vlad.tribnet.com / Issue #163 / Business / Reading article...

A major reassessment of the Russian government’s credit rating by Moody’s Investors Services will not damage the still immature Far Eastern and Primorye economies, according to many local observers.

“This [downgrade], of course, concerns us in Primorye,” said Victor Varlamov, deputy director for foreign economic relations at the Vladivostok-based Dalrybbank, “but not to the same degree as it concerns Moscow and the banks there. It seems unlikely that investors will flee Russia or Primorye as a result of this decision.”

Mitshuhiro Ichiyanagi, Vladivostok Representative of the Daiwa Far East and Eastern Siberia Fund, said that the effects here will be limited because the regional economy is still in an underdeveloped state.

“In terms of Primorye and the Far East, the effects will only be felt indirectly, perhaps in terms of budget considerations as Moscow reconsiders allocations to outlying regions.”

Moody’s announced the downgrade March 11, citing budgetary problems at the federal level, as well as concerns over the Central Bank’s hard currency reserves. In a statement, the respected international credit rating agency noted that “although foreign direct investment is increasing [in Russia], it is constrained by past privatization practices, new legislation, and the lack of an hospitable socio-juridical environment. Capital flight continues at substantial levels, both cause and effect of financial uncertainties.”

Moody’s cut the country’s ceiling for the nation’s foreign currency bonds and notes. It also lowered its ratings for the long-term foreign currency deposits of five Russian banks. A credit downgrade indicates to investors increased risk, which, in turn, makes the costs of borrowing funds by the affected agencies, more expensive.

“Theoretically, if we had a developed economy here, there would be direct, adverse effects on the business climate,” said Igor Kozachenko, general director of Portinvest. “On banks, particularly Moscow banks, there will obviously be some effect.”

Some observers cautioned that the downgrade, though significant, should not be taken as the authoritative assessment because of the inherent difficulty in accurately measuring the Russian economy.

“I think it’s necessary for analysts and investors to examine the survey, and to look at it objectively,” said Dalrybbank’s Varlamov. “Analysts should examine different investing groups and services, perhaps from Europe, Asia, America, even in Russia. Investors will look at this [downgrade] and look at other factors and reach some objective conclusion.”

In addition to the federal government’s credit rating being downgraded, several regions, including the Republic of Komi, Tatarstan, Krasnoyarsk, Moscow and Nizhny Novgorod, were affected.

Avtobank, Menatep, Uneximbank, Vneshtorgbank, and the National Reserve Bank were the private banks whose credit ratings were also cut in the March 11 action.