Summary
Vladimir Putin will run for the presidency in 2012, Unified Russia to win parliamentary elections and Dmitry Medvedev to become a prime-minister – these are the key results of the ruling Unified Russia party Congress on Saturday. Deputy PM and MOF Alexey Kudrin said he would not be in the Medvedev’s government. While eventually resolving an uncertainty regarding future presidency, the Russia’s chances to reform politically and economically have decreased. We would see them rising only on the back of significant oil prices fall or a domestic shock.
Facts
At the congress of the ruling Unified Russia party on Saturday President Dmitry Medvedev proposed to support PM Vladimir Putin for the presidential race in 2012, while Putin has suggested that Medvedev would become a prime-minister after the presidential elections. Besides, Putin said he is confident that the Unified Russia would secure ‘a deserved’ victory during December 2011 parliamentary elections.
Commenting on the future government deputy PM Alexey Kudrin, who had been considered as a more likely candidate for the position of prime-minister, said he would not be working in the Medvedev’s government. The presidential aide Arkady Dvorkovich in his internet blog negatively assessed the news on the Putin-Medvedev’s political swap.
Implications
The Putin’s return to the presidency in 2012 has always been considered a plan A and its probability, as seen by the analysts and the markets has increased over past few months. In that respect, it is not a big news for the markets What are new are two things. First, an uncertainty, mostly perceived than real, around presidential elections has been resolved, which might be positive in the very short-term. Second, Medvedev’s future as a prime-minister after the presidential elections is quite unexpected as compared to the more expected outcome of current deputy PM Kudrin taking this role. We think it is definitely negative in the longer term, given Kudrin’s much stronger credentials and ability to sustain budget stability.
The certainty about a political setup after the presidential elections may have some positive impact on capital outflows from Russia: businesses grouped around Putin and around Medvedev got some assurance that a sort of status quo will be maintained.
We think that in the current global market situation markets will be paying more attention to the likely weakness of the future Medvedev’s government. Medvedev’s political influence is likely to get eroded quickly and his role as the prime-minister is likely to become technical alike the role of other prime-ministers under the previous Putin’s presidencies. While formally speaking, Medvedev is assumed to be given opportunities to implement his ‘modernization agenda’, in reality his power to implement these decisions appears to be low. A tycoon Prokhorov, who has left the Right Deal party after the pressure from the Presidential Administration recently, has just been excluded from the Presidential Commission on Modernization. In our opinion, it clearly shows that the ‘modernization’ is much driven by politics rather than policies.
We think that in a baseline scenario, Russia will be seeing a gradual slip into a political and economic stagnation. Fiscally, without such an influential person as Alexey Kudrin, the state budget would likely become distressed suffering from a series of incremental expenditure decisions. We see an appetite for more liberal and responsible economic policies to resurge only with a substantial decline in oil prices, as it has always been in Russia in the past.
Bottomline
Putin-Medvedev’s political swap makes Russia to lose.
HSBC Global Research