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to the most recent poll by independent pollster the Levada Center.
To head off potential social protests Putin just delivered a homely state of the nation speech on February 20 that was replete with social spending problem – largely targeted at families with young children, but not only, in an effort to make a visible difference to ordinary people’s lives. However, analysts remain sceptical that the Kremlin can hit any of the targets its is proposing, summarised in the May Decrees and more disappointment could threaten the incumbents.
Moody’s agency analysts noted the growing dissatisfaction of Russians with the political system and possible problems with the transfer of power due to “Putin’s dominance” when (if) he steps down in 2024 as the Constitution demands.
But they added a violent change of regime is a long-term risk, and in the near future Russia will be more harmed by stagnation due to state domination in the economy and new US sanctions, the introduction of which Moody’s does not doubt.
The transfer of power to the new leadership will complicate the dominance of Putin in Russian politics, analysts of the agency write, as cited by The Bell. Russians are dissatisfied with the current political system: this is indicated both by the results of opinion polls and the results of the last regional elections, where even the presidential appointees were hard to mobilize the electorate, according to a Moody’s report.
The dominance of the public sector, which Moody's estimates at 40–50%, impedes the growth of investment and productivity, creates unequal conditions for business activity, aggravates the situation with the right of ownership and the rule of law. The state’s pre-eminence is especially noticeable in public utilities, mining, transport, finance, electronics and equipment manufacturing. A separate problem is the low quality of Russian institutions: endemic corruption and the weak rule of law, an ineffective judicial system and a significant influence of the authorities on the business environment.
Moody's notes separately the risks for the strong Russian IT sector, which from 2008 to 2018 enjoyed a 2.5-fold increase in exports of computer and IT services. According to analysts, “government intervention, which ranges from the alleged involvement of cybersecurity firms in espionage to the forced transfer of control over successful startups to people close to the government, threatens its viability.
Moody’s has no doubt about the introduction of new “crushing” sanctions against Russia that were delayed by Washington last year. These may include sanctions against specific oligarchs close to the Kremlin, their enterprises, structures involved in the construction of the Nord Stream 2 gas pipeline, the new and existing sovereign debt and dollar settlements of Russian state banks.
Sanctions could disrupt the auctions by the Ministry of Finance of its workhorse OFZ bonds and impair the government’s ability to finance itself. That would lead to a "structural gap" on the public debt market and the depreciation of securities. If public finances deteriorate due to unexpectedly harsh sanctions, Moody's could lower Russia's credit rating, the agency said. But the negative effects will be temporary, experts say: sanctions will can damage the key elements of the Russian loan portfolio, which is in a robust state. Putin announced, for example, in his February speech that Russia can cover its external debt dollar-for-dollar with cash now for the first time ever.
The consequence of fears of external shocks is capital outflow, which Moody’s calls the main external risk. Russia has seen over $500bn leave the country since 1994 and enjoyed net inflows for only two years – in 2006 and 2007 at the height of a boom.
20 RUSSIA Country Report March 2019 www.intellinews.com