Alexei Shapovalov
Moody's rating agency regards the Central Bank's currency exchange rate as consistently inadequate.
Moody's has revised the outlook from positive to stable on Russia's Baa1 sovereign rating and the ratings of eight state-controlled banks, which implies that their upgrade possibilities are tangibly reduced. Moody's will leave Russia's rating at no higher than Baa for the next 12 to 18 months. According to the agency, the Russian government spends too much from the country's reserves to support the rouble, which is an "ineffective policy." This policy will be continued: at a meeting of the EurAsEC Interstate Council held on December 12, Prime Minister Vladimir Putin repeated that the Government would try to avoid sharp fluctuations in the rouble exchange rate.
Moody's decided to revise the outlook on Russia's sovereign rating three days after Standard and Poor's Ratings Services (which is more critical of Russia) lowered Russia's sovereign rating by one notch - to BBB from BBB+ (see the Kommersant daily of December 9). Moody's affirmed its positive rating outlook when in October S&P became the first rating agency to declare a revision of outlook on Russia's sovereign rating (see the Kommersant daily of December 24).
On December 12, alongside the revision on Russia's rating to stable from positive, Moody's revised its outlook on the ratings of eight state-controlled banks, i.e., Sberbank, VTB, VTB North-West, VTB24, Rosselkhozbank, Vnesheconombank, Gazprombank and the Bank of Moscow. The agency explains in its official statement that "the probability that Moody's would raise the sovereign credit ratings in the next 12-18 months, the time horizon associated with a rating outlook, has diminished considerably... Nonetheless, the stable outlook reflects Russia's still-favourable credit metrics relative to other countries rated in the Baa range."
Moody's Vice President Jonathan Schiffer thus explained the reasons for revising the outlook on Russia's sovereign rating: "...the effort to address the admittedly complex policy challenge of letting the exchange rate reach more sustainable levels without amplifying banking and financial stability concerns has been ineffective and extremely costly for official reserves.
"Moreover, the government's room for maneuver has lately been constrained by
the populace's lack of confidence in both the currency and in the banking
system, as well as its fast-declining oil and commodities exports."
The government's ineffective and costly policy of supporting the rouble was the main reason for S&P to lower Russia's sovereign rating. The Central Bank spent $128 billion to support the rouble. According to S&P, this amount accounts for 74% of the Russian economy's needs for foreign funds in 2009.
"Moody's will continue to monitor developments in Russia to assess the efficacy of the government's economic policy goals... In particular, Moody's will be analysing the ability of the authorities to remedy those policy conditions that have led to capital flight and sizeable losses of foreign exchange reserves," the agency says in its statement.
Addressing a meeting of the EurAsEC Interstate Council on December 12, Prime Minister Vladimir Putin said: "We will do our best to avoid sharp fluctuations in the rouble's exchange rate." According to the prime minister, this is necessary in order "to ensure stable trade and economic relations between our [EurAsEC - Kommersant] countries."
The Kommersant daily has repeatedly written that many Russian economists, as well as Moody's and S&P experts, regard the policy of stage-by-stage rouble devaluation too costly and conserving disproportions in the Russian financial system and the industrial sector. Sharp rouble devaluation (in the opinion of Troika Dialog economists, by 10% to 15%) could promote import replacement and exports, serving as a stimulus for economic growth.
On December 12, Andrei Klepach, deputy economics minister, said that "recession in Russia has begun" and predicted that the GDP would continue falling for the next two quarters at least. He promised "a big crash" in November-December 2008 (see the Kommersant daily of December 9). By the yearend, industrial production growth will drop to 1.9% and the country's GDP will increase by less than the projected 6.8%. Andrei Klepach did not specify the economics ministry's figure, saying that the forecast for GDP growth in 2008 is being discussed now. Vladimir Putin said that Russia's GDP would rise by about 6% in 2008.
However, if the government continues its current policy of gradual rouble devaluation and if the effect from the funds spent by the government to support the economy proves insignificant, Russia's credit ratings will be lowered irrespective of the 2008 macroeconomic results. According to the newspaper, the Fitch agency is also preparing an action regarding Russia's sovereign rating. So far, it is not yet known how Fitch, the world's third largest rating agency, will assess prospects for Russian obligations after Moody's and S&P have pronounced their verdicts.