Vladimir Putin appears to have got used to his position of prime minister and to have set about the manual control over Russian economy, like he built the vertical of power in the manual mode. First, he headed the front of the advocates of the dramatic reduction of the VAT and now he is willing to solve at one stroke the problem of pension funds under state operative control.      

The problem roots in the structure itself of the pension reform carried out 5 years ago. Reminding, then it was decided that part of the unified social tax not to be sent to the pool but to be left on the individual accounts of employed citizens so that they could use it after getting retired. That money was supposed not only to be accumulated, but invested into financial assets so that to grow into a pretty amount after several tens of years.   

Theoretically, each citizen had the right of choosing a private company to manage one’s pension savings or to leave it by default to the state Vnesheconombank (VEB). In practice, 95% of the citizens turned out to be “defaulters”. That means the state took responsibility of keeping that savings so that it at least not dwindle.  

According to the law, VEB had the right of investing the defaulters’ money into a very limited list of assets, mainly into debt instruments by the Russian finance ministry. The strategy seemed not bad in 2003. But it only could work – and worked – under conditions of reduced inflation in Russia, which enabled VEB securing the minimal profitableness.   

However, with the inflation having been growing in Russia during last two years, the savings of defaulters get devalued. There are two possible ways of improving the situation: increasing the profitableness by debt instruments of the finance ministry (getting to build again the finance pyramid GKO that collapsed in 1998) or extending the list of assets allowed for investment of the pension funds by VEB.     

It appears that Putin not only went for the latter option, but also defined by himself the enlarged list. According to the prime minister’s opinion, investment made into petroleum and gas sector is the best guarantee for saving and augmentation of the capital of the defaulters. Although all that seems logical under the current conditions of price growth for energy carriers, the whole matter should be considered to be rather risky, taken in the strategic perspective.   

For one may not call the investments made into the sector depending directly on the international conjuncture, to be conservative, i.e. reliable. Yes, the oil has gone ten times as much during last ten years. One may make different conclusions out of this fact, and one of conclusions is that there is a potential for oil prices to fall. We don’t speak about how soon such a fall might happen, how serious it might be and so on. The fact is that price fall is possible and so any investments into energy sector are a risk.      

All that does not mean it is no good idea to invest into petroleum sector. But that means we must not put there all our assets or even bigger part of it. There’s a common saying “One should not keep all eggs in one basket”. It’s just a basic safety measure.  

Besides the universal macroeconomic arguments, there is also the Russian specificity obliging us to be especially careful about perspectives of investments into domestic oil and gas sector. The matter is that most of our state and private companies have serious debts and face difficulties of servicing and refinancing their debts, under conditions of global financial crisis. For example, Rosneft in spring required almost in ultimatum form that the state pays off part of its debts so that to avoid the perspective of technical default. And where is the guarantee of safety for the pension funds invested there?   

With such a state of things, it’s not Rosneft to save the pensioners’ money against inflation, it’s vice versa. It’s our savings that are to help our home energy monsters stay afloat, for example if our government decides to invest money not in the oil and gas sector in general, but particularly into Rosneft and Gazprom loan securities, issued with the purpose of paying off the standing debts. I cannot affirm that this was the initial aim by the prime minister, but at the moment this is the most probable consequence of the voiced by him idea.   

P.S. And all of us should realize that being a defaulter is far from being the best way of building relations with the Russian authority.