A year after Dmitry Medvedev was sworn in as Russian president his relationship with Prime Minister Vladimir Putin is still under intense scrutiny by investors and Kremlin watchers.
WHO RULES RUSSIA?
The day after Medvedev was sworn in as president, he appointed former Kremlin chief Putin as his prime minister. Many investors say privately that Putin is still the power behind the throne. Some analysts have speculated that the allies could be drifting apart as they grapple with a deepening economic crisis.
Supporters say having both men in power helps ensure stability and dismiss any talk of tension between them. But investors have said any dispute between the two leaders would provoke a political crisis that could hammer markets.
Any sackings or appointments at the top levels of the Kremlin or government could give an indication of how things stand between the two men. Analysts say an increase in the number of Medvedev loyalists in the Kremlin could indicate he is asserting more of his authority.
Some of Russia’s richest men -- known as the oligarchs -- borrowed heavily in the boom years under Putin and are now asking creditors to restructure billions of dollars in debt. The state has spent about $11 billion to refinance the foreign debts of Russian corporates but Putin’s deputies have said the state will not pay oligarchs’ foreign debts.
Many bankers and officials say privately that the state will have to nationalize some of the oligarch’s assets to prevent tens of thousands of workers from losing their jobs. It is unclear how Western creditors would fare if the companies they lent to were nationalized.
Russia’s economy has been hammered by the world economic crisis and is heading for its first recession in a decade.
The Economy Ministry now forecasts the economy will contract by 6.0% this year after an economic boom that saw nominal gross domestic product soar to $1.7 trillion in 2008 from less than $200 billion in 1999.
The first quarter of the year has proved worse than expected -- 1.8 million people lost jobs as retail sales and industrial output plummeted.
Russia will run a budget deficit in 2009 that could total as much as 10 percent of GDP.
The 2009 and 2010 budget deficits are expected to wipe out Russia’s $121 billion rainy day Reserve Fund by the end of next year.
Russia has said it could issue a Eurobond in 2010, returning to the international market for the first time in a decade. The expected size of the issue -- $5 billion -- is not enough to make a serious impact on state finances, and some investment bankers expect a sovereign bond issue already this year.
Russian officials have warned that bad loans are soaring and pose a threat to macroeconomic stability. Demand is tumbling for goods and services ranging from cars to advertising.
The Russian ruble (RUB) lost about a third of its value against the US dollar in the second half of last year as oil prices fell and investors dumped Russian assets. But the ruble has stabilized in recent months and there has been no sign of panic buying of foreign currency by Russians.
Russia’s benchmark RTS index is up over 30% since the start of 2009, recouping some of last year’s steep losses and outperforming the MSCI emerging markets index which has gained around 17% for 2009-to-date.
Russia’s gold and foreign exchange reserves, the world’s third largest, totaled $380.6 billion on April 24, down from a record high of $598.1 billion on August 8, 2008.
Some officials have said capital controls should be imposed to ease the outflow of cash from Russia, though Putin has insisted such controls are not needed.
It is so far unclear how Russians -- who have lived through much turmoil since the 1991 fall of the Soviet Union -- will react to the crisis and whether worries about the economy will turn into discontent with the political system. The Kremlin has said preserving social stability is its number one priority.
There have been some small demonstrations in the regions, but no large scale protest movement, and analysts say the opposition remains deeply splintered.
Last year’s war with Georgia hammered confidence in Russian assets and another flare up could swiftly change the economic and political landscape. During the war with Georgia, some analysts said hardliners were gaining the upper hand as Russian troops pushed into Georgia.
Russia’s relations with Ukraine are being closely watched by diplomats after this winter’s gas row, when supplies to European consumers were cut off for nearly two weeks. (Reuters)