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Russia ratings improved under Putin; needs to overcome opposition - Moody's
January 14, 2002

LONDON (AFX) - Moody's Investors Service said that Russia's foreign currency country ceiling was recently upgraded to Ba3 from B2, "due, in part, to a more stable political environment achieved by President Vladimir Putin."

In a special report by Moody's vice president and senior credit analyst Jonathan Schiffer, the ratings agency said that further upgrades were dependent upon Putin's ability to implement further reforms despite the opposition from elements of the military and security establishments, local and regional officials and the new business "oligarchs."

Although the odds are that Putin will continue to succeed in his various economic and foreign policy initiatives, his room for manoeuvre is also constrained by the varying interests and ideologies of different groups (regional governors, defence establishment, security forces, powerful and the wealthy new businessmen -- oligarchs), Moody's said.

Of key importance is Putin's aim of Russian accession to the WTO.

"If there is one decision that will force Russia to restructure its economy (apart from the commodity-exporting companies that have already restructured), it is accession to the WTO," it said.

Russian membership would promote competition, which in turn would encroach on the activities of local administrations and oligarchs. Therefore, the strategic decision to join the WTO will produce a battle over details and lengths of transition periods for compliance with various regulations. It will mobilize oligarchs, regional administrations, and communist-nationalist opposition and bears careful monitoring, Moody's said.

The ratings agency noted that, contrary to expectations when he succeeded Boris Yeltsin, Putin has "made inroads into the anarchic balkanization of Russian economic and political space at the expense of regional administrations," and has kept the oligarchs at arms-length.

His administration has worked well with the parliament to push through meaningful structural reforms, with a coherent and sequential timetable in operation for the foreseeable future, it said.

He also benefits from practically no organized and effective opposition, either as leader of Russia or as prime mover in decisive strategic shifts in economic and foreign policy orientations.

Although opposition from regional authorities is growing, in response to what they deem interference in their own personal fiefdoms, Moody's noted that this is checked by "the Presidential Administration's well-documented dossier of acts of corruption on the part of regional leaderships."

Another strand of opposition to Putin is born out of the desire to rebuild and expand Russia's military-industrial complex as the core of a "new economy," with more focus on China as a military and economic partner than Putin's broadly pro-Western approach, Moody's said.

This is a view shared by some members of the defence establishment, the Communist Party of the Russian Federation (CPRF) and with a group of former security services individuals known as the "militarists," who share Putin's background and are trusted colleagues within the administration, it noted.

However, given the obvious association with the failures of the Soviet era, the overall strategy has limited appeal, it said.