Market doubts grow on Putin’s future role
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Emerging Markets

Market doubts grow on Putin’s future role

Analysts are not confident that the Russian president would accept a lesser position, or that he could avoid destabilizing Russian politics if he did

President Vladimir Putin’s hints at becoming prime minister after his second term of office ends in May 2008 have done little to resolve concerns about political continuity, market participants have indicated.

Analysts are reluctant to read too much into the head of state’s inconsistent comments, and still lack confidence on the post-election landscape.

“The risk of policy discontinuity and policy shocks related to the presidential transition are not very much mitigated by the current speculation about Putin’s potential premiership,” said Moritz Kraemer, managing director for EMEA sovereign ratings at Standard & Poor’s.

“Putin will top the [United Russia] Party list, but he may not take the Duma seat, let alone become prime minister,” he added.

Raiffeisen International chairman Herbert Stepic told Emerging Markets last month that signs Putin was planning to “run the country from another position” were “very positive for the economy,” adding that Putin “stands for stability.” (See “Pioneer banker applauds ‘premier Putin’”).

But Kraemer warned that, if Putin became prime minister, he would want a “rebalancing of power”, leading to a more passive “handpicked” president willing to take instructions.

“If the concentration of power were to become more diffuse, functioning institutions and checks and balances would, if anything, become more important, not less. And the Putin presidency has left them weakened,” Kraemer told Emerging Markets.

There is also nothing at present to stop a new president dismissing the prime minister (as Putin himself has done), and Kraemer cast doubt on the potential for a “revamped” office of prime minister with stronger executive power. This would “require a conspicuous constitutional amendment,” he said, in which case Putin could just as easily change the constitution to allow himself a third presidential term instead.

Looking beyond the Kremlin, Michael Ganske, head of emerging market research at Commerzbank, noted that the switch to a proportional representation electoral system “will prove to be disadvantageous” for Putin’s United Russia party. This will further decentralize power after the elections, adding to political uncertainty.

“Even with Putin running for a seat in the Duma on United Russia’s party list, it is an open question if the party will again get the two-thirds constitutional majority it currently enjoys,” said Ganske. “It is quite possible that after the next elections not all parliamentary committees will be headed by United Russia representatives.”

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