Ensuing unpopular pension reforms and a stagnating economy, which tarnished Vladimir Putin’s approval ratings, Russia’s president has now taken an unexpected gamble to broaden his options by reshaping the political system – a political manoeuvre to safeguard his position as his term as president is approaching its end.

In his annual state-of-the-nation speech on Wednesday, Putin shook up the country and its political class by announcing the most sweeping political changes in Russia in almost three decades. 

Given that Russia’s Constitution bars a president from serving for more than two consecutive terms, Putin must find a way to orchestrate a leadership transition that will allow him to remain in power, this time, in a slow-motion fashion that is less likely to produce a backlash. The latter political move, to operate in a slow manner, comes after last year’s street protests over municipal elections, with Russia’s opposition expressing discontent for the president and ruling elite, for overstaying their power. 

For this to be possible, Constitutional amendments will have to be carried out in a way that could see him extend his 20-year reign after his term expires in 2024, and thus maintain his grip on power, as he had previously hinted that he intends to do, albeit failing to divulge his future position. This, allegedly by weakening the presidency role, while increasing the Parliament’s and the prime minister’s power. 

For Putin to maintain his grip on power, as he had previously hinted that he intends to, and thus extend his 20-year reign, after his term expires in 2024, amendments to Russia’s constitution must be undertaken. 

Albeit failing to divulge his future role, Russia’s president is allegedly set to weaken the presidency role, while increasing the Parliament’s and prime minister’s power, paving way for his future position. Upon this constitutional amendment, Parliament will gain greater powers over the cabinet, judges, and the security services.

With that, the entire cabinet, led by a long-serving Putin ally, Prime Minister Dmitri A. Medvedev, abruptly resigned. As Medvedev’s replacement, Putin proposed the head of the Federal Tax Service, Mikhail V. Mishustin, an unknown, yet well-regarded technocrat to become the next prime minister, whose candidacy was approved by parliament. 

Following Medvedev’s cabinet surprise resignation, the Russian ruble fell to as low as 61.8, against the US dollar, later paring the losses incurred, and eventually edging 0.1 per cent higher in Wednesday’s afternoon trade, moves which prove that markets seem quite comprehensive with the idea. 

Similarly, from a credit perspective, state owned companies along with enterprises which, while formally private, are in fact firmly under the Kremlin’s political control experienced practically no significant movement, trading flat, to the upside for the day, portraying a degree of resilience. 

Without delving into the merits of Russia’s political environment and the political controversy surrounding Russia’s presidency, it is worth highlighting that, under Putin’s regime, important reforms and investments were enacted, enabling it to establish itself as a strong emerging market, and able to fend off the ongoing sanctions posed by Europe and the US. 

Albeit the recent political tension, we believe that, from an investor’s perspective, Russia, as an emerging market may indeed pose a number of opportunities, especially given structurally lower real interest rates in the US set to bode well for EM credit premium this year. Although attractive, investments within this EM must be undertaken with caution, with a proper evaluation of its political climate considered imperative at this juncture. 

Disclaimer: This article was issued by Christopher Cutajar, credit analyst at Calamatta Cuschieri. For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.