Original article appeared in Business Insider
MNCs should anticipate some political and economic liberalization, particularly among regional authorities, after Putin returns to the presidency. However, we expect any new reforms to have limited positive effect on the business climate in the country.
In the short term, Russia may see increased investor uneasiness paired with ruble depreciation and capital outflows, as the elections will be followed by protests. However, we expect the situation to stabilize and investor confidence to return by 2H 2012.
Putin is neither willing nor capable of delivering the reforms demanded by the Russian middle class. Over time, this will erode Putin’s legitimacy and power base. To avoid large-scale political change that may threaten their personal wealth, Russia’s political elite may decide to sacrifice Putin in a partial political liberalization that would see him replaced before his six-year term as president ends. This scenario is particularly likely if there is a major external economic shock, such as a sharp decline in energy prices.
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