Country risk revisited

Core Case

Introduction

Financial market convulsions develop their own momentum. Almost by definition (for this is precisely what transforms a correction into a bubble or crash), these convulsions feed off themselves – that is, their own internally generated drivers of confidence, credit and counterparty risk. While all this unfolds, the original catalysts are quickly lost to view. In the present Russian case – especially as regards the meltdown in the country’s equity market – the triggers in question have had to do with political risk. The first burst came in July 2008 with Prime Minister Vladimir Putin’s public attack on the coal and specialty steel group Mechel; and the resulting blow to political risk perceptions was multiplied several times over by the Russian military incursion into Georgia in August.

Having done their initial damage, political risk factors have retreated from the front line. In other words, at least until the end of the year, other drivers will be more important for Russian asset prices. In the short term, much will depend on how well governments implement the market support packages announced on 18 September (that is, both the Russian authorities’ own measures and, of course, the US government’s massive intervention plans and their global impact). Looking beyond this initial phase, all eyes will be on evidence for the extent of the economic growth slowdown due to global deleveraging.

In Russia’s case, markets will focus on the commodity price correction aspect of this story. In our view, the oil price will be more important for market sentiment than for the performance of the real economy and for corporate creditworthiness and earnings – which will depend much more on the new era of capital stringency, and the government policy response to this challenge. This brings us back to political risk. Although this is no longer the immediate market driver, a reversal in deteriorating political risk perceptions remains key to the scale and speed of recovery in Russian asset prices.

This note makes two arguments:

• Russia country risk is over-priced;
• The resulting upside potential for asset prices is a long-term one. Put another way, the fundamentally attractive risk premium resulting from misperceptions about Russia will not disappear anytime soon.

These conclusions stem from reflecting on the evidence thrown up by the statements and actions of the Russian leadership and its US and EU counterparties since the fighting ended in Georgia. Some particularly suggestive evidence was generated by the frank and detailed exchanges between Russia’s leaders and the annual September session of the Valdai Club – a gathering of foreign political scientists and commentators with a special interest in Russia. The most revealing excerpts from this and other sources are quoted in the "Assumptions & Evidence" section of this report.

Fundamental country risk assessment

This section looks first at the tensions in Russia’s external environment which erupted into armed conflict in Georgia. It goes on to consider the effect of these external drivers on the country’s internal dynamic, in particular the backdrop for modernising reform policies. The final and most important part of this three-part assessment concerns the motives, attitudes and responses of the political leadership and wider elites and public opinion.

On this last point in particular hinges the key question for investment risk. This question extends beyond considering whether investors misunderstand the realities of the country and as a result misprice the country risk. In the light of recent events, the analysis must go on from there to ask whether the real problem is not Russia being misunderstood, but rather Russia misunderstanding the world – that is, what is required to be an integrated player, especially in the most relevant area for the purposes of this discussion which is the global capital markets and flows of global savings and investment.

External environment

The brief conflict in Georgia is the most serious development since the Cold War in what, during that period, used to be called “East-West relations”. There is no question of muddling through from here: things cannot be the same again. So it is no wonder that the spectacle of Russia fighting one of its neighbours has fuelled chatter about a new Cold War.

But this war is merely the visible turning point in the inevitable adjustment of a geopolitical situation which was inherently unstable. It follows, paradoxical though this may seem, that the war will lead to a more sustainable equilibrium in Russia’s external relations.

During the 1990s, a radically weakened Russia had few cards to play: for the first half of that decade it abandoned an independent foreign policy for the sake of external financial assistance, and when it began to express disagreements with aspects of US policy, its objections were brushed aside. The culmination of this phase came in 1999, when the Clinton Administration crossed the Rubicon of attacking a sovereign state (Yugoslavia) on the grounds of developments inside that country’s recognised borders, and without a mandate from the UN Security Council. The Yeltsin Administration in Russia was reduced to loud but ineffectual protests and the face-saving but meaningless deployment of a few airborne troops to Pristina.

The same approach to Russia continued into the present decade even as the country staged a rapid recovery in its economy and, as a result, in both its soft and hard power. The soft power is concentrated in the attraction of its labour market for the people of neighbouring countries (but extends also to other less tangible factors to do with language and popular culture). Hard power stems from material increases in spending on the previously cash-starved military which had meanwhile learned important operational lessons from its initially disastrous but ultimately successful campaigns in Chechnya. By the standards even of the main Western European powers, let alone the US, Russia’s conventional military capabilities remain weak: but events in August 2008 showed that the Russian armed forces can now conduct effective operations in its neighbourhood.

This recovery started, however, from a low base. Russia remains a middle-income country facing deep structural problems in its economy and society. Partly for this reason, and partly no doubt out of sheer inertia, Russia’s fears and concerns about many Western policies, such as the expansion of NATO deep inside the former Soviet Union, have continued to be dismissed. Another staple of Western governments’ dealings with Russia in recent years has been criticism of internal political developments in Russia. In the eyes of the Russian government, such criticism has not been motivated by concern for the wellbeing of Russian citizens but designed rather to delegitimize Russian national interests – now that these were being more forcefully asserted – on the grounds that Russia is “not a democracy”.

Francis Fukuyama has wittily compared US policy on Russia to the proverbial Englishman trying to make himself understood to the foreigner by speaking ever more loudly. The inevitable failure of this approach comes when the foreign interlocutor wishes to do some of the talking, and finds that he has recovered some of his previously lost voice.

That voice was ignored as usual earlier in 2008 when the US and some EU countries decided to recognise Kosovo as a sovereign state. Russia insistently warned that any such decision would be perceived and acted upon as a precedent by the parties to the separatist conflicts in Georgia. So it proved – in the form of a five-day war following the Georgian government’s decision to go for a full military solution to the problem of South Ossetian separatism. After that war, Russia’s voice will be listened to more attentively.

Compared to the previous untenable state of affairs, this is already a first step towards some kind of equilibrium. But for Russia’s investment climate, the appearance of a more sustainable external environment is not the end of the story. Equally important is the quality of this new equilibrium. Investor sentiment would obviously wilt if Russia’s newfound voice and influence was attended to by the US and EU only with distrust and disgust; for this would make for exactly the environment of confrontation and the isolation of Russia evoked in fashionable talk of a new Cold War.

Just such a negative atmosphere was suggested by the harsh anti-Russian rhetoric heard in many quarters of the Western political and chattering classes in reaction to the Russian military intervention in Georgia. But a more constructive atmosphere has quickly established itself in relations with the EU, and especially its leading countries, France and Germany. While this emerging new relationship falls well short of the European powers openly acknowledging Russian concerns as justified – notably as regards NATO enlargement to Georgia and Ukraine – there is now a pattern of give-and-take underpinned by a perception shared on both sides that serious economic and strategic interests are at stake.

The best example of this at time of writing is the agreement negotiated by Presidents Sarkozy and Medvedev in Moscow on 8 September. This envisages the Russian military checkpoints in the buffer zones around South Ossetia and Abkhazia being replaced by EU military observers. The French presidency of the EU has indicated that implementation of this agreement would open the way to the scheduled October round of summit-level negotiations with Russia on a new and upgraded Partnership and Cooperation Agreement which the EU had previously decided to suspend. A significant detail here is that although the EU condemns on a declaratory level Russia’s recognition of South Ossetia and Abkhazia, any change in this reality is not included among the EU’s conditions for a resumption of normal business.

This outcome would not be possible if Western European governments really believed the rhetoric about Russia’s actions in South Ossetia and Abkhazia being those of a predatory revanchist imperial power bent on invading, occupying and re-subjugating as many of its neighbours as it thinks it can get away with. When asked by a foreign journalist whether Transdniestria was the next separatist conflict in the former Soviet Union ripe for Russian military intervention, the Russian Foreign Minister Sergey Lavrov said that he was not aware that the Moldovan government had been raining multiple rocket launchers and mortar fire on the civilian population of Tiraspol.

There is no mystery about the nature of Russia’s declared special interests in the former Soviet area. These interests do not entail a quest to prevent countries like Georgia and Ukraine seeking to develop their economy and society on Western lines. Put simply, Russia could live with EU enlargement into the heart of former Soviet Union, but has drawn a red line on the expansion of NATO into these countries.

The reason for this red line has been well explained by Dmitry Trenin, the Deputy Director of the Moscow Carnegie Center. Despite its public objections to NATO enlargement, Russia has had no difficulty in practice living with countries like Poland and Hungary being NATO allies; and the same would go for Ukraine and Georgia if they were really like Poland and Hungary. In reality, Georgia and Ukraine are weak states, riven by internal tensions and conflicts – respectively, separatism and split identity. In both cases – ethnic conflict in the Caucasus involving peoples which also inhabit the Russian North Caucasus, and the orientation towards Russia of a significant part of the population of Ukraine – Russia has a naturally strong interest. This is why it cannot tolerate the nationalist elites of these countries pursuing their internal agendas by making their countries a platform for the US armed forces.

The war in Georgia has concentrated the minds of the players in Europe whose stance on this issue will be decisive. Of these, the most important by far is Germany, the depth of whose economic ties with Russia puts other countries in the shade. Formal positions will not change: along with other NATO members, Germany will continue to maintain that countries like Georgia and Ukraine can and will join NATO if they want to, just as Russia will maintain that any enlargement of NATO whether in the past or future is unjustified (not to mention a breach of the undertakings given by the Western powers to the Soviet Union in the negotiations on the reunification of Germany in 1990). But in reality, the Russian red line on NATO enlargement into the heart of the former Soviet Union now looks much less likely to be crossed. A new stasis – chilly, but also realistic and pragmatic – has been reached.

Internal dynamic

This surprisingly positive conclusion about the impact of the war in the Caucasus on Russia’s external position is mirrored in the resulting prospects for the country’s internal development. Here again, the conclusion may seem unexpected at first sight. The fact that Russia got into a shooting war, however brief and unwanted, presents the obvious risk of at least a partial reversion to the Soviet norm of mobilising resources for the military against a political and policy backdrop of nationalism and statism.

Yet it is already clear that this is not the choice of the Putin-Medvedev administration. We see three grounds for this conclusion, considered here in ascending order of importance.

1. Declarations. Medvedev has repeatedly addressed this point head-on in his intensive exchanges in the weeks since the war with foreign leaders, journalists and experts. He has stated that with one exception, there will be no change in policy. The exception is increased spending on defence procurement. This springs from the lessons of the military operation: despite the Georgians’ poor fighting spirit, the superiority of Georgia’s US-supplied equipment, especially in air defence, was all too evident and has provided yet another wake-up call about Russia’s military backwardness.

Medvedev told the Valdai Club of his regret that the war had taken up all his time for a whole month, when he would have preferred to have kept busy with “more productive” tasks – meaning in particular the policy agendas he has already made his own on strengthening the rule of law and countering predatory official corruption through deregulation. No chink of light has appeared between the statements of Medvedev and those of Putin. And the unison of the top leadership has naturally been joined by all senior officials.

2. Policy decisions. The draft federal budget (these days projected three years ahead) was submitted to the State Duma by the end-August deadline without any substantive modification to the pre-war draft presented to the government by the Finance Ministry. Increases in overall defence spending (about 25 per cent in nominal terms) remain smaller than those in spending on health and education. Indications are that the planned increase in orders for weapons systems and other equipment will be achieved largely by reallocations inside the defence budget. Even assuming that the defence budget will end up being increased further during the budget’s parliamentary stages, Finance Minister Kudrin has pointed pre-emptively to an area for offsetting savings – namely, the overstaffed police and security agencies (which now cost the same – 2.5 per cent of GDP – as the armed forces themselves).

On other policy fronts, there has been no conspicuous backsliding from the modernisation agenda. Perhaps most significantly, the retreat from statism visible since early this year has continued since the war. In September, the ministers of natural resources (Yury Trutnev) and agriculture (Alexey Gordeyev) publicly abandoned their previous proposals for, respectively, a new consolidated state corporation in sub-soil exploration and a monopoly state-owned grain exporter.

3. The fruits of success. The most important reason for supposing that the modernising thrust of state policy will survive the war in Georgia is that this war was very successful for Russia. In a rapid and low-cost operation, Russia not only defeated Georgia’s attempt at a military solution to the separatist problem, but also disabled the overall capabilities of the Georgian military – the real target here being Georgia’s military sponsor, the US.

Even allowing for the effect of domestic television coverage, there can be no doubting the overwhelming popular support for the government. This success has boosted the political capital of the administration, including – as opinion polls show – of Medvedev personally. The track record of the past decade suggests that it is precisely when the government is popular and confident and not bogged down in conflicts that the modernising policy agenda makes best headway. The decade’s most productive period for reforms was 2001-2, when the war in Chechnya was winding down. That period contrasts with the aftermath of the horror of Beslan in September 2004 – the single most serious shock of the Putin presidency – which clearly destabilised the administration and triggered a rash of far-reaching and dubious decisions (such as replacing the election of regional governors with a system of centralised appointment, and a trend to increased state ownership in major industrial sectors).

This point may become clearer by imagining the opposite outcome of a humiliating setback for Russian in Georgia – either in the form of the Georgians successfully overrunning South Ossetia, or simply the Russian military response getting bogged down as happened in Chechnya. At the very least, this would have triggered bitter nationalist recriminations in Moscow. It would also have weakened Medvedev and his team, and most likely opened up visible tensions in the ruling elite.

The will to integrate

From investors’ point of view, Russia’s objections to the present world order contribute to the country risk. This remains the case even to the extent that Russian resentments might be reckoned understandable and justified. If Russia were indifferent to NATO expansion up to its Western and Southern borders – that is, was willing to abandon its project of being an independent regional power and to accept US geopolitical hegemony – some important risks would fall away. But that scenario is, of course, unrealistic.

At the same time, the view of Russia as being in the process isolating itself (which now appears to be the official US government view) holds no water. Even Russia’s symbolic anti-American gestures are passive and reactive. The most recent example followed the deployment of ships from the US Sixth Fleet in the Black Sea, ostensibly to deliver humanitarian aid to Georgia. Russia responded by sending warships and long-range bombers to Venezuela. The underlying issue here is the US rejection of the deal offered by Putin early in his presidency (and especially after 9/11) of a strategic partnership involving global cooperation (and withdrawal of Russia’s residual military assets from Cuba and Vietnam) in return for respect for Russian interests in its own region.

Under Putin and Medvedev, Russia has not taken any initiatives against global integration. On the contrary – and to take once again a recent example – the new Putin government undertook a big push to complete outstanding bilateral negotiations on WTO accession terms, but progress was stalled – mainly by the Georgian veto in place well before the August war and resulting from Russia responding to the US recognition of Kosovo by upgrading its ties with Abkhazia and South Ossetia.

That episode brings the issue nicely into focus. Russia wants integration but without sacrificing what it regards as its vital national interests. So the question is: what level of risk results from that nationalist constraint on integration?

This is another question where the track record of recent years provides useful clues. The relevant aspect of this record is the lucidity of the Russian leadership about the collateral damage to the investment climate from the pursuit of essential national agendas. The Yukos affair is a good example. Putin would not be deflected from crushing what he saw as Mikhail Khodorkovsky’s challenge for power fuelled by the cash flows of Yukos; but vigorous damage limitation and repair measures followed.

In this perspective, some recent developments look familiar. Medvedev was prepared to admit in public that the Georgia war had contributed to the downdraft in Russian financial markets (albeit, he contended, a lesser contribution than contagion from the US financial crisis). Even before the emergency market stabilisation measures announced on 18 September, the administration was already in damage limitation mode. Notable signs of this included the settlement of the reputationally damaging dispute between BP and its Russian partners in TNK-BP, and signals about further cuts in oil tax.

Another feature of the track record which we can now see recurring is the speed with which Russian policymakers and company owners absorb important lessons. To take a fundamental example, the fiscal conservatism central to the macroeconomic stability, and hence the overall economic and political successes enjoyed by Putin, is the product of the lessons of the financial debacle of 1998. The recent, post-Georgia War instance of this responsiveness was the realisation that only a coherent and powerful package of government measures could contain the financial market crisis.

One of several silver linings to this painful crisis has been its effect of both reinforcing and, above all, making more visible the government’s basic orientation towards modernisation and integration. In addition to dispelling complacency and drift on reform, the crisis has highlighted that for the sake of Russia’s paramount long-term goals of stability and economic development, straying from the modernising policy track is not an option.

This brings us to the key point. Regardless of the extent to which Russia’s integration is obstructed by a mixture of its own nationalism and its geopolitical competitors, the present leadership is determined to pursue the country’s internal development as (to quote the words of Medvedev to a gathering of civil society notables on 19 September) “a free, progressive and democratic state and society”. He described this ambition as Russia’s own independent choice which its people had taken for their own sake, and not to win favours from other countries (code for not being a client state of the US).

Many such pretty words have been heard from Medvedev, as from Putin before him. The discrepancy with the realities of modern Russia needs no labouring. Yet this is the national project. Given this vector, country risk will stay on a downward trajectory with occasional upward blips – as opposed to being kept permanently high as a result of Russian nationalism with periodic dips thanks to chance improvements in the geopolitical conjuncture as after 9/11.

Sticky country risk perceptions

Against the sanguine conclusions on the reality of the country risk must be set the likelihood of global investors demanding a higher country risk premium, especially in equity markets, for the foreseeable future. This prospect of chronic overpricing of risk has two main causes.

1. Recurrent shocks

We have highlighted Russian leaders’ lucid grasp of the reality that some policies which they regard as being in the vital national interest can damage the investment climate, and their habit of following up with quite vigorous efforts to limit and repair that damage. This positive track record has a negative flipside. Damage repair is all very well, but the more often it has to be undertaken, the more investor fatigue sets in, as shock follows shock.

Intermittent resurgence of political risk looks like a structural feature of Russia’s post-Soviet development. For shocks of this kind are caused not only by legacies of the Soviet system, but also by new distortions thrown up in the process of post-Soviet transition. The Yukos affair is a good example: the notorious privatisations of the 1990s produced an ‘oligarch’ class wealthy enough to capture the state. As soon as the state recovered, a reckoning with the oligarchs would be on the cards.

In exactly the same way, the geopolitical shock of August 2008 was programmed by the recovery of Russian wealth and power while the US and Europe continued to ignore unpalatable Russian interests as if Russia remained a country of no account. Given this, the geopolitical tectonic plates were set to grind together at some point. While the timing and location of this quake were always imponderable, the inherent instabilities of the Caucasus made this region a plausible flashpoint.

Russia’s economic recovery during the present decade has reduced country risk in very many respects. It has entrenched political stability and produced ironclad solvency, ensuring that the present financial market crisis will not lead to a repeat of the default and massive devaluation of August 1998. At the same time, the sheer speed of growth has also sowed the seeds of shocks, including the latest upheavals in the financial markets.

In the decade to 2008, Russia’s nominal dollar GDP grew nearly tenfold to $1.75 trillion. The country’s financial sector and financial deepening have lagged behind. By the end of 2008, dollar GDP will be around $1.75 trillion, with per capita income of about $12,500 (again at market exchange rates) in the upper end of the middle-income range according to World Bank classifications. In the same period, broad ruble money (M2) has barely more than doubled as a share of GDP (to around 30 per cent), while at the beginning of 2007 the total assets of the domestic banking stood at just 60 per cent of GDP – roughly equivalent to the capitalisation of the stock market. While the pace of financial sector reform in recent years must be reckoned a government failure, it is debatable whether more vigorous efforts could by now have produced a system able to offer sufficient alternative credit sources to compete with “repo” loans secured on shares, the margin calls on which precipitated the equity market collapse of September 2008.

To sum up, Russia’s post-Soviet development – from the scale of the initial collapse to the effects of very rapid recovery – is generating sharp and unpredictable growing pains. The resulting accumulation of various types of shock will deter inflows of portfolio investment in particular (though many strategic investors may take a longer view), and embed a higher country risk discount in quoted financial asset prices.

2. Geopolitics: the US variable

We argued earlier that the conflict in Georgia will prove a positive shock by leading to improved underlying equilibrium in Russia’s external relations. At the same time, that improvement will be obscured by continued harsh rhetoric – between Russia and the US in particular. It would be prudent to assume that the next US administration will maintain a tough line on Russia’s “illegal occupation of Georgia” (meaning the Russian military bases in Abkhazia and South Ossetia) and on the expansion of NATO to Georgia and Ukraine. These are “red lines” for Russia. Although the chances of their being crossed look lower now than at, say, the last NATO Summit in Bucharest in April 2008, the tension surrounding them will remain high. Once again, this points to perceptions of political risk remaining correspondingly high.

In our view, the outcome of the US presidential election – despite the sharply contrasting styles of the two candidates – will make little difference to this outlook. Present tensions would only be reduced if some other shock in world affairs (in the Middle East or elsewhere) persuaded the US government to attach a lower priority than it now does to competing with Russia for a sphere of influence in the former Soviet Union (an area which for Russia will always be a top priority). The 9/11 terrorist attacks resulted for a time in the US and Russia appearing to be allies, and this perception triggered what developed into a spectacular equity market re-rating.

Short of any such radical developments, by definition unpredictable, the positive signs to watch for here are the smooth implementation of the Sarkozy-Medvedev agreement of Russian troop withdrawals from Georgia proper, and the further strengthening of the forces of geopolitical moderation in Ukraine following the collapse of the “Orange coalition”. This will make it more difficult at the next NATO meeting in December 2008 for the US to overcome German resistance to granting Ukraine a “Membership Action Plan”.

A more fundamental breakthrough is possible – though unlikely to materialise without the help of a prior geopolitical reorientation resulting from a fresh global shock (again, the precedent of 9/11). This is a comprehensive new European security treaty transcending the model of adversarial blocs which has been left over from the Cold War, but is now obsolete and destabilising. Just such a treaty, modelled on the 1975 Helsinki Final Act, was proposed by Medvedev on a first visit to Berlin shortly after he took office. The core bargain capable of satisfying all sides would have to involve a demilitarisation of Russia’s western and Caucasian borderlands. The case for this is set out in our April 2008 note on the risks of NATO enlargement.

Investment conclusion

This outlook of persistently over-priced country risk, points to a kind of option value, especially in Russian equities. But the timing of the realisation of this value is impossible to predict because, as argued above, the most likely trigger for reducing strongly embedded political risk perceptions is some new geopolitical shock having nothing to do with Russia. But any such breakthrough is unlikely to come soon.

In this environment where a good portion of the capital appreciation upside remains below the horizon, it makes sense to focus on the yield premium generated by stubbornly higher country risk discounts. A series of blue chip Russian corporate bonds, including those of government owned companies and private companies in the metals & mining sector, now offer yields which bear no relation to real default risks.

Turning to the equity market, given the Russian economy’s need for intensive across-the-board investment, it will be a long time before the market as a whole offers high dividend yields by global standards. But there are several privately-owned companies with strong cash flows which after the recent market collapse have attractive yield potential through dividends or share buy-backs – or a mixture of the two.

Assumptions and Evidence

Geopolitical assessment

The status quo ante was unsustainable

From "Russia and a new democratic realism" by Francis Fukuyama:

Since the Yeltsin years, the US has had a series of policy differences with the Russians, including NATO expansion, the Balkans, missile defence, policy towards Iran and human rights in Russia itself. Diplomacy, such as it was, consisted of persuading Russia to accept all of the items on our list and telling them their fears and concerns were groundless. The US never regarded the relationship as a bargaining situation in which it would give up things it wanted in return for things the Russians wanted. Like the proverbial Englishman speaking to a foreigner, we thought we could make them understand us by repeating ourselves in a louder voice.

This posture by the Bush administration reflected the balance of power that existed in the 1990s, when Russia was weak and had few cards to play. But that has changed.

Source: Financial Times, 8 September 2008.

Russian motivations and attitudes

Medvedev draws Russia’s “red line in the sand”…

From Dmitry Medvedev’s reply to a question on NATO enlargement to Georgia and Ukraine in his meeting with the Valdai Club, 12 September 2008:

We cannot tolerate this situation any longer. Adopting this stance is not easy, but we simply cannot tolerate [the threat of NATO], and there should be no doubt about that.

Source: Official Kremlin website.

…but Germany is unlikely to want bring to a head what Medvedev regards as an “existential” threat, given the ever deepening stake of its key engineering export sectors to the Russian market …

…especially given the lack of grounds for any really serious threat perception on the European side.

From an newspaper interview with First Deputy Prime Minister Igor Shuvalov

We have no imperialist aspirations, let no one be worried about that. We only want one thing: to feel well defended within our existing borders and to develop calmly and in concert with our partners.

Source: Vedomosti, 5 September 2008.

New political capital has been generated for the Medvedev administration as a result of the Georgia war.

Russian policy orientations

Medvedev’s policy priority is the rule of law agenda

From Medvedev’s meeting with the Valdai Club, 12 September

The one regrettable aspect of the past month is that I have been spending all my time on the war instead of, much more productively, on the improvement in legislation, the fight against corruption, the development of the financial sector and the stock market.

Source: Official Kremlin website.

New three-year budget submitted to the State Duma in August 2008 without modification

Federal Budget Estimates (Ruble billion)