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WHEN: CNBC EXCLUSIVE, today Thursday, 29th January 2015
Following are highlights of the unofficial transcript of a CNBC exclusive interview with Anton Siluanov, Russian Minister of Finance with CNBC's Geoff Cutmore.
Full interview will be played out in Europe on CNBC's Squawk Box. Following is a link to embeddable video clip of the interview on CNBC.com http://www.cnbc.com/id/102380840
All references must be sourced to a 'CNBC exclusive interview'.
CNBC's Geoff Cutmore (GC): Even as we're speaking to each other, we know that there's a meeting going on in Brussels they're talking about potentially another round of sanctions. Can I ask you, how worried are you that another round of sanctions at this stage, would cause a crisis in confidence in the Russian economy?
Anton Siluanov (AS): Well it has always been our official position that we are against any form of capital or trade controls - and of course any sanctions are harmful because they cause a slowdown in the global economy. And the sanctions that have already been imposed against Russia did negatively affect us. However, Russia companies have adjusted, and Russia's balance of payments have adjusted, the rouble weakened, and as you might be able to see life still goes on here and we just keep on living.
Our estimate is that last year the Russian economy experienced two kinds of external shocks - one is from oil prices and another from sanctions. The cumulative effect of those shocks is around 200 billion US dollars - maybe a little more, but the main, major influence was the fall in oil prices. Our estimate on the sanctions is a roughly 40-50 billion shortage of capital, but again the main driver of this slowdown is the oil price.
GC: So what you're saying is, actually let them do their worst- you do not fear another round?
AS: Well I'm not saying that - I'm saying that they did have an effect on the Russian economy. Of course, caps on capital flows cause companies' long-term investment plans to be cut or postponed. This causes a slowdown in the economy and budget revenue shortfalls. Yes some of the slowdown of the economy may be attributable to the sanctions imposed on Russia. However, I'd like to stress here that these sanctions also force us to invest, to look for inner reserves within the Russian economy, to engage in import substitution… to try to look for capital and technology within the Russian economy - and we invest in those spheres where we used to co-operate with the Western countries. This leads to some of the restructuring of the economy, but in new conditions and new terms, however I might assure you that we will adjust to any decisions that will be taken by our partners in the West.
GC: It's by no means a certainty that there will be a lot more punishing sanctions against Russia. The German economy minister has suggested it would be a good idea to pause. We have also seen the new Greek government now step into this and suggest that actually, maybe, there isn't a consensus in Brussels for new sanctions against Russia. Do you welcome the new Greek government's intervention?
AS: Well I think this is a pragmatic approach. There are politicians and there are businessmen. And the pragmatic approach is that this always affects economic growth, employment, social stability in our countries. We have always advocated for the lifting of sanctions. And some of the countries who felt the negative effects of the sanctions being imposed… who felt that their sales in Russia or their exports to Russia have been reduced significantly. Well in this situation well, you know, business always lose. And sanctions is a political instrument not really co-related with the economic situation and those who feel these effects will always be losing in this situation.
GC: The Greeks feel or some in Greece feel that they have also suffered as of the result of Western economic policies and so I guess they look at the situation you're in, and they feel some sympathy with you as well. Do you feel favorably now to the fact that Greeks are… or seem to be adding their voice to perhaps slowing down the sanctions approach, or even reversing it? Do you welcome the support of the Greeks?
AS: Well it's not only Greece, but um a whole series of countries including EU countries are against sanctions. And I think their position is right and economically justified. It would be correct to raise this question, the lifting of sanctions, because everybody will benefit from the lifting those sanctions because of the reasons I just mentioned -- employment, the trade, exports, and revenues. Had there been no sanctions we would all have been much better off. I do understand why they are raising this question.
GC: Do you interpret it though as now there is some division actually in Brussels and there isn't a unified approach to Russia.
AS: What I do welcome is that, all voices must be heard and you just can't ignore some of the countries that raise this issue. Of course you can influence them, you can literally force them to prolong sanctions. But these questions will always be raised. There will always be somebody against the sanctions, who are governed and guided by reason and economic principles. But the question is, the big question here is, whether they will be heard or whether they will be forced to act in a certain manner. I think one should be guided as I said by the pragmatic approach.
GC: Can you imagine a situation here if Athens asked you for financial support you would be willing to give some financial aid to the Greek government over the next few months?
AS: Well we can imagine any situation. But if such a petition is submitted to the Russian government, we will definitely consider it but we'll take into account all of the factors of our bilateral relationship between Russia and Greece. So that's that's all I can say -- if it is submitted, we will consider it.
GC: But they haven't asked you yet?
AS: No they haven't.
GC: Can I move on because I wanted to ask you about Belarus, clearly there have been some developments in Belarus which means that the country, or the region is looking increasingly insolvent. They feel that they can come to the Russian government for support and that there are commitments already in place that will allow them to restructure their debt. Are you in negotiations with them currently, and will you be giving money to Belarus to help them bailout their country?
AS: Well the Belarus economy is closely related to the Russian economy and we have certain agreements for the fiscal year 2015. We've decided that Belarus gets to keep the export duties that it receives from Russian oil products that it sells to other countries. The export duties will remain with the Belarus budget. This decision was aimed at balancing the budget, the budget of the Belarus and the balance of payments of this country. However both Belarus and Russia now experience some additional pressures from oil prices and we are currently, we are always in communication with our Belarus colleagues. And in case of an emergency we are ready to consider their request for help. However, we think that first the Belarus economy needs to adapt certain structure reforms, namely the budget reforms and balance of payment reforms. These measures are currently being prepared by our Belarus counterparts and we will consider them first, and if these measures are not sufficient we will be able to consider their request for financial support.
GC: If I understand you, yes you are prepared to give the money but only if certain conditions on the budget are met.
AS: Together with our Belarus colleagues we are currently looking into the situation. We are analyzing all the factors that affect the current economic situation in both countries, namely the sanctions and the fall in oil prices. We are in negotiations right now. When they are finished we will be ready to consider any official request from the Belarus side.
GC: They've talked about 500 million dollars, is that anywhere in the ballpark of what might be considered?
AS: Well, we have different figures. However I'm not really prepared to talk about any specific amount of the financing gap that Belarus is facing now. First we have to look into the structural reforms that are currently being prepared on the Belarus side.
GC: If I understand you correctly from the beginning of this conversation you said it would be a mistake if there were further sanctions from Russia. I know you think it's a mistake that S&P downgraded the sovereign rating to (debt) what can you do or what have you done or what are you doing to persuade Moody's and Fitch that actually this downgrade is unnecessary for those ratings agencies?
AS: Well, on the S&P decision, I said that their decision was excessively pessimistic and the criteria that was used in their decision was the high volatility of the national currency and low growth prospects. But if you look at this volatility, it's already behind us. The balance of payment has adjusted to the new conditions. The huge rouble fluctuations have stopped. As for the slowdown, yes, we do expect some slowdown in 2015, our estimate is that it's going to be minus three percent of the GDP. But it's NOT because of the sanctions, it's mainly because of the oil prices as we won't get as much as we expected. We have elaborated an anti-crisis plan within the government, we are going to provide financial support to the social sphere to support the employment, key companies of the Russian economy, the subjects of the Russian Federation, the regions of the Russian Federation, and we will also elaborate some structural measures, that will be implemented. We have a task of balancing the budget in new conditions by 2017. This is our task, and we are ready to fulfil it. We need to adapt the economy to these new conditions, because we can't live like we used to for the past 10 years. This is our goal.
GC: But can I be very clear, have you talked to Moody's or Fitch at all since the S&P ratings move?
AS: Yes, our team met with Standard and Poor's before they took the decision. They provided some recent data on the Russian economy. We're in constant contact with all the three agencies and this is our position, so they get first-hand information from us both the finance ministry and the central bank. And I think it's a very productive way of doing things, because they need to get this information from us right away.
GC: One other thing is hurting the Russian economy- is the very high level of interest rates and in part, we have interest rates where they are because of that emergency 650 basis point move at the end of last year. Now that we've started [rest of question lost on feed]
AS: Well yes indeed. Last year the interest rate was raised to 17 percent. This was mainly a reaction to the high volatility of the Russian rouble. It was actually profitable for some of the market participants to borrow in roubles and invest in US dollars - this was a very good strategy. And there were a lot of speculators on the market. So the central bank actually had to raise the interest rate and I think it was the right decision. It was a reaction to that high volatility- but as we see now the rouble has found a new balance, we see the balance of payments adjusting to the current situation. The current account surplus is by our estimate 6 percent of GDP and we think that the current situation on the money market does not correspond to the macro-fundamentals of the Russian economy. Interbank lending rates are higher than 20 percent and this is excessive. And that's not how the economy works. So the central bank is looking into the current situation, it's analysing it and I think it'll take a decision on whether to lower the interest rate. We see that the inflation is about 12 percent year-on-year, and the current interest rates do not go along with the macro-fundamentals of the Russia economy so we hope that interest rates will be lowered -- but this is a competence of the central bank - it's totally independent and we cannot influence its decisions.
GC: Let me finish by asking you to look forward to an event- you're going to the G20 in Turkey. There you will see Mr Schäuble, the German Finance Minister, you'll meet with Jack Lew from the United States. Here's an opportunity for you just to put a strong message across to both of them as to what they are doing to damage this economy and how you will not accept the consequences without responding. As you stare them directly in the eyes, what are you going to say to them?
AS: Well we will exchange our views on the economic situation in the world and I know that some of my colleagues, namely Minister Schäuble is and has always been against any forms of limitations on the world economy. And if you look at this, Germany is the main trading partner of the Russian Federation. They lost the most during the sanction crisis. And every time we meet we agree we need to find a political resolution to the Ukrainian crisis. So that is basically the way we are going to deal with it during our bilateral meetings in Turkey. And if you ask me, I'll tell you that the economy should always be a basis for taking political decisions. This is the view of the finance ministry of the Russian Federation - I think it'll be shared by all finance ministers of all the countries in the world.
- ends -
For more information contact:
Hugo Foulds, Director of Communications, EMEA
t: +44 (0)20 7653 9398