Author: Kim Iskyan

GROWING POLITICAL UNCERTAINTY HITS RATINGS OUTLOOK

By Kim Iskyan

In mid-January, ratings agency Fitch cut its outlook on Russia from positive to stable, citing increased domestic political uncertainty and potential damage to the Russian economy from deterioration in the global economic environment. Fitch said that the evolution of democracy, leading eventually to improved governance, would boost Russia's ratings over the long term.

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Putin is feeling the heat from protests

Photo Credit: MAGICINFOTO / SHUTTERSTOCK.COM

In the run-up to March 4 presidential elections, prime minister Vladimir Putin in January released a series of articles in the national media on country's biggest challenges, the threat of nationalism, and his economic platform. The pieces outlined problems but did not offer much in the way of policy solutions. Nonetheless, it is a reflection of the heightened pressure than Putin feels from recent anti-government protests that he is even bothering to try to establish some policy platforms. In his statements Putin calls for efforts to reduce corruption and improve business investment. But his elevation in December of several long-time loyalists to key government positions reflected a shift toward a more conservative, hard-line policy stance, rather than any preparation for a reformist push.

Gazprom CEO Alexei Miller was rumored in the Russian media to be getting reassigned following a personnel shuffle at the gas company in December. But Miller, who has served for nearly 11 years despite a history of health problems, signed a new five-year contract in 2011, and a government spokesman denied the reports. Russian brokers speculated that shares of Gazprom—the most-traded security in Russia—would rally upon Miller's departure, in anticipation that a new head might reduce cash outflow and asset leakage from the company.

Russia's central bank announced that capital flight during the fourth quarter amounted to nearly $38 billion, and to $84 billion for 2011 as a whole, reflecting escalating concerns over domestic political uncertainty. More encouraging, GDP for the year beat expectations by reaching 4.3%, following a strong performance in December. The government said it anticipates growth of 3.7% in 2012. Inflation continued to fall, reaching a new post-Soviet low of 6.1% for the year.