Russia may buy into Spanish debt

Russian presidential aide, Arkady Dvorkovich, has told journalists that Russia may participate in helping Spain out of its debt crisis by buying sovereign debt.

­Speaking in Moscow Dvorkovich noted that Russian participation in buying Spanish debt had been discussed,  stating “Russia’s former finance minister, Alexei Kudrin and Russia’s foreign minister, Sergei Lavrov met with Ms Elena Salgado, economic and finance minister of Spain. They discussed that question,” but adding that any commitment would be dependent on adoption of a clear strategy for managing a sustainable recovery.

“We are waiting for European countries to announce specific, understandable strategy to get out of crisis. If in the context of this strategy Russia’s and other BRIC countries’ support is necessary, we are prepared to provide that support,”    

The comments came after Fitch has downgraded sovereign debt ratings of Spain from AA+ to AA- and reduced Italian ratings from A+ to AA-, on the background of worsening debt crisis in the euro zone on Friday. 

Fitch noted the downgrade of Italian and Spanish ratings in a wake of accelerated concerns on solvency and economic stability. At the same time, the agency continues to have concerns regarding the dynamics of the real estate sector in Spain according to Juan Garcia, director of structured finance ratings at Fitch. 

“Currently, we monitor the volume of loans for real estate deals and the market pricing in order to include the latest data in the review on the ratings of the country”, 

Speaking about possible Russian moves to buy Spanish debt, Peter Westin, Chief Equity Strategist at Aton, echoed the sentiment that there would need to be adoption of a comprehensive strategy, but that Russia could be a key player.

“Chinese government some time earlier expressed desire to buy the Italian bonds in order to avoid the failure of its economic partner. Russia has uncertainties by far worsening the economy but the move to support European countries in scarcity would benefit Russia and will be supportive for its economy. Spain and Italy are among the largest economies they should certainly be bailed out. Nevertheless, I don’t think we shouldn’t expect serious support until we see a comprehensive bailout plan form Italy and Spain”

In 2009, the Central Bank of Russia invested 2.9% of foreign currency reserves in Spanish bonds before selling them in 2010. According to the Bank of Spain, the government administration debt rose by 8% to 702.8 billion euros year on year from July 2010 to July 2011, representing 65.2% of GDP. The public debt of the country exceeded the limit value set by the European Union by 5.2%. Spanish authorities, despite efforts to reduce government spending, have failed to stop the growth of debt, reducing confidence in the Spanish economy in capital markets.

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