Author: Kim Iskyan

POPULIST MOVES SUGGEST PUTIN IS SETTING SIGHTS ON PRESIDENCY

By Kim Iskyan

Following gasoline shortages in late April in a number of regions, prime minister Vladimir Putin announced a sharp hike in export taxes on motor fuel as a precursor to a ban on exports.

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Vladimir Putin pumps up taxes on fuel exports

The measure was focused on ensuring adequate domestic supply, as well as on limiting price rises. Days later, Putin publicly accused Russian oil producers of price collusion and ordered anti-monopoly regulators to investigate.

Putin was in full pre-election mode during his annual review of the government’s activities and performance in late April. He pledged to increase spending on a wide range of constituencies, from pensioners to students, as well as on state-run programs to further develop the military, industrial, aerospace and agriculture sectors. The prime minister reiterated the government’s expectation that inflation would settle later this year to 6.5%-7.5%, sharply lower than the year-on-year rate of 9.6% as of late April, and consensus forecasts of 8%-10% for the year. The heavily populist bent of Putin’s presentation suggests that he is actively considering a return to the presidency in March 2012. Such a desire will put him on a collision course with Dmitry Medvedev, the current president, who may want to extend his stay in the Kremlin.

Russia’s central bank released the results of a stress test of the country’s banks, showing that a financial crisis would wipe out one-third of the country’s banking institutions and half of total equity. But banking sector oversight is unlikely to improve as a result, since the regulator lacks the high-level political support that would be necessary to tackle the entrenched interests that stand behind many of the country’s rickety banks.

HSBC joined a long list of international banks leaving Russia when it announced in late April that it would close its Russian retail banking business. The bank is leaving in large part because state-sponsored growth of Russia’s two largest state banks, Sberbank and VTB, is increasingly marginalizing private banks and foreign institutions.