While relatively small, investing in pensions vs. ‘spending’ reduces aggregate demand. And ‘liquidity’ for the banking sector can readily be increased independently of these funds as needed.

Russian Oil Fund Should Be Tapped for Pensions, Kudrin Says

by Maria Levitov and Alex Nicholson

(Bloomberg) Russia’s Finance Minister Alexei Kudrin said the country’s oil fund should be used for financing pensions rather than boosting liquidity in the banking sector.

“The fund should not ensure liquidity. This is not its aim,” Kudrin said in Moscow today. Investing the $33 billion National Wellbeing Fund abroad and using returns to finance pensions is “the only correct way to use the National Wellbeing Fund,” he said. The government would always help to restore liquidity if this was required, he said.

Russia will eventually invest a small portion of the National Wellbeing Fund on the domestic market, once it becomes more stable and less dependent on oil prices, Kudrin said. Five percent of the fund may be invested in Russian securities “in the future” and that amount could gradually be increased he said.

The fund will not be invested in the Russian market this year, he said.