&w=1024&resize=1024,0&ssl=1 "Russian Exporters Fear Liquidity Crisis as Payments Stop Amid Threat of Sanctions Economics and Politics News")
By Bloomberg News
Russian exporters face increasing liquidity challenges due to delays in payments from foreign banks for fear of falling victim to US sanctions.
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While companies are not short on salaries and other obligations, unexpected cash flows make it increasingly difficult to plan daily spending, according to executives at five major product manufacturers, speaking on condition of anonymity because the information is sensitive.
This is putting pressure on its cash reserves, the people said, especially as overnight borrowing costs in domestic and foreign currencies have risen above 20% and there is now little or no availability of the yuan, Russia's main foreign currency.
Handling payments has become a time-consuming and manual process, with teams of employees calling international banks daily to explain why transactions do not violate sanctions, executives said. Even so, payments sometimes take more than a month, with a constant risk of rejection.
US measures imposed in June sought to increase pressure on the Kremlin's ability to finance the war in Ukraine, putting local banks in countries that trade with Russia at greater risk from so-called secondary sanctions. This has delayed and disrupted payments to places like China and Turkey, which have become important trading partners for Russia since the United States and its Group of Seven allies imposed sweeping sanctions in response to the war.
The growing pain in Russia's economy has caught the attention of President Vladimir Putin. The problem of cross-border payments “is a serious challenge for us,” he said at a meeting of the Russian Security Council on October 4.
“Payment problems have long affected the economy through rising transaction costs and the volatility of the ruble exchange rate, which affects inflation expectations and inflation,” said Dmitry Polevoy, chief investment officer at Astra Asset Management, based in Moscow. “Initially, importers had more problems, which supported the ruble, but exporters’ difficulties threaten to increase pressure on the exchange rate.”
The Bank of Russia raised its key interest rate to 19% and warned of a possible further increase this month, amid a weaker ruble and persistent inflation that is more than double its 4% target. The currency is falling to 100 to the dollar after losing about 8% against the dollar so far this year.
“High transaction costs associated with restrictions on international payments, as well as restrictions on export infrastructure” are among the main challenges for Russia's economy, Alexei Mordashov, the billionaire owner of the Severstal steel mill, told a meeting of government officials and business this week.
“The issue is very intense and restrictions are increasing,” Mordashov said. “I want to ask the government to pay close attention to this.”
Other major exporters have acknowledged the difficulty of paying in their financial statements. MMC Norilsk Nickel PJSC, Russia's largest mining company, owed customers more than $300 million in the first half of the year as a result of problems with cross-border payments. United Company. Rusal International PJSC, Russia's largest aluminum producer, reported that third-party accounts receivable increased by 25%, or $307 million, over the same period.
The companies declined to comment on the status of this story.
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Some Russian companies responded to US sanctions by transferring contractual settlements in yuan to banks in neighboring countries such as Kazakhstan. Others have turned to cryptocurrency or even exchange contracts for payment.
As a result, Russia's top exporters reduced foreign exchange sales to Russia by 30% in September, to just $8.3 billion, as the ruble gained a more important role in settlement, according to data from the bank. central released Tuesday.
This has contributed to a shortage of foreign currency liquidity within Russia, including the yuan, which the central bank sees as the main “friendly” currency vis-à-vis the “toxic” dollar and euro.
Russia has also switched most of its foreign trade to the ruble, which now accounts for 40% of its international operations, Putin said last month. The government is working to develop a payment system for use among the BRICS group of countries that could be presented when Putin hosts a summit of member states in Kazan this month.
Alex Isakov, Russian economist
Payment difficulties could affect investment activity in Russia, which is expected to grow 9% in 2023 and another 5% this year, said Oleg Kuzmin, an economist at Renaissance Capital in Moscow. “Next year, we expect investment growth to slow to 1.5%,” he said.
There is no quick solution on the horizon. Exporters and importers will likely have to continue looking for payment options outside of Russia, keeping a portion of their earnings abroad and even repatriating some of their money to comply with government requirements, Polevoy said.
© 2024 Bloomberg L.P.
