Russian finance minister: Strong ruble a problem for WTO entry

The ruble has strengthened against the dollar by 40 percent over the past 4 years in real terms, Russia's finance minister said in an interview published Wednesday, suggesting that could put Russia at a disadvantage if it joins the World Trade Organization.

"As a result of a strengthening ruble our natural trade barriers that stand in the way of imports have fallen by 40 percent," Finance Minister Alexei Kudrin said in an interview with the Izvestia daily. "In these conditions even imports subject to customs duty will be competitive. It's time to sound the alarm!"

While the ruble has nominally appreciated much less against the dollar - from about 30.7 rubles to 27.8 today - Kudrin's calculations take into account inflation which has been as high as 15 percent over the period, meaning a dollar buys much less than it did four years ago.

Russia aims to join the WTO, the body that sets global trade rules, at a WTO ministerial meeting in Hong Kong in December. The European Union has tentatively backed Russia's bid, but negotiations remain to be completed with a number of countries, notably the United States.

Much of the impetus behind Russia's recovery from a financial crash in 1998 came from local manufacturers' newfound competitiveness: Factories cranked up production to fill the gaps left by expensive imports as the ruble collapsed from about 8 rubles to the dollar to 30.

But with oil prices hitting record levels in recent months, Russia is seeing the competitiveness of domestic manufacturers fall as sky-high revenues from oil exports cause the nation's currency to strengthen.

In Russia, a specially-created Stabilization Fund has been formed to drain windfall cash from duties on oil exporters, following the examples of countries like Kuwait and Norway.

Kudrin has repeatedly warned against spending money from the fund, but he appeared to have lost a battle earlier in the year when the cap after which export duties and taxes are contributed to the fund was raised from US$20 (Ђ15.56) to US$27 (Ђ21.01) per barrel.

Oil has been hovering around $50 a barrel.

Russian Prime Minister Mikhail Fradkov, his opponent in the cabinet, has called for money from the fund the fund to be spent on infrastructure projects and analysts have said the decision would pump an extra US$6 billion (Ђ4.67 billion) into the state budget, rather than the stabilization fund.

"Money spent from the stabilization fund will strengthen the ruble and make our economy even less competitive," Kudrin said in the Izvestia interview.

ALEX NICHOLSON, Associated Press Writer

On the photo: Russia's Finance Minister Alexei Kudrin

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