geopolitical risk ratings firm

Russia – Putin Planning for Future

President Vladimir Putin has given no indication that he plans to surrender control of the political empire he has built over nearly 20 years, and given the absence of any evidence that a successor from within the United Russia camp is being groomed to step up in 2018, there is every reason to expect that he intends to stand for another six-year term, in which case he is all but certain to win the election scheduled for March 2018.
As such, it is highly probable that Russia will continue to pursue the aggressively expansionary and interventionist foreign policy that has led to the imposition of sanctions by the EU and the US. Leaders of the oil industry have warned that a tightening of EU sanctions could impede progress on numerous oil-and-gas projects, including the Nord Stream 2 pipeline that is crucial to Moscow’s efforts to ensure Russia’s long-term importance as a gas supplier to Europe.
To protect his legacy, enhance the regime’s legitimacy, and mitigate those political threats that are present, Putin has ordered his economic policy team to come up with a national development plan that will ostensibly form the basis for the economic agenda in 2018–2024. The call for fresh ideas has prompted the creation of two competing sets of proposals.
One includes hefty direct state support for private-sector expansion through development banks overseen by the central bank, greater leeway for monetary authorities to intervene in the currency markets, the relaxation of medium-term budget and debt targets, and the assignment of higher priority to economic growth as an objective of monetary policy. The other, crafted by Alexei Kudrin, a liberal economist and former finance minister, focuses on reducing the state’s role in the economy by means of an aggressive program of privatization. Implementing the plan would require far-reaching reforms to education, the judiciary, and the labor market, all of which are necessary to address that weaknesses of the business climate that deter foreign investment.
In all likelihood, political factors and Putin’s tendency toward eclecticism when it comes to policy make it likely that the president will end up using proposals from both of the plans, and from other sources as well, including Prime Minister Dmitry Medvedev. In any case, resistance from vested interests will pose an obstacle to implementing much of Kudrin’s plan, and the president’s press secretary has unequivocally ruled out any chance that the oil and gas industry might be privatized. Likewise, tax policy will remain a source of heated debate, and a concern for investors, given the possibilities that have been floated, including a hike in the VAT rate, the rationalization of oil-sector taxes, and an increase in the real-estate tax.
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