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December 2010 Anton Stroutchenevski, Senior Economist

Foreign Debt Growth Outlook. December 2010 Anton Stroutchenevski, Senior Economist. Russia faces mostly institutional constraints to borrow externally. Russia is still among the countries with quite low foreign debt/GDP.

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December 2010 Anton Stroutchenevski, Senior Economist

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  1. Foreign Debt Growth Outlook December 2010 Anton Stroutchenevski, Senior Economist

  2. Russia faces mostly institutional constraints to borrow externally • Russia is still among the countries with quite low foreign debt/GDP. • However, capital flows are very volatile: in 1H08, Russia enjoyed a net capital inflow that rapidly turned into a net capital outflow in 2H08. • The potential for export growth acceleration is limited. Thus, there is a threat that the trade balance will start shrinking if oil prices stabilize. • Without institutional changes, the country will not be able to borrow externally.

  3. GDP per capita in the former Soviet republicsin 1991 and 2009, $ Source: IMF

  4. GDP per capita in the former Soviet republicsin 2009 and external borrowing Source: IMF, CIA, national banks

  5. Foreign debt accumulation slowed after the crisis Source: Central Bank, State Statistics Service, Troika estimates

  6. The Central Bank expects capital inflow to finance negative current account in long run, $ bln Source: Central Bank Source: Central Bank Source: Central Bank

  7. Russia was attractive for investors only when macroeconomic risks were low and oil prices were growing Source: Central Bank

  8. After the crisis, economic growth decelerated… Source: State Statistics Service

  9. … external and internal balances deteriorated… Current account and budget balance, % of GDP Breakeven oil price for federal budget Source: Finance Ministry, Troika estimates Source: Finance Ministry, Troika estimates

  10. … inflation accelerated… CPI, y-o-y CPI, YTD Source: State Statistics Service Source: State Statistics Service

  11. … and the ruble depreciated, despite high oil prices Source: Central Bank Source: Central Bank

  12. Who will Russia compete with on capital markets? Current account deficits, 2009, $ bln Source: IMF

  13. The quality of Russia’s institutions is too low to compete for sufficient inflow Source: IMF, World Economic Forum

  14. Due to poor quality of domestic institutions, capital outflow remains sustainable Changes in foreign assets of domestic economy Source: Central Bank

  15. Conclusions • Without improvement in macroeconomic policy and the quality of its institutions, Russia will be hardly able to compete successfully on the capital markets and guarantee sustainable capital inflow. • Domestic capital outflow trends will remain an important measure of the country’s appeal to investors.

  16. Senior Management Chairman of Board of Directors and CEO, Troika DialogRuben Vardanian Chief Business Officer Jacques Der Megreditchian Head of Global MarketsPeter Ghavami Chief Economist, Managing Director Evgeny Gavrilenkov Research Department +7 (495) 258 0511 Head of Research Paolo Zaniboni +7 (495) 787 2381 StrategyChief Strategist Kingsmill Bond, CFA +44 (207) 583 3257Strategist Andrey Kuznetsov +7 (495) 933 9844 Oil and GasSenior Analyst Oleg Maximov +7 (495) 933 9830Analyst Valery Nesterov +7 (495) 933 9832Analyst Alex Fak +7 (495) 933 9829 UtilitiesSenior Analyst Alexander Kotikov +7 (495) 933 9841Analyst Igor Vasilyev +7 (495) 933 9842Assistant Analyst Andrey Trufanov +7 (495) 258 0511 Telecoms, Media and ITSenior Analyst Evgeny Golossnoy +7 (495) 933 9834Analyst Anna Lepetukhina +7 (495) 933 9835 Metals and MiningSenior Analyst Sergey Donskoy, CFA +7 (495) 933 9840Senior Analyst Mikhail Stiskin +7 (495) 933 9839Analyst Irina Lapshina +7 (495) 933 9852Assistant Analyst Stanislav Ermakov +7 (495) 258 0511 ManufacturingAnalyst Mikhail Ganelin +7 (495) 933 9851Assistant Analyst Ivan Belyaev +7 (495) 258 0511 FinancialsSenior Analyst Andrew Keeley +7 (495) 933 9845Analyst Olga Veselova +7 (495) 933 9846 ConsumerAnalyst Mikhail Krasnoperov +7 (495) 933 9838Assistant Analyst Artur Galimov +7 (495) 258 0511 Real EstateAnalyst Igor Vasilyev +7 (495) 933 9842 ChemicalsSenior Analyst Mikhail Stiskin +7 (495) 933 9839Analyst Irina Lapshina +7 (495) 933 9852 TransportAnalyst Kirill Kazanli, CFA, CPA +7 (495) 933 9853 Small and Mid CapAnalyst Mikhail Ganelin +7 (495) 933 9851Assistant Analyst Ivan Belyaev +7 (495) 258 0511 Market AnalysisAnalyst Nadezhda Kireeva +7 (495) 933 9855 EconomySenior economist Anton Stroutchenevski +7 (495) 933 9843 Fixed IncomeHead of FI Research Alexander Kudrin +7 (495) 933 9847Senior Analyst Alexey Bulgakov +7 (495) 933 9866Analyst Ekaterina Sidorova +7 (495) 933 9849Analyst Stanislav Ponomarenko +7 (495) 933 9857 UkraineStrategist Roman Zakharov +38 (044) 207 3780Economist Iryna Piontkivska Senior Analyst Yevhen Hrebeniuk Senior Analyst Ivan Kharchuk Analyst Alexander TsependaAnalyst Maria Repko KazakhstanAnalyst Zaurbek ZhunisovAnalyst Ainur Medeubayeva

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