, Egypt.

We will discuss the infrastructural development of our countries, trade relations, and the work of financial institutions, including New Development Bank. The agenda that we will promote during our presidency is to improve the financial, settlement and payment system, which would be convenient and safe for intra-BRICS traders in the current conditions of fragmentation. The systems are out of politics, independent of the Western unfriendly infrastructure.

— How can such infrastructure be built?

"Financial technologies have made great strides forward and provide a wide range of tools, including for the formation of an innovative payment and settlement infrastructure. Payments in it can be made much faster and cheaper. The main thing now is to gain understanding and support from other countries about the relevance of the system. For the BRICS countries, this will be a modern version of payments and settlements in foreign trade.

— Do our partners have an understanding that they also need it?

"Today, it is important to have an independent financial infrastructure that no one can influence. The infrastructure should work for the interests of the BRICS countries. The BRICS countries trade with Russia, and it is necessary to have reliable channels of settlement. Therefore, I think alternative payment systems based on new technologies will be of interest.

— By payment system, you mean analogue SWIFT or using other currencies?

— It is proposed to create a platform that would connect the financial systems of its participants. Modern technologies make it possible to implement this. For example, technological gateways for settlements in digital currencies of central banks are already operating. We propose to create the BRICS Bridge system, which would be available to our countries on the basis of BRICS institutions and would ensure the proper level of equality and promote the development of trade relations.

"How long does it take?"

— Estimates vary. The first thing to do is to create a connection for the existing central bank digital currency systems that are already operating in a number of countries. At the same time, it is necessary to connect national systems for the transmission of financial messages. Experts estimate that in test modes this is possible within a year, the task is to launch a pilot, possibly within the framework of bilateral relations.

— With China?

"We are ready to start with countries that express such a desire. Perhaps with China, perhaps with our neighbors in the EAEU, with countries Persian Gulf.

Four years ago, you gave a lecture at the Financial University on the topic "The Middle Income Trap" and mentioned the BRICS countries. How has their situation changed during this time?

"The rapid dynamics of the development of countries with developing economies confirms that the world is undergoing shifts of a global economic nature. Economist Ray Dalio in his research wrote that there has been a change of formations in the world many times, when countries that slow down leave, and new ones come in their place. There have always been political aggravations at this juncture.

Now the situation is exactly the same, a real turning point, when countries with developing economies have already overtaken the G7 countries in terms of potential. Such a transformation is not painless. We see what restrictions and sanctions China and Russia are trying to restrain and are the consequences of a paradigm shift.

"But they can't really hold back.

"Everyone is suffering from the sanctions. But it is obvious that our economy has withstood. Over the past year, it has grown by 3.6 percent. Both industrial production (by 3.5 percent) and citizens' incomes (real disposable incomes by 5.4 percent) are growing. Efforts are being made to focus resources on technological and financial independence, which are already yielding results.

Do you have enough time to read famous economists?

"I mostly listen to books. By the way, I met with Dalio at the Ministry of Finance in 2011. He came here and presented a book with his signature.

Do you have any contacts with your European colleagues?

No, there is no contact with the Westerners. We continue to participate in a limited format in international financial organizations: the World Bank, IMF, EBRD. However, previously adopted projects have been frozen.

— Do you have personal contact with your BRICS colleagues?

— Yes, we have good relations with our Chinese colleagues. An inter-ministerial dialogue was held with the new Minister of Finance, Mr. Lan Foan. With the Ministry of Finance India Business relations have also been built.

Do the atmosphere of the BRICS meetings differ from the G8 meetings?

"The G8 was a long time ago. At the meetings of the Ministry of Finance in such formats, the Westerners did not discuss all issues with the Russian side. There was a separate agenda with Russia and without. There was no complete trust. Of course, there is no such thing at BRICS meetings. On the contrary, we try to coordinate our positions by participating in the G20. We discuss the global economy, the risks associated with large debts of Western countries and budget deficits, and develop our own strategy for dealing with these conditions.

What opportunities do you see for BRICS in the context of the rebalancing of the world?

— First of all, we need reliable partners with whom we can calmly overcome global turbulence. It is necessary to exchange goods and technologies, and to build a reliable system of payments. Everything to ensure economic development, on the basis of which the people of our countries could have a stable income and receive quality services.

— By the way, as the head of the Ministry of Finance, are you also responsible for the growth of the economy, or is your task only the stability of the budget?

— The Ministry of Finance is a department that is more interested in economic growth. If there is no economic growth, there will be no budget revenues. We want the money that is spent to create jobs and ensure high salaries for citizens.

- In other words, you are not in opposition to the line ministries, you are not sitting on a bag of money?

"Of course not. Of course, we restrain the onslaught and the desire to increase budget spending, but we always support those expenditures that make an additional contribution to the economy and new jobs. For example, the Moscow-St. Petersburg HSR project: we proposed it ourselves a few years ago. Why? Because there is an economy, new technologies, and the mobility of people. More such projects are needed, especially those in which private investment is being made.

"And what about the state ones?"

"Now the government is actively investing in infrastructure, supporting new industries in order to ensure the technological sovereignty of the country. These are machine tool building, microelectronics, unmanned systems, and much more.

— Is private business ready to invest in new large projects or is it waiting for you to be the first to start investing?

— It all depends on specific projects. Although there is some truth in your question. Elements of paternalism manifest themselves when private business says: give us benefits, subsidies, land, connect communications, infrastructure, and then we will come. We have many tools to support business: special tax and investment regimes, tax deductions, subsidies, and so on. We are attentive to companies' requests for preferences. At the same time, we often see that projects "fly" even without our support.

— There was also an idea to spur business by increasing the income tax for those companies that invest little. Are you considering incentives or, to put it bluntly, punitive measures for business?

"We are well aware that businessmen who risk their money must be supported. Business is the basis for the state, the basis for the development of prosperity in any country. Therefore, if you need help from the state to implement the project, without which it will not start, of course, we meet them halfway.

"Businesses sometimes complain about one-time measures or unexpected changes that were not discussed with them. Do you agree on new proposals with them?

"That's what we do. In the future, together with the business community, we will discuss tax proposals, measures to create our own competencies for technological development on the basis of private initiative.

The Chinese stock market was falling at the beginning of the year. Don't you see that as a problem? Can this affect Russia?

"It's not about the stock market, it's about the state of their economy. Growth dynamics in China high – at five percent. The economy is also the basis for the stock market.

— Is the budget and debt situation stable in all the BRICS countries?

"It is more stable than in Western countries. Most Western countries already have debts of more than 100 percent of GDP, while the BRICS countries tend to have debts below 60 percent. The BRICS countries pursue a more balanced fiscal policy, so the stability of their economies is much better. The principles that Western countries used to preach – limits on debt and budget deficits – are now being violated themselves. The principle of free trade is also not respected. Double standards are present not only in politics, but also in the economy.

— The Russian budget is being implemented according to plan this year, how do you assess it? Are you going to make amendments to the law in the spring?

"We have agreed with the parliament that, as in previous years, we will work without amendments. The parliamentary commission is functioning effectively, all proposals that arise in the course of budget execution are promptly considered and adopted by the commissions. This procedure will remain in place this year.

At the beginning of the year, we began to control the need for advance payments more strictly, we require justification for a specific purchase, performance of work. Therefore, spending at the beginning of the year is slower than last year's pace.

The budget situation is under control, revenues are going well, even slightly better than our expectations. It is clear that the increase in the key rate affects economic activity, but we hope that the downward inflation dynamics will allow the regulator to soften monetary policy.

— Is the ruble exchange rate acceptable for the budget?

— In the forecast of macroeconomic development, we expected 90 rubles per dollar, now we are observing the exchange rate around this value.

— Last year, the market situation was good, and you even reduced borrowing. Do you expect a favorable market situation this year?

"This year, we have planned the budget based on the oil price of $70 and the exchange rate of 90 rubles per dollar. We now have Urals just above 65 and the rate is the same. If the situation continues, we will replenish the NWF in smaller amounts, but all expenses will be financed.

— Will the budget rule need to be adjusted?

"We don't plan to. This is the basic principle of budget formation, and we will base it on it in the next financial periods.

— The Ministry of Finance supported the extension of the requirements for the mandatory return of foreign exchange earnings. Will it stay forever?

"We'll see." Recently, the exchange rate was more than 100 rubles per dollar, companies withheld foreign exchange earnings. Now the exchange rate has stabilized, foreign exchange earnings are returning. A stable situation – is it a bad thing, does someone suffer from it?

"Then why not keep it as a permanent mechanism?"

"We have always been in favor of lifting restrictions on foreign trade. But now, in the context of sanctions, when gold and foreign exchange reserves are blocked, stability is more important.

"The Ministry of Finance provides for the right to loans in yuan every year, but they have never issued them yet. Why?

- Now the law on the budget provides for loans in the domestic market. There is a right to attract loans in yuan. Negotiations with Chinese partners have been going on for a long time, so far there is no decision. We discussed this issue at the end of last year at an inter-ministerial dialogue.

— The Ministry of Finance has announced the exchange of assets — a mechanism that allows foreigners to buy out the frozen assets of Russians by paying for them with funds from type C accounts.

— The topic is developing, this year we will solve it. We have drafted the procedure for the exchange of these assets, and we will make a decision in the near future.

— And what are the prospects for the assets of the Bank of Russia frozen in the West?

"This is not a question for us, we are following the decisions of Western countries. We also have no less frozen. Any actions with our assets will receive a symmetrical response.

Do your BRICS colleagues also see risks in this story?

The Chinese are reducing their stake in U.S. securities as a consequence of what is happening. The reliability of the dollar and the euro has been undermined. You can't stock up on gold either, and its liquidity is less. Therefore, it is better to invest money in your country, in new technologies, in people.

Above, there’s this curious sentence: “Business is the basis for the state, the basis for the development of prosperity in any country.” It would be more accurate to say economic activity is the basis for the state for much of that activity is provided by the state especially in Russia’s case. Yes, in many cases private business participates, but in many cases it doesn’t. And then there’re special cases known as market failures where private business alone cannot properly service the market. And then there’re areas of the economy where natural monopolies exist that are better managed by the state so it alone collects the economic rents generated. There are also social intangibles that support the economy that are unique Russian institutions: ASI, Movement of the One, Znanie, and the socio-economic activities of political parties like United Russia are just four of several dozen examples.

The big chore for the Russian political-economy is creating the new international payment system in tandem with its partners, for whom it’s also a big chore. As noted, Central Bank Digital Currencies (CBDC) are already linking, which is the major component in the new system. Getting the intranational systems hooked to their central bank will thus plug them into the international system. Nations retain their own currencies while a trading mechanism operates within the CBDC system that’s overseen by finance ministers. Businesses and non-central banks continue to function as before but in a more efficient manner as overhead and time-related costs are reduced thus increasing profitability. What will vastly aid the new BRICS members is to reconsolidate their public sector by taking over all natural monopolies and other rent-seeking areas of the economy to reduce overhead costs and to adopt some form of people centered development plan that aims at uplifting their level of wellbeing.

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