WASHINGTON: Russia will direct windfall oil revenues to the country's special funds this year to keep market liquidity levels at bay and avoid the risk of higher inflation, Finance Minister Alexei Kudrin said late on Friday.
"We are not going to increase the inflow of oil dollars into the market and create additional inflationary risks," Kudrin told journalists at a briefing on the sidelines of the International Monetary Fund and World Bank spring meeting in Washington.
The rallying price of oil -- Russia's chief export -- has stayed nearly 50 percent above the $81 per barrel assumed in the 2011 budget for weeks now, promising more than $51 billion in extra budget revenues this year.
The higher oil price assumption would boost oil and gas revenues by 1.14 trillion roubles ($40.41 billion), the Finance Ministry said earlier, and non-oil and gas revenues by 320 billion roubles ($11.34 billion), Kudrin said on Friday.
Kudrin said part of the oil and gas windfall -- some 280 billion roubles ($9.93 billion) -- will be transferred to replenish the Reserve Fund, which had been collecting extra energy revenues before the 2008 financial crisis, but has been heavily depleted since.
Some of the funds will go to cover domestic debt.
"But it won't be a big sum," Kudrin said. "We will continue to borrow -- mostly on the domestic market. For now, we will not be making any decisions on foreign borrowing."
The Russian Private Equity Fund, a new fund the Kremlin is creating to attract non-energy foreign money for joined investment with the state in variety of sectors, should also receive some of the extra cash as start-up capital.
"The final sum that we will transfer for that purpose, will be, as it's been known, some 62 billion roubles ($2.2 billion)," Kudrin said.
"Right now we're deciding how much of that will come from oil and gas extra revenues."
Kudrin reiterated that despite the substantially higher oil and gas revenues, Russia will still see a budget deficit this year of some 1-1.4 percent of the gross domestic product (GDP).
Russia is likely to see increased public spending in the coming months while preparing for parliamentary elections in December and presidential elections next spring, raising the risk of inflation.
Despite the government's efforts, inflation has been a continued plague of the Russian economy, often overshooting official forecasts.
Consumer prices have risen 4 percent since the start of the year.
On Friday, the central bank reiterated its forecast of no more than 7 percent price growth in the whole of 2011 and Kudrin said he has full confidence in the monetary policy decisions of the bank to achieve that goal.
"I think it'll be around 7 percent," Kudrin said. "A lot of experts, while giving inflation forecasts, make their estimates based on the central bank's policies from previous years.
"But the policy of the central bank has changed -- it's become more flexible. The central bank will treat targeting of inflation as a priority."
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