Emerging Markets Roundup: Russia

 

ROUNDUP: RUSSIA

 

By Kim Iskyan

 

The US Senate in late December ratified the New START treaty, which calls for reductions in nuclear arms by both Russia and the US.

 

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Obama in New START with Russia

The long-debated agreement improves relations between the two countries and represents a critical step in reinforcing the reset in the US-Russia relationship initiated by the Obama administration. In January a bilateral US-Russia civilian nuclear accord came into effect, establishing a framework for cooperation on nuclear research, development and trade and creating opportunities for companies active in the civilian nuclear sector in both countries.


As many observers inside and outside Russia expected, in late December a judge sentenced Mikhail Khodorkovsky, the former head of Russia's Yukos Oil Company, to an additional six years in prison. The trial had been framed by critics of the Kremlin and by the international media as a barometer of economic and political freedom in Russia and of president Dmitry Medvedev's efforts to improve the rule of law. The verdict served to underscore the continued risks inherent to the Russian investment environment and provided little hope to those anticipating that Medvedev would ease the Russian government's hard-line approach to dissent. Indeed, during New Year's Eve rallies protesting the verdict, as well as curbs on political freedom, police detained and jailed activists in what appeared to be a renewed effort to crack down on antigovernment dissent.


Preliminary figures show that Russia posted inflation of 8.8% in 2010, the same as in 2009—and up sharply from the trailing 12-month figure of 5.5% recorded as of the end of July. Higher food prices, reflecting higher commodities prices globally, have been the key culprit. But the Central Bank of Russia, concerned about choking off what remains a tentative economic recovery, has been reluctant to raise rates in an effort to tame inflation.


The fight for control of Norilsk Nickel continued, as aluminum giant Rusal refused an offer from Norilsk to buy its 25% stake in the company. Norilsk in response announced a share buyback program for roughly 10% of the company, a move that will further undercut Rusal's position.

 

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