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Kudrin’s Exit Bodes Ill For Economy

One of the major issues surrounding Alexei Kudrin’s abrupt exit from the Kremlin yesterday is not so much the political fallout of his departure, as the financial.  The man who is widely credited with keeping Russia’s budget balanced will leave a gaping hole where investors have, up until now, looked for security.  The Financial Times has this to say:

While the rouble’s slide is seen as mainly connected to global woes, bankers said the downward spiral would strengthen after Dmitry Medvedev, the current president and Mr Putin’s would-be prime minister, sacked Alexei Kudrin late on Monday. Open warfare had broken out over his refusal to work under Mr Medvedev in a future cabinet.

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“Kudrin’s departure is just another brick in the wall separating Russia from investors, and that wall is getting higher,” said Steven Dashevsky, the head of an investment fund.

Even though Mr Kudrin has won plaudits from investors for his fiscal conservativism, lately he has been unable to prevent excessive state spending and the growing crony system, Mr Dashevsky said. “Now for rational investors there are just not that many reasons to invest in Russia any more,” he said.

“Kudrin’s departure is just another brick in the wall separating Russia from investors, and that wall is getting higher,” said Steven Dashevsky, the head of an investment fund.

“The capital outflows will not weaken as the biggest part of the business community does not have much faith in Putin’s economic policies and no one ties their hopes with him significantly improving the investment climate,” said Sergei Aleksashenko, a former deputy central banker.

“The country is going down the toilet,” said one senior western banker.

The country’s growing urban middle class could join big business in voting with their cash, analysts said.

“The worst thing is that the middle class, which should be a new driver of growth for the Russian economy, is now starting to take capital out of the country too,” said Yulia Bushueva, head of an investment fund at Arbat Capital, a Moscow investment bank.

“This used to be the prerogative of the oligarchs. But now the middle class are looking to buy property abroad and educate their children abroad. They don’t see much future in their country.”

A recent survey by the independent pollster Lev­ada suggested that 22 per cent of Russia’s adult population wanted to emigrate, compared with 7 per cent in 2007.

Fearing stagnation, some better-known names in Russian big business have quietly been seeking to transfer assets to safer havens.