Presented at 2nd Annual Conference for Financial Institutions

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Brian Cox, Director for Europe and Eurasia, U.S.
Treasury Dept. Putins Game Plan
Presented at 2nd Annual Conference for
Financial Institutions Marketing Challenges Do
You Have A Game Plan? June 15, 2006 Harvard
Club of New York
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Putins Objectives

• Return Russia to great power status
• Retain power for/enrich his St Petersburg clan

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Policy Objectives

• Control political space (media, parties,
  independent economic powers) to ensure one party
  rule across election cycles.
• Centralize vertical power to create dependency
  up the chain of command.
• Presidential popularity avoid risk of color
  revolution.
• Control assets that provide strategic leverage.
• Economic diversification.
• Macroeconomic stability.

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Corruption Increasing
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Growing State Role in the Economy
2003
2006
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Russia is twice as commodity dependent as Brazil
and much less diversified
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Russia has the lowest investment ratio of the
BRICS
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Investment concentrated in the energy sector
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Highest growth is in the non-oil sector
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Banking Sector Problems

• Continued dominance by state banks
• - Share of assets increased to 38 in 2005
• Lack of trust in most banks
• - Still 1000 deposit-taking banks most with
  capital under 5M
• Supervision only marginally improved
• - Move to CAMEL approach only partially
  successful
• Creditor rights and bankruptcy enforcement weak

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Banking Sector Progress

• Deposit insurance improving depositor confidence
• - Retail deposit growth above nominal GDP growth
  
• - Sberbank retail deposits have fallen to below
  60 of total
• Banks able to tap international markets
• 17.7B in international syndications and bank
  eurobond issuance in 2005.
• First bank IPO planned in 2006 (Rosbank)
• Strong growth in new sectors
• - Mortgages, consumer lending, leasing, loan
  securitization
• Money laundering system fairly robust

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Lending is growing but shifting away from
enterprises toward households
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Retail deposits growing from a low base
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Booming Consumer Credit
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Falling government debt allows higher private
sector leverage
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Managing down inflation despite strong inflows
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Avoiding Dutch Disease
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