The importance of the Kremlin-controlled piggy bank Vnesheconombank (VEB) is rising during this financial crisis, as the group becomes the government’s critical instrument in its efforts to re-nationalize a large slice of the economy from the country’s beleaguered elite business class. Eric Reguly at the Globe and Mail takes a quick look:
The financial crisis seems to have given the Kremlin the opportunity to reassert at least some control over the industries that were so haphazardly discarded during the Yeltsin era. The agent of influence is a government development agency called Vnesheconombank (VEB). The chairman of its supervisory board is – guess who – Mr. Putin. Some of Russia’s most powerful government officials, including the finance and transportation ministers, prop up the rest of the board.
VEB has been around since the 1920s in one form or another and has been quickly recast as the lender of last resort as industrial Russia crumbles and foreign loans require refinancing for fear they will get yanked by jittery bankers in London, Paris and New York. The state has funnelled some $50-billion (U.S.) into VEB and already has loan applications for double that amount.The beggars include some of the biggest names in industrial Russia, among them Lukoil, Gazprom, Rosneft, TNK-BP and VTB, Russia’s second-largest bank. One surprising applicant is Oleg Deripaska, still routinely cited as Russia’s wealthiest man. He controls UC Rusal, the world’s biggest aluminum company, which faces a margin call on a $4.5-billion loan from a Western banking syndicate unless that loan can be refinanced.What conditions VEB will attach to any loans is not known, though they will almost certainly come with veto power over future financings. In some cases, VEB could end up with big equity stakes in Russia’s leading companies. Outright control of a few of them is not out of the question if commodities don’t halt their fast march into hell. Most of them, from oil to nickel, have lost 50 to 70 per cent of their value since the summer.Putin & Co. have the moral authority to exert greater influence over industrial Russia. Western governments are spending fortunes to prop up and nationalize banks and insurers, including AIG and Northern Rock. If the Americans and Europeans can suddenly find virtue in state ownership, so can the Russians.