S&P warns Russia about 'ambiguous' vote process

31st August 2011, Comments 0 comments

Standard and Poor's warned Russia on Wednesday that "an ambiguous succession process" leading into next year's elections was adding risks to an economy whose management remained closely centralised.

The global ratings agency retained a stable outlook on the country and affirmed its BBB/A-3 foreign currency and BBB+/A-2 local currency ratings.

It also praised the government for consistently achieving low levels of debt and keeping to within a limited budget deficit.

But it lashed Russia for doing little to ween itself off its dependence on revenues from energy exports and pointed to other "structural weaknesses" that demanded government action.

Standard and Poor's -- already condemned for deciding to downgrade US debt because of political gridlock in Washington -- then spelled out a detailed critique of Russia's current election process.

"The ratings on Russia remain constrained by structural weaknesses in Russia's economy ... and political uncertainty stemming from an ambiguous succession process for the presidency and weak checks and balances between institutions," the New York-based ratings agency wrote.

Standard and Poor's said it expected the March 2012 vote to be decided between President Dmitry Medvedev and Prime Minister Vladimir Putin "once they decide which of them" should run.

"The outcome of the election could potentially affect future economic and fiscal policy, including as to how decisively the government will consolidate public finances and push structural reforms -- including pension reform -- improve the business environment and privatise government-owned companies.

"The fiscal forecast remains clouded by political uncertainty," the agency added.

Both members of Russia's ruling tandem -- old colleagues from Saint Petersburg who profess to share many political views -- have vowed not to run against each other and decide the election issue in private.

Either would immediately become the prohibitive favourite in a race in which other potential candidates enjoy almost no national exposure or support.

But the protracted wait for their decision has coincided with a growing tide of capital flight from Russia that some analysts link to investor concern about the country's direction.

Energy firms are watching the decision particularly closely because of hopes that the new government may revise a burdensome tax structure that provides no incentives for new field development work.

The suggested tax changes would also benefit the US supermajor ExxonMobil after its new strategic cooperation agreement with state firm Rosneft.

Standard and Poor's moved away from politics to note that Russia's stable outlook was supported by a low level of debt and relatively stable budget forecasts.

"Government debt levels are relatively low and the government enjoys a net creditor position as measured by narrow net external debt," it said in a statement.

"These strengths are offset by the vulnerability of the budget and the economy to fluctuations in key export prices."

The agency also warned that the government's deficit, excluding oil revenues, stood at eight percent of gross domestic product and remained vulnerable to oil price declines.

© 2011 AFP

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