As expected, the announcement of the candidate for Russia’s March 2012 presidential elections was made on Saturday at the United Russia party congress. This candidate, we were told by current president Medvedev, will be PM Putin. A surprising part of Mr Medvedev’s speech was his declaration that he would head the new government as PM. In other words, Messrs Putin and Medvedev will swap their current positions in March.
The key implication of this is the removal of political uncertainty, which has been widely viewed as a major factor behind slow investment growth (which has only recovered since April) and massive capital flight (USD53.7bn in 12m to June’11, offsetting the bulk of USD109.7bn C/A surplus in the same period). The swap will keep the two currently most popular politicians in the top positions, which will likely receive a positive response from the electorate. The intention of both politicians to stay in top positions also ensures that neither becomes a “lame duck” during the period until the elections. This also gives Mr Medvedev time and power to continue implementing his recent initiatives on fighting corruption, improving the investment climate, reducing the role of public companies in the economy, etc. So far, the progress in these areas has been mixed, in our view.
Another event that followed Saturday’s announcement was a statement from Finance Minister Kudrin that he will likely resign his position in March. We see this as clearly negative, at least for the short term. Mr Kudrin is a pioneer and active defender of prudent fiscal policy in Russia. His departure will likely receive a cold reception from investors. However, we expect that Mr Kudrin will not leave the political sphere entirely. One possible position for him mentioned in the press was governor of the Bank of Russia. We also do not expect significant additional spending pledges en route to elections, unless United Russia performs poorly in the 4 December parliamentary elections (which we believe is unlikely).
A possible implication of these events is that Mr Medvedev will be entrusted to carry on unpopular fiscal and social reforms after the presidential elections. In the meantime, attention is focused on parliamentary elections, where Mr Medvedev will lead the United Russia party. We believe he will benefit from the clarity regarding the presidential candidate, which we believe has been a drag on United Russia’s popularity ratings in the recent months.
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