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Russia parliament backs Putin aide as bank chief

Dmitry Zaks
President Vladimir Putin's economic adviser Elvira Nabiullina, seen in Geneva on December 16, 2011. The Russian parliament has confirmed Nabiullina as central bank chief after she vowed to ease the country's inflation headache and achieve sustainable growth.

The Russian parliament on Tuesday confirmed President Vladimir Putin's economic adviser Elvira Nabiullina as central bank chief after she vowed to ease the country's inflation headache and achieve sustainable growth.

Russia's lower house of parliament backed her candidacy in a 360-20 vote three weeks after Nabiullina was picked to succeed the respected outgoing Bank of Russia governor Sergei Ignatyev.

The 49-year-old economist by training is due to assume her post on June 24.

Analysts worry that Nabiullina -- seen as one of Putin's closest economic confidantes -- may be pliable to Kremlin pressure to lower interest rates to stimulate growth.

Russia's inflation is outpacing forecasts and has been treading at above seven percent in recent months.

Growth meanwhile has slowed from last year's tepid level of 3.4 percent. A top government official warned last month that it may slip to less than three percent for 2013.

This has left the central bank in a quandary about how to tackle politically sensitive cost of living increases without stifling growth any further.

But Nabiullina stressed in her confirmation hearing that her main worry was about Russia's current inflation rate.

"Inflation at a level of seven percent still creates a lot of uncertainties," Nabiullina said.

"Lowering inflation to between three and four percent should be the central goal of our monetary and credit policy," she stressed.

Russia's main interest rate has been kept steady at 8.25 percent for the past seven months. The latest central bank statement however hinted of a future easing.

Nabiullina said her primary aim will be to lower inflation so that banks could start charging lower rates for loans that could be used by businesses to expand their output.

She added that it was up to the government to reduce Russia's dependence on its vast oil and gas exports so the country could finally achieve sustainable growth.

"The real problem for Russia is a way it can change its economic model," she said. "Otherwise, two to three percent growth will turn into the norm."

Nabiullina further argued that it was up to Prime Minister Dmitry Medvedev's government to come up with a better strategy for helping investor confidence.

She also promised to improve transparency in the opaque banking sector to solve problems stemming from "the huge capital outflow" from Russia into foreign-held deposits.

"We should be most concerned about the direct investment balance. And unfortunately, here we have a negative balance," Nabiullina told the Duma.

"The Bank of Russia must make sure that no questionable transactions are made through the Russian banking system."

The central bank has optimistically forecast an outflows figure of $10 billion for 2013 -- a marked improvement on the $54.1 billion figure recorded last year and the $80 billion seen in 2011.

Analysts attribute capital flight to a stifling investment climate in which regulators can act in a seemingly arbitrary manner to stop profitable projects and where corruption is rife.

Other contributing factors include a lack of sufficient court independence and the excruciatingly cumbersome business registration process.

But Russia's central bank has recently noted that a lot of the cash was leaving Russia illegally through illicit cash operations and other "dubious" schemes.

Outgoing bank chief Ignatyev in February put the illegal capital flight figure for 2012 at $49 billion -- equivalent to 2.5 percent of Russia's gross domestic product.

Much of that money is transferred through offshore accounts in countries such as Cyprus that have come under growing recent pressure to open up their accounts for public inspection.

The Cypriot financial crisis particularly affected Russian investors because they had some $31 billion in corporate and private deposits parked in the Mediterranean island nation's banks.