Russia to keep investing Reserve Fund in UST despite ratings downgrade
MOSCOW. Aug 8 (Interfax) - Standard and Poor's lowering the United States' rating from 'AAA' to 'AA+' will not result in the country's removal from the list of countries Russia might invest Reserve Fund and National Welfare Fund monies, according to the current requirements for managing those funds.
A few years ago, Russia imposed strict requirements on investing national fund money. A 2006 resolution on the rules for managing Stabilization Fund monies established that the issuer of debt bonds that might be invested in had to have a rating not under 'AAA' by Fitch or S&P classification or 'Aaa' by Moody's.
Those requirements were revisited in 2007. A governmental resolution concerning the management of Reserve Fund and National Welfare Fund money regarded the securities of Austria, Belgium,
Britain, Germany, Denmark, Canada, Luxembourg, the Netherlands, the United States, Finland, France, and Sweden.
Last October, the Russian Finance Ministry prohibited the investment of sovereign Russian fund monies in the securities of Ireland and Spain. And while Ireland was excluded from the list of permitted issuers after Fitch downgraded the country's rating to 'A+' from 'AA-', Spain was in compliance with the established requirements, but the Finance Ministry exercised its right to set requirements additional to those in the resolution and struck Spain from the list so as to cut the funds' risks. This past March, the Finance Ministry once again allowed National Welfare Fund monies to be put into Spanish bonds.
As of January 1, 2011, according to the Central Bank of Russia's annual report, 92.5% of the Bank's reserve currency assets had been invested in securities issued by other countries - mainly by the United States, Germany, France, Britain, Japan, Finland, and Canada - and that 42.5% of the reserves had been put into dollar-denominated assets. Almost 93% of the assets the Central Bank invests in had 'AAA' ratings on the first of the year. This means the U.S. rating downgrade would significantly alter the distribution of Central Bank forex assets dependent on ratings.
In comments for Interfax on the downgrade, Deputy Finance Minister Sergei Storchak said Russia was not planning to reconsider the volume of investment in dollars.
At the present time, the Reserve Fund and National Welfare Fund consist 45% of dollars, 45% of euros, and 10% of pounds sterling.
The rating downgrade was pretty mild, Storchak said. "It is such a soft adjustment that it can disregarded from the standpoint of increasing investments for a lengthy period," he said.
The U.S. debt market continues to be one of the most liquid and reliable, Storchak said. The rating drop was primarily a signal to the United States and not to investors in the country's debt paper, he said.
According to U.S. Treasury Department and Federal Reserve figures, Russia had in May cut its investment in U.S. T-bills to $115.2 billion from $125.4 billion at the end of April. That was the seventh straight monthly decrease from $176.3 billion last October.
