Russia: Hope from new government composition? – Nordea Markets

Tatiana Evdokimova, Research Analyst at Nordea Markets, suggest that with the Putin’s inauguration for his fourth presidential term, the big question is whether the incumbent Prime Minister Medvedev will keep his post despite a record low approval rating, which has lately dropped even lower than the government’s overall result.

Key Quotes

“Maintaining status quo might be taken as a negative sign by the markets. Keeping a seat for a prime minister with a very modest track record contradicts the decisive reform agenda announced by the president in March. Still, we view this scenario as quite likely. Even more so as Medvedev is constantly criticized by the opposition leader Navalny and Putin is not a type of a personality to give in to pressure in such decisions.”

“This negative scenario may be mitigated if Kudrin, ex-minister of finance, gets some role in the new government, probably not at prime minister level but for example as coordinator of the implementation of the reform agenda. That would considerably strengthen the liberal team in the government and increase chances of long-awaited reforms moving forward.”

“The fact that Putin and Kudrin have similar views on the development strategy for Russia increases the probability that Kudrin becomes a member of the new government. One of the risks associated with Kudrin getting a role in the government is that he supports a weaker version of the budget rule to stimulate economic growth via public spending. However, the risks of further sanctions and still high probability of external pressures do not seem to leave any room for a more accommodative fiscal policy. Another potential source of problems is the difficult relationship between Medvedev and Kudrin that came to the fore in 2011 when Kudrin left the government after disagreements with Medvedev on military spending. Anyway, we believe that Kudrin’s nomination could trigger a positive reaction in the markets.”

“The markets would also welcome a decision to keep the economic block of the government unchanged with Maxim Oreshkin as minister of economic development and Anton Siluanov heading the Ministry of Finance.”

“We see quite low probability of the rumours about the head of CBR, Nabiullna, coming back to the government coming true.”

“The new composition of the government is unlikely to alter the relationship with the West since this issue is not determined at government level.”

“Future economic developments to a great extent depend on the pace at which the new government is able to come up with an economic agenda. Most of the priorities highlighted by Putin in his address to the National Assembly are very broad and the concrete steps to reach the stated goals are to be worked out by the government. As Kudrin recently stressed, the government has two years at best to accomplish long-postponed reforms.”