Russian Federation

SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S February 24, 2009

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Rolf Danielsen. Tel : +46 8 763 83 92. E-mail : rolf.danielsen@seb.se

The weakening of the exchange rate appears to have slowed in recent weeks as the central bank 
flexed its muscles by tightening monetary policies, and the global oil market showed some signs 
of stabilization.  However, that comes after a massive capital outflow which reduced reserves by 
at least  $160 bill. in the course of a few months. 
Country Risk Update
lîÉêÜÉ~íáåÖ=íìêåë=áåíç=êÉÅÉëëáçåK==IoIIoving severaI years of unexpecled rapid
grovll since lle Russian crisis in 1998, lle economy began lo cooI in lle second laIf
of 2008 as oiI-prices peaIed al aImosl $150/barreI in IuIy, reducing overaII grovll lo
5,6°, dovn from more llan 8° in 2007. As lle cooIing acceIeraled lovard lle end
of lle year lle counlry vas mosl IiIeIy in leclnicaI recession in lle firsl quarler of
2009. Ior lle currenl year, ve expecl a conlraclion llal may exceed 2° in reaI lerms,
as exporls grovll lurns negalive in parlicuIar of melaIs and oller non-oiI
commodilies and as consumers and inveslors reacl lo lle negalive economic
prospecls by reining in lleir ovn demand for goods and services. Tlal is despile a
governmenl slimuIus pacIage announced in November 2008 for a lolaI of 2°/GDI.
In facl lle firsl monll of lle year sloved a conlraclion of more llan 8°, compared
vill lle same monll in 2008. AIllougl llal refIecled boll an unusuaI base effecl (a
ligl reading for Ianuary 2008) and lle lemporary cIosing of gas-exporls in lle firsl
veeIs of lle year due lo lle confIicl vill lle UIraine, observers lave sliII began lo
faclor in lle IiIeIilood of a sleeper conlraclion of GDI in 2009, perlaps by around
5°.

^ÄçìíJíìêå=áå=íÜÉ=Ä~ä~åÅÉ=çÑ=é~óãÉåíë:
IinanciaI marIels lave reacled in
landem vill lle reaI economy. Tle
negalive senlimenl mainIy caused by
exlernaI faclors las been reinforced by
Iarge capilaI oulfIovs as inveslors lave
rusled lo ledge lleir unbaIanced
foreign exclange posilions and aIso
laIen specuIalive posilions in response
lo lle aullorilies' reIaliveIy Iax
monelary poIicies. As a resuIl, and
despile lle cenlraI banI's inlervenlions
for al Ieasl some $160 biII. aimed al
cuslioning lle faII, lle exclange rale dropped around 30° reIalive lo a basIel made
up of 55° USD and 45° euro, in paraIIeI vill many oller Luropean non-euro
currencies. Tle reason for llis apparenl poIicy inconsislency vas probabIy lo avoid
a loo slarp faII in lle currency, for exampIe a one-off devaIualion. Tle aullorilies
Exchange rate
Russia, USD/RUB
Sweden, USD/SEK
Source: Reuters EcoWin
jan
2008
mar maj jul sep nov jan
2009
U
S
D
/
s
e
k
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
U
S
D
/
r
u
b
22,5
25,0
27,5
30,0
32,5
35,0
37,5
Hopes the Rouble may have
reached a floor
SEB Merchant Banking Country Risk Analysis February 24, 2009
probabIy feared sucl a silualion migll lrigger panic in lle popuIalion, laving lle
1998 currency coIIapse sliII fresl in mind, llereby draining lle banIing syslem of
Iiquidily. In lle evenl, lle slocI of money (incIuding deposils in banIs) feII onIy
sIigllIy, vlereas lle slocI marIel capilaIizalion dropped aImosl 90° from ils peaI
in mid-2008, mainIy due lo Iover slocI prices.

tÜ~í=Å~ìëÉÇ=Å~éáí~ä=çìíÑäçïë\= Oul of lolaI cenlraI banI reserves Iosses amounling
lo $200 biII. since IuIy 2008, aImosl 20° refIecl vaIualion clanges of lle euro and
oller foreign currencies leId in cenlraI banI reserves reIalive lo lle US doIIar. Mosl
of lle remainder, $160 biII., refIecls reguIar amorlizalion of privale seclor Ioans from
abroad. Irivale seclor debl faIIing due in O4 amounled lo $65 biII. on vlicl il made
nel repaymenls of some $36 biII. impIying il vas abIe lo raise nev Ioans of aImosl
$30 biII. , i.e. a roII-over ralio around 45°. BanIs are recorded lo laving repaid $28
biII. of exlernaI debl of $25 biII. lolaI repaymenls due, suggesling a negalive roII-
over ralio as lley repaid more llan 100° of lle due amounl. Corporales, by conlrasl
repaid onIy $8 biII. nel impIying a roII-over ralio of more llan 80°. Il las aIso been
eslimaled llal during lle vloIe episode of roubIe veaIness, louseloIds may lave
been responsibIe for a oulfIov of $30 biII. as lley svilcled savings oul of roubIes.

qÜÉ=ÅÉåíê~ä=Ä~åâ=íáÖÜíÉåë=ãçåÉí~êó=éçäáÅóW In earIy Iebruary, lle cenlraI banI
decIared llal lle roubIe lad reacled a fIoor and llal il vouId defend lle exclange
rale al 41 lo USD nol onIy llrougl direcl inlervenlions in lle forex marIel, bul aIso
by ligller monelary poIicies, incIuding ligler inleresl rales. Since llen, lle roubIe
las fIuclualed around 36 lo lle doIIar. Over recenl veeIs lopes lave grovn llal lle
currency may nov lave bollomed.

jìÅÜ=ÇÉéÉåÇë=çå=íÜÉ=çáä=éêáÅÉ: Lxperls seem lo agree llal $30/barreI represenls a
slorl lerm fIoor lo lle oiI price. Al
llal IeveI llere are loo many fieIds
in lle vorId llal are no Ionger
abIe lo cover operaling cosls,
incIuding lle lar-sand fieIds in
Canada. Mosl Russian fieIds can
probabIy produce al a somevlal
Iover oiI price. Tle exacl IeveI is
unInovn, bul il is nolevorlly llal
al Iess llan $27/barreI lley are no
Ionger subjecl lo speciaI oiI laxes.
Hovever, al llis Iov IeveI lle
Russian economy vouId begin lo slov severe deficils, nol onIy in lle governmenl
budgel, bul aIso in lle exlernaI baIance. TaIing inlo accounl lle leavy amorlizalion
of privale seclor foreign debl in coming years, ve eslimale llal al an oiI price of
$30/barreI, cenlraI banI reserves vouId be aImosl depIeled by lle end of 2011as lle
counlry vouId run a currenl accounl deficil al aImosl $50 a year and vouId lave lo
meel a leavy amorlizalion scleduIe. Tlal aIso impIies conlinued Iov prices of
melaIs and oller rav-maleriaIs as lle gIobaI economy enlers a Iong I-slaped
recession (in our “Iong recession¨ scenario) and a perlaps a very Iov roII-over ralio
for exlernaI debl
1
. In lle same vay ve caIcuIale lle breaI even oiI price for Russia's
currenl accounl baIance al around $55/barreI. Tlal is aIso lle IiIeIy fIoor of lle oiI
Current account
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
2007 2008 2009 2010 2011 2012
Base Long recession …with oil price 30

1
The chart presents three scenarios:
Base – U-shaped global recovery with oil price at $60-70 from 2010
Long recession – a) L-shaped recession with oil price around $60/barrel from 2010
b) Long recession with oil price at $30/barrel
2

SEB Merchant Banking Country Risk Analysis February 24, 2009
price in lle medium-lo Ionger lerm refIecling marginaI inveslmenl and produclion
cosls of gIobaI oiI. In a I-slaped gIobaI recession, lovever, sucl nev oiI may nol be
caIIed for anylime soon and lle oiI price couId remain sofl for a Iong lime.

mçäáíáÅ~ä=ëí~Äáäáíó: In a bearisl oiI price scenario, i.e. oiI prices cIearIy beIov lle
presenl IeveI around $40/barreI, lle Russian economy vouId be seriousIy lesled.
Tle poIilicaI Ieaderslip under Messrs. Iulin and Medvedyev, is sliII popuIar scoring
around 70-80° in approvaI ralings conducled by IocaI poIIing inslilules regarded as
reasonabIy reIiabIe by respecled foreign observers, incIuding Oxford AnaIylica.
Hovever, llal couId clange as lle aullorilies are forced lo asI volers lo ligllen lleir
vaisl beIls. Tlal couId increase inveslor concern regarding poIilicaI slabiIily.

^í=íÜÉ=éêÉëÉåí=AQMLÄ~êêÉä=oìëëá~=ëÜçìäÇ=ÄÉ=~ÄäÉ=íç=ãìÇÇäÉ=íÜêçìÖÜ bul viII face
greal claIIenges lo begin a Iong overdue reslrucluring of ils economy, veaning il off
lle presenl oiI dependency. Tle governmenl deficil llis year may exceed 8° of GDI
and lle currenl accounl deficil couId reacl 4°/GDI al an inlernalionaI oiI price of
$45/barreI. (Tle Russian quaIily - UraI, is priced somevlal Iover.) Ils fragiIe
banIing seclor, by conlrasl, viII pose a claIIenge lo lle economy, vlicl is more
IiIeIy lo manifesl ilseIf in a bearisl grovll scenario. Among Russia's 1000 banIs,
observers judge Iess llan laIf lo be proper and viabIe. Tle slabiIily of lle syslem
las so far been mainlained by lle dominance of llree slale ovned banIs. Among
lle privale banIs, aboul a llird represenls smaII IocaI banIs, a llird basicaIIy
“lreasury enlilies¨ of Iarge corporalions and lle remainder “pocIel banIs¨ of
individuaIs or dubious companies.
-´-
^í=APUM=ÄáääK=oìëëá~Ûë=êÉëÉêîÉ=äÉîÉä=áë=ëíáää=íÜÉ=íÜáêÇ=ÜáÖÜÉëí=áå=íÜÉ=ïçêäÇ=EÑçääçïáåÖ=
`Üáå~=~åÇ=g~é~åF=~åÇ=êÉéêÉëÉåíë=~=ÅìëÜáçå=~Ö~áåëí=ÑìíìêÉ=ëÜçÅâëK==eçïÉîÉêI=
oìëëá~Ûë=ÑçêÉáÖå=ÇÉÄí=áë=ÉîÉå=ä~êÖÉê=EAQTM=ÄáääKF==çÑ=ïÜáÅÜ=íÜÉ=éêáî~íÉ=ëÉÅíçê=êÉéêÉëÉåí=
VRBK==qÜ~í=áë=ëíáää=äÉëë=íÜ~å=RMB=çÑ=dam=~åÇ=åçêã~ääóI=áåîÉëíçêë=ïçìäÇ=êÉÖ~êÇ=~=
êÉëçìêÅÉ=êáÅÜ=Åçìåíêó=~ë=oìëëá~=~ë=ÑìåÇ~ãÉåí~ääó=ëçäîÉåíK==eçïÉîÉê=áå=~=îÉêó=
ÄÉ~êáëÜ=ÖäçÄ~ä=ÖêçïíÜ=ëÅÉå~êáç=ïáíÜ=äçï=çáä=éêáÅÉë=~í=äÉëë=íÜ~å=íÜÉ=éêÉëÉåí=äÉîÉä=
ÑçêÉáÖå=áåîÉëíçêë=ÅçìäÇ=äççëÉ=é~íáÉåÅÉ=~åÇ=êÉÑìëÉ=íç=êçää=çîÉê=oìëëá~å=ÇÉÄíK==råÇÉê=
ëìÅÜ=ÅáêÅìãëí~åÅÉë=oìëëá~=ã~ó=ÉåÇ=ìé=áå=~å=áääáèìáÇ=ëáíì~íáçå=íÜ~í=ïçìäÇ=äáâÉäó=
íêáÖÖÉê=ëÉîÉêÉ=ëíê~áåë=çå=áíë=Ñáå~åÅá~ä=ëóëíÉã=~åÇ=íÜÉ=ÉÅçåçãó=~í=ä~êÖÉK==m~êíäó=áå=
êÉÑäÉÅíáçå=çÑ=íÜáë=~åÇ=ÇÉëéáíÉ=äçï=ÖçîÉêåãÉåí=ÇÉÄíI=íïç=ê~íáåÖ=~ÖÉåÅáÉë=Ü~îÉ=
êÉÅÉåíäó=ÇçïåÖê~ÇÉÇ=oìëëá~=çåÉ=åçíÅÜ=íç=___=ïáíÜ=åÉÖ~íáîÉ=çìíäççâK==
=
Key ratios 2009
Population (mill) 141,1
GDP/capita ($) 988
GDP/capita (US$) 7006
Inflation 12,7%
Curr.Acc.Balance/GDP -4,2%
Reserves/imports (months) 15
Investments/GDP 25,4%
Government debt/GDP 6,8%
Graph: Russia's risk profile is "flater" tha average with
strengths on liquidity and macro balance , but weaker on long
term factors including resilience . The steep oil price fall may
pose a new threat to political stability, hence higher event risk
than the average.
bñíÉêå~ä=ê~íáåÖëW=
Iilcl: BBB/neg
S&I: BBB/neg
mÉÉêëW
BraziI
Ialvia
KazaIlslan
0
2
4
6
8
10
12
Resilience
Liquidit
Information
Absence of
event risk
Macro balance
Russia Average EM
How to read the chart?
Moving out from the center
reduces risk.

3

SEB Merchant Banking Country Risk Analysis February 24, 2009
Key data: 2004 2005 2006 2007 2008 2009 2010 2011
GDP (bill.US$) 591,8 763,2 990,9 1 294,1 1 677,5 988,2 1 001,5 1 220,0
GDP/capita (US$) 4090 5302 6919 9082 11832 7006 7137 8741
GDP (%chg) 7,2% 6,4% 7,3% 8,1% 5,6% -2,4% 2,7% 5,6%
Investments/GDP 19% 20% 22% 25% 26% 25% 26% 26%
Budget balance/GDP 4,5% 7,7% 8,4% 6,0% 4,3% -6,0% -2,2% 0,8%
Govt debt/GDP 24% 16% 10% 7% 5% 7% 7% 6%
CPI inflation (% chg) 10,9% 12,7% 9,7% 9,0% 14,1% 12,7% 8,6% 7,4%
Money demand (%chg) 40% 36% 45% 50% 24% -3% 9% 16%
Stock prices Avg. (%chg) 33% 31% 92% 27% -17%
Interest rates 13,3% 12,8% 11,5% 10,1% 11,3% 12,2% 10,3% 10,0%
Exch. Rate ($) 29 28 27 26 25 38 38 35
Trade/GDP (%) 47% 48% 47% 45% 45% 54% 62% 63%
Oil price (Brent) $38 $54 $65 $73 $98 $45 $60 $74
Millions US $
Export of goods 183 207 243 799 303 550 354 400 468 953 279 243 346 075 440 346
Imports of goods 97 382 125 433 164 280 223 485 292 490 254 114 275 229 332 187
Other: -26 312 -33 958 -44 930 -54 675 -77 549 -66 678 -68 510 -63 764
Current account ($ mill) 59 513 84 408 94 340 76 240 98 914 -41 549 2 336 44 395
(% of GDP) 10,1% 11,1% 9,5% 5,9% 5,9% -4,2% 0,2% 3,6%
FDI 1 662 119 6 551 9 159 12 934 480 5 526 5 893
Loan repayments -12 718 -32 475 -37 474 -24 249 -22 450 -21 350 -24 446 -27 004
Net other capital flows -15 394 7 175 32 327 92 037 14 568 -101 515 -17 166 -32 174
Balance of payments 33 063 59 227 95 744 153 187 103 966 -163 934 -33 750 -8 890
Reserves 94 060 153 287 249 031 402 218 506 184 342 250 308 500 299 610
Total debt 198 450 232 850 285 475 412 433
o/w short term debt 32 325 39 950 54 300 90 125
Source: OEF (Oxford Economic Forecasting) and SEB estimates.
Rating history
Fitch (eoy) BB- BB+ BBB- BBB BBB+
S&P (eoy) BB BB BB+ BBB BBB+
Type of government: Presidential democracy
Next elections Presidential elections 2012
Other:
Latest PC deal 1999/active
Latest IMF arrangements 1998/SBA
Spr ead (E MB I)
Russ i a ( bottom) Global (top)
S ou rce : R euters E co Win
03 04 05 06 07 08 0 9
B
a
s
i
s

P
o
i
n
t
s
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
Stock market
S our ce: R euters EcoWi n
01 02 03 04 05 06 07 08
I
n
d
e
x
0
250
500
750
1000
1250
1500
1750
2000
2250
2500
Bank Credit to Private sector
Source: Reuters EcoWi n
01 02 03 04 05 06 07 08
R
U
B

(
t
h
o
u
s
a
n
d

b
i
l
l
i
o
n
s
)
0,0
2,5
5,0
7,5
10,0
12,5
15,0
17,5
International Reserves
Source: Reuters EcoWin
01 02 03 04 05 06 07 08
U
S
D

(
b
i
l
l
i
o
n
s
)
0
100
200
300
400
500
600

4