Ruble Slides to 20-Month Low on Oil, Threatens Russian Budget

By Emma O'Brien

Oct. 16 (Bloomberg) -- Russia's ruble fell to the lowest level in 20 months versus the dollar today as oil slumped, raising the prospect of the country's first budget deficit in a decade.

The currency's decline challenged central-bank efforts to support the ruble by spending its reserves, the world's third largest. Russia's budget for 2009 breaks even based on an average oil price of $70 a barrel, according to the Finance Ministry. Urals crude, the country's main export, slid 3.1 percent today to $66.57 a barrel, down 53 percent from a record $142.94 on July 4.

``This is obviously a concern because of the fiscal impact of lower energy on Russia,'' said Michael Ganske, head of emerging- markets research in London at Commerzbank AG, which holds Russian debt in its model portfolio and is one of the world's top 10 traders of the ruble. ``Investors are really freaking out, Russia could have a fiscal deficit.''

The ruble declined as much as 0.6 percent to 26.4094 per dollar, the weakest since Feb. 13, 2007. It was little changed at 26.2599 as of 3:52 p.m. in Moscow, from 26.2525 yesterday.

The plunge in oil prices comes as Russia re-emerges as a force in global economic and political affairs, a process started by former President Vladimir Putin and furthered by his successor Dmitry Medvedev. Russia last ran a budget deficit in 1999, the year after it defaulted on $40 billion of debt.

Reserves Drop


Foreign-currency reserves dropped $15.5 billion to $530.60 billion, Bank Rossii, the central bank, said today. It's the second straight weekly decline. Holdings are down 11 percent from a record $597.5 billion in the week to Aug. 8, though they're still the third largest, after China and Japan.

``They are bleeding reserves and the 2009 outlook for now seems unfavorable,'' said Elina Ribakova, an economist at Citigroup Inc. in Moscow. ``Eventually something has got to give, either it's the ruble or interest rates, and they are unlikely to increase interest rates for fear of crippling the banks. So the ruble is the way out.''

Government bonds dropped and stock trading was halted after the Micex Index tumbled as much as 9.2 percent as the global credit crisis prompted investors to sell riskier, emerging-market assets. The equity benchmark plunged 67 percent this year, on course for its first annual drop since at least 2002.

Moscow-based OAO Gazprom, the world's biggest producer of natural gas, slumped 69 percent this year to 110.14 rubles. It's now worth less than a third of what it was on May 8, when its $347.4 billion market value made it the world's third-largest company, bigger than General Electric Co.

Wealth Destruction

Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the default. The combined wealth of Forbes magazine's 25 richest Russians tumbled 62 percent between May 19 and Oct. 6, based on declines in the equity value of traded companies and analysts' estimates of closely held assets they own.

United Co. Rusal, the world's largest aluminum smelter, is seeking a loan from the Russian government to refinance debt owed to foreign banks, it said Oct. 14.

Renaissance Group, a Moscow-based financial company, announced today it would cut 100 jobs from its banking and asset management divisions, which together employ 1,481 people. Billionaire Mikhail Prokhorov agreed to buy 50 percent minus one share of the company last month for $500 million in cash, less than a quarter of its value a year earlier when state-controlled VTB Group tried to take it over.

Bank Rossii targets a ruble rate against a currency basket made up of about 55 percent dollars and the rest euros.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net