Vladimir Shlyomin

Moody’s Investors Service raised the ceiling of Russia’s currency rating from Ba2 to Baa3. By the existing classification it means that a country possesses sufficient resources to timely and completely redeem its short-term as well as long-term debentures, although it is still highly sensitive to unfavorable economic conditions. The new rating has transferred Russia to the category of countries, which are "attractive to investments".

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n itself, the rating review in early October did not come as a surprise since the agency was going to do it under the regular formal procedure anyway. The surprise was that it at once raised the rating by two grades.
Moody’s based its decision on the following factors:
– strengthening of Russia’s adherence to a reasonable policy of managing finances and debts;
– significant improvement of the situation with its debts and liquidity;
– establishment of the stabilization fund to compensate possible downfall of prices in raw material markets;
– decrease of political risks in Russia.
The agency draws attention to lessening the federal center’s political pressure on regions. It also believes that the political struggle both within and around the central power structure does not threaten Russia’s economic reforms and the country’s development as a whole. Moody’s does not rule out that a certain combination of political forces in the parliament’s lower house can slow down the implementation of structural reforms but it thinks that the correlation of party factions in the State Duma, which will be formed after the December 7 parliamentary elections, will hardly disrupt the country’s mid- and long-term economic growth.
Since 1999 Russia’s external debt/GDP ratio decreased more than twice and the gross debt/GDP ratio went down from 100 % to 33 %. As of the end of 2002, the foreign capital accumulated in the Russian economy increased 20.5 % in one year and amounted to $42.9 billion. Its major investors are Germany, the U.S.A., Cyprus, Great Britain, France, Netherlands and Italy, which account for 74 % of the total volume of the accumulated foreign investments.
Moving to the investment category is quite an important event. There is a very clear-cut line between the speculative and investment ratings. "The speculative rating is based on the probability of default", asserts Leo C. O’Neill, the president of the international rating agency Standard & Poor’s .

FOR THE RECORD:
	As is proved by the poll conducted in October by the Public Opinion Foundation, Russia’s confidence in foreign investments is on the rise. If in 2000 foreign investments were approved by only 23 % of the country’s population, now 28 % of those polled feel positive about them. At the same time the share of those, who have the negative attitude towards capital investments from the outside, is down 10 % (28 % and 18 % accordingly). In the opinion of 30 % of Russians, foreign investments help develop Russia’s economy and only 17 % think otherwise. "The recognition of Russia as a country attractive to foreign investments will raise its authority in the world", believe 39 % of those polled, 19% think that it will in no way have any impact on the country’s authority and 14% are sure that it will only suffer

It is no secret that Russia’s low credit rating prevented the inflow of foreign investments. Serious institutional investors in some countries, for example, in Japan, did not have the right to put money in the Russian economy. And investment declarations of large funds, insurance companies and so on categorically forbid making investments in promissory notes of countries with the speculative rating.
"The speculative rating can change pretty fast because it does not depend too much on structural reforms", believes Jonathan Shiffer, the vice president of Moody’s and its chief analyst of Russia. "If some macroeconomic indexes improve (for instance, oil prices and budget receipts went up), we can quickly raise the rating and we can also lower it just as fast, if they are down", he says. "The investment category is a different matter: in a balanced economy there should be no dependence on lucky conjunction of circumstances", Shiffer points out. "If you have an agrarian economy, you cannot depend on rain. In Russia’s case the "rain" is prices for exported raw materials and the higher the rating, the less it should rely upon them", he notes. In the opinion of the vice president, one of the major factors of stable development is the banking sector’s reform that should provide the flow of funds from the export-oriented raw material sector to the domestic economy.
The leading agencies, Moody’s, Standard & Poor’s and Fitch, have ten rating grades each. For example, the U.S. has the Moody’s rating of Âaa that means "the maximum degree of security" while Thailand and Slovakia (and now Russia) have the lowest investment rating of Baa3, i.e. "the degree of reliability is lower than the average one". Nevertheless, thanks to analysts from Moody’s, Russia, in the words of Al Britch, the chief economist at Brunswick UBS Warburg, could join "...the club of serious countries with economies that are O.K. to invest money in".
And here are the first examples that reflect the nature of Russia’s changed status.
Transnational trading networks have been in Moscow for some years already showing their high efficiency and skill in attracting customers. The success is explained by the fact that a foreign investor claims a much lower profitability than the Russian one and can wait longer for the return on investments. That is why with other things being equal he can spend more on management and reduce prices. However, despite the attractiveness and large capacity of the Russian retail market, investment risks there are high and that holds back many investors.
Rating agencies provide answers to these doubts. By the research data of the Global Business Policy Council, Russia is among 25 nations, which are the most attractive to investments, and it is placed 17th. According to the latest Retail Globalization Index of the consulting company A.T. Kearney, Russia is already among ten countries that global networks are recommended to come to immediately.
By frequency of being mentioned in specialized publications as an investment object Russia is placed 3d coming close to the leaders (China and the U.S.).

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Moody’s Investors Service is among the world’s most respected, widely utilized sources for credit ratings, research and risk analysis. The firm publishes market-leading credit opinions, deal research and commentary that reach more than 3,000 institutions and 20,000 subscribers around the globe. Moody’s integrity and deep market expertise have earned it the trust of capital market participants worldwide. Their ratings and analysis track more than $30 trillion of debt issued in domestic and international markets covering approximately: • 136,000 corporate, government, and structured finance securities, • 67,000 public finance obligations, • 6,000 corporate and financial institution relationships.

The decision of Moody’s to raise Russia’s sovereign rating by two grades in one stroke creates new opportunities for Russian businesses, stresses the Russian government’s vice prime minister Victor Khristenko. "I hope that in the nearest future other independent agencies as well will prove the rise of the country’s sovereign rating and that, subsequently, Russian companies will share the same fortune", said Khristenko. "It will be the best award to Russia and the best guarantee to Russian businesses".