Vnesheconombank Chairman V.A. Dmitriev’s Interview to the TV Channel Russia 24
Host Marat Kashin
HOST: Vnesheconombank Chairman Vladimir Dmitriev is convinced that in order to transfer to full-scale payments in national currencies they should be stable. In his interview to our channel, he also voiced the Bank’s position on Mechel and Inter RAO.
-If anything, the main events at the Forum and here at the BRICS Summit are to create a New Bank for Development and a pool of reserve currencies. Do you believe that this will change in general the balance of forces in the world’s financial arena?
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economics Affairs (Vnesheconombank)’: If we mean the Bank I think it would be wrong to talk about the global change in the balance of forces in the world’s arena because our Bank is designed to address localbut at the same time large-scale objectives. The Bank was assigned to fund infrastructure as its priority. The needs for infrastructure are overwhelming. According to the World Bank, developing countries will need 15 trillion dollars to fund infrastructure until 2030. So, an idea to create a bank for development was put on the agenda of the BRICS Summit several years ago and the bank is designed to fund infrastructure.
It’s a good thing that the banks have agreed upon volumes and technical issues related to a location of headquarters as well as upon a composition of the Board of Directors. In my opinion, there is every reason to believe thatexecutives of finance ministries responsible for creating this bank would favor a proposal made by BRICS countries national development banks to form key personnel of a New Bank through engaging employees from BRICS countries banks for development. The New Bank is also to be provided with technical equipment and its employees are to undergo training courses in national development banks. These are rational proposals and I think they will be backed.
Who is going to be responsible for making decisions on extending credits and their terms and conditions?
Vladimir DMITRIEV:Decisions are to be made by a Board of Governors and a Board of Directors. The bank is to adopt the world’s best practices, which are common in such international financing development institutions as the World Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Asian Development Bank. Therefore, corporate governance bodies will make relevant decisions based on the best practices.
The most important thing is that the countries have agreed upon volumes of funds, which each of them is to contribute to charter capital on a parity basis. Stated capital is to amount to 100 billion dollars to be paid in tranches of 50 billion dollars.
At least, this fund would provide support for both national currencies and national budgets. There is no doubt that transactions to be conducted within the fund would to a certain extent help national currencies to become settlement currencies in trade and investments of BRICS member countries.
-Nevertheless, as far as the idea of creating a new bank is concerned, a number of experts say that it is necessary to stop using the dollar and try to make payments in national currencies. But contributions to the bank’s capital are made in dollars.
Vladimir DMITRIEV: We have to do a lot in order to transfer to full-scale payments in national currencies. First, currencies should be stable. Second, we have to develop a scheme for swapping national currencies. But there are enough examples that national currencies are already used in mutual trade and in international payments. We have to recall China’s recent initiative on creating a major Asian bankto use yuan as a settlement currency at least in investments.
As far as our relations with China are concerned, the ruble and the yuanare already used in making payments inthe cross-border trade. The yuan is trading on the Moscow Interbank Currency Exchange. So, we are making a steady headway. It goes without saying that we have to overcome a lot technical, systemic difficulties to stop using the dollar.
-There is another important question. Experts say that the International Monetary extends credits on rather hard terms. In the sense that it requires countries to make changes in their economies. Will the two new financial institutions require BRICS countries to do the similar thing? Do you think that it should be done?
Vladimir DMITRIEV: I don‘t think a BRICS Bank for Development will deal with such issues. Credits extended to fund infrastructure, support private business as well as support the banking system above all medium-sized banks are not granted on such tough terms as is the case in the World Bank and the European Bank for Reconstruction and Development. On the contrary, these credits are designed to support private business, developing private enterprise and freeing private initiative. In this case,I’m talking about Russia because I know how it happens. As far as the new bank is concerned I have no grounds to believe that it will be involved in supporting macroeconomic stability in these countries although by supporting infrastructure we create conditions for macroeconomic stability. But high priority is to be given to funding infrastructure because it is our common goal. This goal will be to overcome economic growth restrictions as well as create new jobs and develop industrial sector. This is a common interest of all BRICS countries. In addressing infrastructure objectives on the basis of mutual interest nobody is going to set tough terms.
-The need for investments in infrastructure is great in all BRICS countries. How are they going to prioritize and select projects upon considering applications?
Vladimir DMITRIEV: I wouldn’t like to assume the role of oracle who knows answers to all questions related to this bank’s activity. I think that even the bank’s founders – finance ministries do not have a clear idea of how various decisions will be made and what objectives in a country plan will be given top priority.
These objectives will be addressed in the course of creating a new bank itself. We should above all create a bank, employ personnel, provide it with equipment, we should also adopt appropriate corporate procedures,regulations. This is sure to take some time. But we should immediately start to analyze projects that could be funded jointly and make final decisions on the basis of common interests and priorities of various countries. These decisions will require a lot of time, certain efforts and expertiseThese countries’ territories and population account for a significant part of the global world. In my opinion, this bank won’t come up against big problems because leaders of our countries made strenuous efforts to make a decision on creating this bank.
Do you think that the creation of this Bank and a pool of conventional reserve currencies would somehow prompt to carry out a reform of the International Monetary Fund, which ground to a haltbecause of the US Congress decision to impose a veto.
Vladimir DMITRIEV:If there was no veto, we could expect certain changes. But as it is in place we have to adapt to the current situation. But the creation of this pool of reserve currencies would prompt to reconsider the realities we used to live in beforeand think over the need to create a more flexible system based not on one or two currencies but on the interests of global players.
-I have another several questions, which are a lot closer to the situation in Russia. There is much talking now aboutMechel. And the latest news is that the company was able to arrange for a rollover of credits with VTB Bank for an amount of almost 15 billion rubles. Are you ready to consider possible options or compromise in this situation?
Vladimir DMITRIEV:After I made a public statement,it was followed by the industry minister’s statement relating to Mechel’s future and the need to decide it in a different format rather than giving it a hand without thinking about consequences for Vnesheconombank, Mechel’s officials started to talk about a potential debt restructuring and a sale of non-core assets. Somehow, they started to think in a different way. In fact, I like this approach. Our position remains unchanged. This is not only my position, Our Board formed a consolidated opinion and I voiced it. We haven’t considered any other options. They are moving in a different direction now – commercial banks seem to be ready to discuss potential ways of debt restructuring with Mechel. We, of course welcome such steps.
-Are you going to discuss this situation at the next meeting of your Supervisory Board?
Vladimir DMITRIEV: It isn’t on the agenda.
-There is another Russian story. VEB calls Inter RAO to exercise redemption option for bonds. If my memory serves me right, the price is about 31 billion rubles. The market price now is about five billion. They say in Inter RAO that they don’t have money. What are you going to do?
Vladimir DMITRIEV:I think that legal wrangling with Inter RAO is the worst thing to do. But in the current situation we have no right to write off debts as a loss because the option provided for quite a definite price which differs significantly from the current market price.I’d like to remind you that we entered into Inter RAO’s capital only in order not to increase Inter RAO’s debt burden but to enable it to build its core facilities, specifically, power plants. We are going to talk with Inter Rao. So far we have made our first steps towards exercising our right. But if the situation develops in a different way rather than it was stipulated in our agreement, we are ready to compromise. But I’d like to stress it once more that we won’t accept any price that is different from the one specified in the option agreement.
-Some experts believe that VEB calls Inter RAO to exercise redemption option because it is pressed for available funds.
Vladimir DMITRIEV: You mean VEB?
-Yes, I do.
Vladimir DMITRIEV: The reason was quite different. We were guided by our right and the fact that the option had expired. I can assure you that we do not need money desperately and unconditionally to take such tough and unfriendly measuresagainst our partner Inter RAO. We have our representatives in Inter RAO’s Board of Directors, so we value our relations and we are not going to press then using all possible means to exercise our right. In fact, it’s a commercial dispute and we are going to settle it as it is standard in a civilized world.
-And now my last question. I can’t help asking you about VEB’s additional capitalization. A decision was made. The State Duma passed a draft law in the third reading. Have you received enough money?
Vladimir DMITRIEV: We have received enough money to ensure sustainable financial development and sustainable financial position. I mean above all capital adequacy ratio. This money is enough to form required reserves. Now we are in a difficult situation because with the liquidation of Olmpstroi, we are left on our own as we didn’t form reserves for Olympic credits relying on Olympstroi’s surety. And even if some corporate decisions are made rather than forming reserves both our auditors and our creditors that have Vnesheconombank’s bonds are well-informed about the current situation and will ask us questions we’ll have to answer in a proper way. We were capitalized with Tier 2 capital and now we have enough resources to form required reserves and ensure stability
We have a strategy and we are updating it now. The strategy provides for increased loan portfolio, increased volume of active transactions and a certain package of investment obligations. Given limited capabilities to raise funds on foreign markets to finance our operations, we should look for other alternative measures for providing government support. We do not mean now additional capitalization alone, we mean other measures of government support that would enable the Bank to carry out its mission of a Bank for Development and support Russian industrial exports without doing things we are not supposed to do.
-Thank you very much for your interview.
Vladimir DMITRIEV: Thank you.
Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24
HOST: A meeting of G20 countries development banks, the so-called D20, was held in Rome. Vnesheconombank Chairman Vladimir Dmitriev in his interview to our channel told about themes of discussionб Olympic facilities as well as prospects for Russian aircraft exports.
Maria BONDAREVA: Good afternoon Vladimir Alexandrovich.
Vladimir DMITRIEV, Chairman of State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’: Good afternoon.
Maria BONDAREVA: We can see here new aircraft - a sort of joint venture between Russia and Italy. VEB also participates in this project. Are you happy about cooperation with Italians?
Vladimir DMITRIEV: I can’t help being happy about cooperation with Italians because a part of my working and sometimes personal time is devoted to performing my functions as a Co-Chairman of the Russian-Italian Forum-Dialogue within the Framework of Civil Societies which is designed to enhance contacts and cooperation in various sectors including economy. This of course expands my mission as the Chairman of Vnesheconombank whose objectives include providing support for Russian industrial exports as well as enhancing international investment cooperation. In this respect, I am happy about the way our relations are developing with our Italian partners.
Maria BONDAREVA: Let’s get back to the aircraft as we are standing against the backdrop of them. Vnesheconombank lends to Mexican Interjet for it to purchase our Superjets and engages to this end other foreign creditors. To what extent is it difficult to do itunder the conditions when economic sanctions against Russia might be expanded?
Vladimir DMITRIEV: It is always difficult to maintain effective financial and banking cooperation because we should offer our customers the most favorable terms and conditions. Competition is fierce. But in terms of promoting SukhoiSuperjet 100 to international markets we are glad that we are cooperating with foreign banks and above all with Italian and French banks. The SukhoiSuperjet 100 is a product of cooperation between three countries: Russia, France and Italy. And we also happy about the relations we are developing with such state insurance agencies as Italian SACE and French COFACE.
I would also like to thank our Russian partners, which are involved in the scheme for promoting SukhoiSuperjet 100 to international markets. They include such members of Vnesheconombank Group as the Export Insurance Agency of Russia (EXIAR) and VEB-Leasing – a company that offers leasing services to foreign buyers of these planes.And as of today, three aircraft are ready to be supplied – the first two aircraft are practically complete and the third one is being completed.
Maria BONDAREVA: Eight are already flying.
Vladimir DMITRIEV: Eight are already flying in Mexico. It is here where the whole aircraft’s interior is completed. About 200 job were created in the facilities that had been used earlier for other purposes but as a result of the phase-out people lost jobs.And by means of our SukhoiSuperjet 100 we create additional jobs both here and in Russia as well because some production facilities are located in Russia.
So, we are certainly happy about the way we are cooperating with our Italian and French partners. And I’d like to stress it once more that this is a result not only of Vnesheconombank’s efforts but also of its subsidiaries.
Maria BONDAREVA: Vladimir Alexandrovich, how much money is Vnesheconombank ready now to lend to foreign buyers?
Vladimir DMITRIEV: It’s a matter of hundreds of millions of dollars. In this respect, I’d like to stress that supplies of SukhoiSuperjet 100 for Interjet – the second largest Mexican carrier are being made on the basis of comprehensive support for Russian industrial exports where as I said Vnesheconombank’s subsidiary institutions are involved as well as a mechanism for subsidizing interest rates which made it possible for us to offer the Mexican company terms and conditions that are rather market-oriented and competitive.And as you have said as many as eight aircraft are flying in Mexico.And the daily mileage is about 8 hours. The planes do not stand idle; they are always in the air. Customers are happy. And it is for this reason we hope that besides 20 aircraft that are firmly contracted, another 10 aircraft might be purchased by our Mexican partners.
Maria BONDAREVA: Mexico buys, Italy equips and Russia manufactures and extends credits. And as a whole is this scheme affected by notorious economic sanctions the United States and Western partners are constantly talking about?
Vladimir DMITRIEV: As far as this project is concerned, we are not feeling any pressureor negative attitudes of our foreign partners. Ingeneral, I should say that the sanction regime, more specifically, the reaction by a whole number of foreign banks to the global situation and above all the pressure from the American Administration is tangible. Many Russian banks failed to refinance their credits and had to search for special resources to settle with their creditors. But on the other hand, recent placements in Eurocurrencies by Gazprombank, Alfa-Bank and Sberbank show that the market is open for us. Evidently, Russian banks do not make borrowings in dollars they make placements on European markets and feel rather comfortable.
In this sense, I go along with Economic Development Minister Alexei Ulyukayev who said that we were ready for various turns of fortune. And you know that in the near futurewe’ll launch a new scheme for funding through the Central Bank to extend long-term investment credits for economic development of Russia. In this sense, our domestic resources are being mobilized so that economic development does not stop.
Maria BONDAREVA: Are you somehow getting ready for a further expansion of sanctions? There appeared some information that your Export Insurance Agency might be indirectly hitif a third package of sanctions is imposed.
Vladimir DMITRIEV: You know if sanctions are imposed and Vnesheconombank is among companies to be hit by them, it goes without saying, that all our subsidiary institutions will be influenced by this sanction regime. It remains to be seen… It is important to continue funding the Russian economy. And to this end, as I have said the Central Bank, the Government and ministries are ready to counter the expansion of sanction regime.
Maria BONDAREVA: You are going from here to Rome to participate in D20. What issues are you going to discuss there and what agreement are you going to sign?
Vladimir DMITRIEV: In fact, we’ll hold a regular meeting of Group of Twenty countries’ development institutions. It was Vnesheconombank’s initiative to hold such meetings. We held such a meeting last year in Moscow. The meeting showed that development institutions had a high stake in discussing issues in the G20 format, which are of interest for development institutions. And these are issues of searching for long-term credit facilities, providing support for small and medium-sized enterprises and regulatory rules because development institutions are specialized institutions – they differ from commercial banks. So, we want regulators to treat us in a different way because our objective is to raise long-term credit facilities to extend credits on preferential terms.
Maria BONDAREVA: Are you succeeding with it?
Vladimir DMITRIEV: Yes, we are. And it is important that as part of this dialogue we are moving to discuss joint projects. In the past, our Western partners – development banks of France, Italy and Germany placed main emphasis on searching for joint credit facilities to fund infrastructure projects in Europe. Now they are open for discussing issues associated with long-term funding of various projects in Russia. This is of great interest for us.
So, tomorrow’s meeting is sure to be very interesting. It will be held under the auspices of our partners from Australia.But the European Investment Bank acted as an organizer. We hope that this meeting would be highly instrumental in reaching further agreements.
We are not planning to sign any agreements as part of D20 except for a communique setting forth our common objectives of funding infrastructure, providing support for small and medium-sized enterprises and offering regulators conditions for treating development banks in a special way. But outside of this meeting we hope to sign several agreementswith our Italian partners that are determined to raise credit facilities from Italian banks to implement joint projects in Russia.
Marina BONDAREVA: Vladimir Alexandrovich I wish you a good trip. Finally I’d like to ask you one more question. There appeared information that Vnesheconombank which had extended credits worth 248 billion rubles to fund the construction of Olympic facilitieshoped for government compensation in case of its borrowers’ bankruptcy. Allegedly, VEB requested the Government to allow for a limit in the budgets for 2015 and 2017. Is this true?
Vladimir DMITRIEV:We are not departing from terms and conditions agreed upon with the Government and investors. The moratorium on debt repayment is in force until 2015. So, we do not insist on interest and principal repayment with regard to projects that were funded through using Vnesheconombank’s funds.
With the liquidation of Olympstroy, there arises a question of how we are going to address this problem because Olympstroy’s surety is still valid. Given its liquidation, Vnesheconombank is not capable of compensating for potential losses.
So, we do not require the state to compensate us for something in full right away. Our Bank the state and investors should look for ways of addressing this problem. As it is known that some projects are planned loss-making ones. We took time intentionally and imposed moratorium in order to see how in a period of two years apartments and hotels will be operated and sold and if a cash flow will be sufficient to settle with Vnesheconombank. This work is underway.
Maria BONDAREVA: How do you size up the situation?
Vladimir DMITRIEV: So far, with a cautious optimism, because some private individuals, a number of companies and ministries became interested in purchasing certain facilities. But I’d like to say it once more that our optimism is cautious. The year 2015 is not far off (time flies) and in any case we should be ready for various scenarios. But I’d like to stress it once more that Vnesheconombank, investors and the Government should work together. In my letter to our Prime Minister I proposed to consider various options ranging from providing direct support for Vnesheconombank to subsidizing investors’ interest rates for us to be able to restructure debts to reduce their debt burden. I think that in the long runwe’ll be able to find an optimal solution which is acceptable for the state, investors and Vnesheconombank.
Maria BONDAREVA: Thank you very much for your interview.