Russia says in control of corporate borrowing

MOSCOW, March 11 (Reuters) - Russia said on Tuesday it had the financial strength to control borrowing by its firms abroad after Standard & Poor's ratings agency cited heavy corporate debt as one of Russia's key risks to the economy.

"We can control the situation," Konstantin Vyshkovsky, the head of the Finance Ministry's debt department, told reporters.

"The level of reserve accumulation, the level of financial stability allow us to fully control this process," he said.

Standard & Poor's revised on Tuesday Russia's long-term outlook to positive from stable, affirming its 'BBB+/A-' long-term sovereign credit ratings. It said an upgrade was possible if gains were consolidated.

But it cited Russian banks' significant dependency on external markets for refinancing as the key near-term risk for the stability of the banking system and the whole economy amid the virtual closure of global debt markets.

"As a consequence, the government's role as a source of emergency funding for financial institutions is likely to rise considerably over the next three years," Standard & Poor's credit analyst Frank Gill said.

"In the medium term, the government may tap the newly created National Well-Being Fund (which was originally intended to co-finance private pensions) to recapitalise some distressed financial institutions."

Russia's government has so far refused to cap the foreign borrowing of large state corporates, which have tens of billions of dollars in debts. Russia has gold and forex reserves of $490 billion, the world's third largest.

S&P said that even if the country was forced to dock reserves by all of the $147 billion in gross banking system external liabilities, its reserve coverage of current account payments would be at a healthy equivalent of nine months.

ELECTIONS FACTOR

The S&P revision comes one week after Russia's presidential elections, which Kremlin candidate Dmitry Medvedev won with a landslide. Many analysts said the election was one reason that Russia's credit rating had not risen faster.

Medvedev is due to be sworn in in May, while his political mentor and outgoing President Vladimir Putin, has pledged to become prime minister under Medvedev.

Nikolai Podguzov from Renaissance Capital said he saw no changes to Russian ratings in the next three months, but added it could be done when global markets stabilise.

"Russia has long deserved a rating upgrade based on its fiscal policies. Political risks have been elevated until recently due to the elections. But that is now in the past," said Podguzov.

S&P said that once the election cycle is over, the government will be able to cap its social spending and post a cash surplus of at least 4 percent of the GDP, which will be accumulated in the two newly created wealth funds.

But it noted that high fiscal revenues from energy exports and heavy capital inflows marked a return to high inflation.

Chris Weafer, chief strategist at UralSib brokerage, also noted that inflation and the rouble appreciation were likely to accelerate as Russia was close to earning a landmark $1 billion per day on energy exports.

"Higher oil and higher state spending are hugely inflationary, along with likely increased speculative capital inflows that are also pressuring the rouble higher against the U.S. dollar, will increasingly reduce the competitiveness of the Russian economy," said Weafer.

Though the government targets inflation of 8.5 percent this year, analysts have said it could be higher. Last year's inflation stood at 11.9 percent, exceeding the government's target by a wide margin.

But Weafer also noted high energy prices will help Russia avoid fears of a shrinking current account surplus. It will also reduce the need for Russia to tap into international credit markets as funds could be found internally, he said. (Reporting by Darya Korsunskaya and Dmitry Zhdannikov; Editing by Kenneth Barry)