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Alfa-Bank: New Economy Minister Oreshkin – good for the market, neutral for reforms

December 01, 2016 | Cbonds

Appointment of Maxim Oreshkin – good for the market … President Vladimir Putin yesterday appointed 34-year-old Deputy Finance Minister, Maxim Oreshkin, to the position of Economy Minister. This initiative could be seen as a move to neutralize the negative effect the recent arrest of former Economy Minister Alexei Ulyukaev had on the market. There were similar measures following the arrest of Mikhail Khodorkovsky and the “Yukos affair” when the Russian government accelerated the liberalization of the local equity market for foreign investors by cancelling the Gazprom ring fence and opening up access to shares of Russian banks. During his tenure in the finance ministry Maxim Oreshkin was officially responsible for budget and macro forecasting, however the market perceived him as the person responsible for Russia’s sovereign Eurobond placements as well as the negotiator in relation to Russia’s sovereign ratings. Oreshkin is known among the investment community and, prior to his ministerial roles, he worked at VTB Capital as well as several private banks and, as such, he can assumed to have to have a pro-market reputation. We thus believe his appointment will be well-received by the investment community.

… and bodes well for cooperation with the Finance Ministry: The appointment of Oreshkin should end the longstanding conflict/competition between the Finance Ministry and the Economy Ministry, and strong cooperation can now be expected between the two ministries. This suggests an implicit increase in the dominance of budget priorities with regard to the economic decision-making process. However, preventing the depletion of the reserve fund seems to have been a key objective of Russian economic policy in recent years, so we do not expect the appointment of Oreshkin to change the landscape of Russia’s macroeconomic policy. Moreover, the Economy Ministry under Alexei Ulyukaev had been gradually losing its political influence in favor of the Finance Ministry, so in terms of political clout, the Economy Ministry is currently extremely limited in relation to how it once was.

A cabinet spokesman? In addition to the limited responsibilities of the Economy Ministry these days, the young age of the new minister (Maxim Oreshkin is now the youngest cabinet minister) raises question as to whether the ministry will be able to formulate an independent economic reform agenda. This limited political power increases the likelihood that he is in fact more likely to assume the role of government spokesperson (like Putin’s press secretary Dmitry Peskov, who speaks on behalf of the Kremlin), which is currently vacant, than to lead to efforts for economic reform. Such a development could be positive overall for the government, which has so far failed to inform the market on a regular basis about its economic agenda.

Unclear implications for Alexei Kudrin: Nevertheless, Oreshkin’s appointment still creates uncertainty over the preparation of economic reform, as until recently that was expected to come from the Center of Strategic Studies led by Alexei Kudrin. The implications of Maxim Oreshkin’s appointment for Kudrin are not yet clear. The fact that Finance Minister Anton Silluanov was formerly Kudrin’s deputy reinforces the Finance Ministry’s team within the cabinet and that could set the stage for Alexei Kudrin to return to power in a high-ranking position. However, it is also possible that the new Economy Minister will try to deliver an alternative reform plan in competition with Kudrin’s proposals; under this configuration, Oreshkin’s nomination would become negative news for Alexei Kudrin, who is currently outside of the cabinet. That said, our take is that the “reform agenda” means no restructuring in the real economy regardless of who its authors are; thus, the new appointment is unlikely to improve the efficiency of the Russian economy. The increased role of budget policy and the reinforcement of state and quasi-state companies reflect political priorities, which are unlikely to be reversed by a new ministerial appointment.

Company: Ministry of Economic Development of the Russian Federation

Full company nameThe Ministry of Economic Development of the Russian Federation
Country of riskRussia

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