Russia: Other Points of View

RUSSIA TODAY: FED BOOSTS OPTIMISM AND COMMODITIES

FINANCIAL ANALYSIS

by Chris Weafer

Yesterday’s statement from the US Fed is bullish for equity market sentiment but negative for the dollar. The Fed again said that rates will stay low for an “extended period”, words that traders interpret as meaning no rise in 2011. It also said that it will do whatever is required to keep economic recovery on track. That is a very strong combination for commodities, in particular, and for commodity dependant economies. 

The US equity markets duly rose and the dollar fell after the comments. That should also provide good backdrop support for Moscow’s bourses this morning and help provide more stability than seen in recent days. That said, there is a persistent seller in the Moscow market and, with most natural buyers staying sidelined ahead of the May holiday period, the positive impact of global market trends in Moscow will likely be muted over the short-term The London GDR market is heading into another four day weekend (closed tomorrow and Monday) and that will also discourage any increase in market activity. 

The dollar-euro rate is currently at $1.486. The means that the ruble is more likely to trade close to 27.50 against the dollar today having finished yesterday at 27.716. A strong ruble will help sentiment towards Russia’s banks to improve. The problem, as usual, is that the ruble is unlikely to gain against the euro. That combination makes the government’s efforts to contain inflation even more difficult (see below)

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Court activity. Lots of activity in the legal system. In old cases, the Moscow City Court announced that it would hear an appeal against the new jail term for Khodorkovsky and Lebedev on 17 May. This follows last week’s Supreme Court ruling that their pre-trial detention was not legal. Perhaps we will see a reduction in sentence or maybe even an acquittal. Valeriy Borshchev, of the presidential council on human rights, said that that body’s investigation showed that charges against Sergey Magnitskiy (who died in pre-trail detention 18 months ago) were fabricated. Meanwhile, in Switzerland, a money-laundering probe against a former Russian tax official has been opened at the request of the company with which he was associated. In on-going cases, two defendants accused of the murders of Stanislav Markelov and Anastasia Baburova in January 2009 have attempted suicide; the verdict was supposed to come out today. And in coming cases, the Russian Audit Chamber says it will sue the former Bank of Moscow president, Andrey Borodin, for US$1 billion (the sum he is supposed to have extracted from Moscow City). Medvedev’s campaign against “legal nihilism” presumably excludes pre-determined verdicts, fabricated evidence and requires punishment. We will see how these work out. Meanwhile Medvedev signed into law an extension of defence lawyers’ rights.

PUTIN VS MEDVEDEV

REPRINTS

The great parlour game is boring

By Peter Lavelle, The Moscow News

Most countries have a national pastime, and in Russia it’s guessing what will happen to the country’s ruling elite as it enters the next election cycle. This story gets a lot of hype in the media, but in fact it’s quite boring.

The narrative of this parlour game goes something like this: Ever since Dmitry Medvedev was elected president in 2008, there has been a steady stream of speculation about what he and Prime Minister Vladimir Putin will decide when it is time to go the polls again. Will Medvedev step aside in 2012 in favour of his mentor, or will Medvedev opt for re-election? And what will happen if both want the job?

Sounds like fun, doesn’t it? Well, it would be – except that it’s all a waste of time really.

First of all, the next president will either be Medvedev for a second term or Putin returning to the job he held from 2000 to 2008. By Western standards, both score highly in domestic public opinion polls.

Also, there is simply not a viable and realistic alternative candidate to the current ruling tandem. One can lament this all you want (I don’t), but that is just the way things are.

RUSSIA TODAY: ALLOWING A STRONG RUBLE – LESSER OF TWO EVILS

FINANCIAL ANALYSIS

by Chris Weafer

Yesterday, Finance Minister Kudrin yesterday echoed recent comments made by Prime Minster Putin that keeping inflation low is a greater priority than preventing further ruble appreciation. That is not a surprise given that rising inflation is one of the two main issues bothering voters in election year. Corruption amongst bureaucrats and police being the other. Taking into account comments made by the Central Bank Chairman in recent weeks, it is becoming clear that not only is inflation the greater priority but that a stronger ruble is one of the mechanisms that will be used to try and contain inflation. 

The government has previously voiced concern that a strong ruble may lead to an increase in speculative capital inflow, i.e. as happened in 2007 and early 2008. But Russia had capital outflow of over $20 bln in the 1st Qtr so those concerns are, so far, not valid. Imported food is a major contributor to inflation and almost all of that is priced in euros. Hence, a stronger ruble-euro rate is the priority. That will be difficult to achieve over the short-term as the euro continues to strengthen against the dollar. Once the dollar-euro rate finds a more stable level then we may see more Central Bank action to try and strengthen the ruble-euro rate. Year to date, the ruble has appreciated approximately 8% against the dollar but is down almost 1.0% against the euro. 

UNITED RUSSIA'S DECLINE

COMMENTARY

by Gordon Hahn

With the elections to the the Russian Federal Assembly’s State Duma upcoming in December, the strength of Russia’s ruling party, Yedinaya Rossiya (YeR or United Russia) is becoming a subject of hot discussion.  Some argue that the party’s authority is on the wane, declining along with approval ratings of President Dmitrii Medvedev and Prime Minister Vladimir Putin, albeit the latter with a somewhat less striking decline. 

Others argue that the Kremlin’s manipulation of the state in YeR’s support – the so-called ‘administrative resource’ or state control of the media, meeting places, the courts, election commissions, and the police – will be enough to guarantee the party’s hold on the Duma majority.  It may even allow YeR to retain its constititonal majority – the two-thirds majority that allows the State Duma to amend the constitution along with the approval of other institutions in Russia’s political system.

A comparison of the elections to twelve regional parliaments last month, with past elections to those same parliaments and the State Duma in 2007––and a look at other aspects of the vote help to clarify these issues.  In the 2007 State Duma elections, YeR won 64.3 percent of the vote and took 315 seats.  Of the twelve regional parliamentary elections held on 13 March 2011 to elect these bodies’ fifth convocation since the the adoption of the new Russian Constitution in 1993, YeR won a constitutional majority of the vote in just one region: the sparsely populated Chukotka (See Table 1). YeR garnered over 60 percent of the vote in only three of twelve regions. It fell below its 2007 Duma election vote in nine of the twleve regions.  It won a regular majority in only 5 regions.  This suggests that the YeR will find it rough going in December.

The full note can be downloaded here  Download UnitedRussiaDecline

RUSSIA WEEK: FROM DC TO DAMASCUS

FINANCIAL ANALYSIS

by Chris Weafer

The main driver of markets this week will be the headlines coming from Washington. The Fed is expected to provide some additional clarity concerning its monetary priorities when its two-day FOMC meeting ends on Wednesday. On Thursday, the advance reading of 1^st Qtr GDP growth will provide an overview of economic health. That combination will impact on the currency markets and most likely extend dollar weakness further. A weakening dollar is the major support for the oil price; for gold and silver; and for money flows into emerging market funds. The US Fed’s monetary policy is, for now, one of the most important drivers for the Russian equity market and for the ruble.

The other headlines of importance to investors in oil and emerging market risk assets – Russia in particular – will be those coming from Damascus, from Nigeria and from China. The extreme violence in Damascus last Friday will be reflected in heightened nervousness in the oil market, as traders fear a long hot summer of discontent across the Middle East. At least the perception of a high risk of contagion to another oil exporting nation will remain high and provide steady support for the oil price. News of the spreading post-election violence in the north of Nigeria is also a price-supporting factor in the oil market. The danger is that the violence may spread again to the Niger Delta and disrupt oil exports. Finally, the headlines of public protests against rising fuel prices in China at the weekend should also concern investors in commodities and in Russia. It means that the authorities may accelerate efforts to cool inflation growth and raise the risk of a slower economy. Speculation is growing that China may now adopt a policy of yuan strengthening to help fight inflation.

To access the full note,  with this week’s Stock Watch and tables showing the best and worst share performance of last week and year to date, please click here  Download Russia_Week_April_15_11

RUSSIAN FEDERATION WEEKLY SITREP

By Patrick Armstrong

Putin speech. Today Putin gave his annual speech to the Duma reporting on the government’s activities and plans. He was generally upbeat about Russia’s recovery from the financial crisis. He returned to one of his key themes: “This country requires decades of steady, uninterrupted development. Without sudden radical changes in course or ill thought through experiments based so often in either unjustified economic liberalism, or, on the other hand, social demagogy. We need neither. Both will distract us from the general path of developing the country. And, of course, we should maintain civic and inter-ethnic peace, and put a stop to any attempt to cause our society to split and quarrel among itself”. To my mind stability is still the dominating theme for him (probably less so for Medvedev, given the difference in age and experience – Putin was 39 when the USSR fell apart, Medvedev 26. A significant difference I believe). He enumerated a number of targets for the future having to do with the economy. His observation (supporting his contention that Russia had done better than some others) that Portugal had asked for emergency financial assistance put me in mind of his remark a decade ago: rather than Russia struggling to catch up to Portugal, it may happen that it passes Russia, going in the other direction.

ISLAM, ISLAMISM AND POLITICS IN EURASIA REPORT NO.38, 15 APRIL 2011

by Gordon Hahn

Monterey Institute of International Studies

CONTENTS:

RUSSIA

• CAUCASUS EMIRATE (CE) NAIB SUPYAN ABDULLAEV KILLED, AMIR UMAROV NOT LIKELY
• MORE THAN 200 MUJAHEDIN NEUTRALIZED IN THE FIRST QUARTER OF 2011
• OVKBK MUJAHED TRAINED AND FOUGHT WITH FATAH AL-ISLAM IN LEBANON, ACCORDING TO NAK
• CE WEBSITES CONTINUE TO POST ARTICLES AND FATWAS BY THE GLOBAL JIHAD REVOLUTIONARY MOVEMENT’S LEADING THEO-IDEOLOGISTS
• LAST PARTICIPANT IN THE MARCH 2010 MOSCOW SUBWAY SUICIDE BOMBINGS IDENTIFIED
• AN OPPOSITIONIST COUNCIL OF MUFTIS OF RUSSIA?
• ISLAMIC JIHAD UNION’S MESSAGE TO THE CE

CENTRAL ASIA by Yelena Altman (unless otherwise indicated)

• IMU RELEASES SIXTH AND SEVENTH VIDEOS
• 20 RELIGIOUS BOOKSTORES CLOSED IN UZBEKISTAN
• IMU IN PAKISTAN
• TAJIKISTAN GOVERNMENT VIOLATES MUSLIMS’ RELIGIOUS RIGHTS
• SEARCH FOR MILITANT LEADER CONTINUES IN TAJIKISTAN
• TAJIK DETAINED FOR ILLEGAL WEAPON STORAGE
• TRIAL OF FUGITIVES BEGINS IN TAJIKISTAN
• KYRGYZSTAN ANTI-TERRORIST CENTER IN BATKEN
• KYRGYZSTAN WORKING ON SECURITY WITH CHINA
• WEAPONS CONFISCATED AFTER KYRGYZSTAN PARLIAMENT FISTFIGHT
• KYRGYZSTAN OPPOSITION PARTY DEMONSTRATES AND IS CHARGED WITH COUP ATTEMPT
• UZBEKISTAN’S CLOSURE OF BORDERS INCREASES TENSIONS

To access the full report, please click here  Download KAVKAZJIHAD_MonTREP_IIPER_38_Apr_2011

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Another misquotation in the Only Story in Russia. RIA Novosti reports that Medvedev said that he and Putin would decide which runs for president soon. This assertion will, no doubt be endlessly repeated. But it’s not what he said. What he actually said was that he would decide fairly soon whether he would run for a second term: “I do not rule out the possibility of my running for a second term at the presidential elections. The decision will be taken very shortly”. (Eng Rus)  A much better mindset than this sterile obsession with one or the other is the German concept of a Vorstand; a corporate governance team which is “expected to act collectively and collegiately”. Medvedev himself said about the two of them “We have friendly and very warm relations that have been shaping over the last two decades. It is a long time, in my life, too ‑ you said I am not that old yet. I have known Mr Putin for almost half of my life, it is quite a lot, and we first met back in St Petersburg many-many years ago.” They’re a team. And they are in turn part of a team that has worked together quite effectively and harmoniously for some years. (I am obliged to Timothy Post for introducing me to the concept of a Vorstand.)

VOZMOZHNO ZAVTRA

FINANCIAL ANALYSIS

by Chris Weafer

At the current price of Urals crude, Russia is again earning approximately $1 bln every day from the export of oil and gas. Russia’s stock market indices were the best performing amongst major international peers, either in developing or developed economies, in the 1st Qtr of this year. The ruble is also the best performing currency amongst those in the group of G20 countries so far in 2011. As a result, Russia equity funds attracted more new investment in the 1st Qtr than any other emerging market country fund, i.e. taking in almost $3.5 bln of new money while most of the country’s peer funds actually suffered net redemptions in the quarter.  

So, that means that Russians and investors are happy, optimistic, investing and spending, right? You would think so, but you would also be wrong. Surveys and activity monitors show that people are finding it difficult to shake off the legacy of more than two years in crisis mode and remain distrustful that the current period of recovery can be sustained. Just like Moscow’s weather – still snow showers and temperatures clinging stubbornly close to zero while the rest of Europe heats up – people and domestic investors are finding it hard to let winter go and embrace spring.