&w=1024&resize=1024,0&ssl=1 "Russian exporters fear liquidity crunch due to suspension of payments amid threat of sanctions Economic and political news")
According to Bloomberg News
Russian exporters are facing growing liquidity challenges amid delays in payments from foreign banks for fear of violating US sanctions.
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Even though companies have no shortage of salaries and other responsibilities, unexpected cash flows are making it increasingly difficult to plan everyday expenses, say executives at five major product manufacturers, speaking on the condition of anonymity due to the sensitive nature of the information.
This is putting pressure on their cash reserves, citizens said, especially as overnight borrowing costs in domestic and foreign currencies have risen above 20% and the yuan, Russia's main foreign exchange currency, now has little or no interest.
Handling payments has become a time-consuming and manual process, with teams of employees calling international banks every day to explain why transactions do not violate sanctions, executives say. Still, payments sometimes take longer than a month and carry the constant risk of rejection.
The US measures imposed in June were aimed at increasing pressure on the Kremlin's ability to finance the war in Ukraine, exposing local banks in countries trading with Russia to a greater risk of so-called secondary sanctions. That has delayed and disrupted payments to places like China and Turkey, which have become key 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 impacted the economy through rising transaction costs and ruble exchange rate volatility, which affects inflation expectations and inflation,” said Dmitry Polevoy, chief investment officer at Moscow-based Astra Asset Management. “Importers initially 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 towards 100 per dollar after losing about 8% against the dollar this year.
“High transaction costs related to restrictions on international payments, as well as restrictions on export infrastructure” are among the main challenges for the Russian economy, Alexei Mordashov, the billionaire owner of steel producer Severstal, said this week at a meeting of government and business representatives.
“The problem is very serious and restrictions are increasing,” Mordashov said. “I want to ask the government to pay special attention to this.”
Other top exporters have admitted that payments on financial statements are difficult. MMC Norilsk Nickel PJSC, Russia's largest mining company, owed more than $300 million to customers in the first half of the year as a result of problems with cross-border payments. Big Co. Rusal International PJSC, Russia's largest aluminum producer, said third-party receivables increased by 25%, or $307 million, over the same period.
The companies declined to comment on the situation for this story.
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Some Russian companies responded to the American sanctions by transferring contract settlements in yuan to banks in neighboring countries, e.g. Kazakhstan. Others have turned to cryptocurrency or even contract exchanges for payment.
As a result, according to central bank data published on Tuesday, leading Russian exporters reduced their currency sales to Russia by 30% in September, to just $8.3 billion, due to the increased role of the ruble in settlements.
This contributed to shortages of foreign currency liquidity in Russia, including the yuan, which the central bank sees as the main “friendly” currency against 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 payments system for use across the BRICS group of countries, which could be unveiled this month when Putin hosts a summit of member states in Kazan.
Alex Isakov, Russian economist
Payment difficulties could impact investment activity in Russia, which is expected to increase by 9% in 2023 and another 5% this year, said Oleg Kuzmin, an economist at Renaissance Capital in Moscow. “We expect investment growth to slow down to 1.5% next year,” he said.
There is no quick solution on the horizon. Exporters and importers will likely have to continue to look outside Russia for payment options, keeping some of their earnings abroad or even repatriating some money to meet government requirements, Polevoy said.
© 2024 Bloomberg LP
