Sergei Sobyanin Appointed Moscow’s New Mayor

Andra Marinescu

Written by Andra Marinescu
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Putin’s former chief of staff Sergei Sobyanin named Moscow mayor

The future mayor of the Russian capital will have not an easy task at all, given that the municipality has a budget equivalent to that of some countries in Eastern Europe and a huge economy.

Russian capital’s mayoral duties come with the obligation to manage a budget of 40 billion dollars (29 billion euros) to continue his predecessor’s financial policy and deal with Moscow metropolitan status, which is considered not a city but a region, according to BBC News.

Moscow, Yuri Luzhkov led by charismatic for 18 years, passed under the tutelage of Sergei Sobyanin, a close associate of Prime Minister Vladimir Putin. Sobianin receives an inheritance a sound economy with the potential for future development, but also with a significant package of risks.

So far investors have not rushed to fear that the new leadership the city will force them to change their fundamental way of doing business. Some voices argue that there is a possibility of a reconsideration of how the future will be awarded public contracts. Other experts warn about the danger of loss of a portion of income taxes.

Russia’s financial “heart”
Moscow holds a special status, not only the capital but also the “financial heart” of Russia. Its budget of $ 43 billion is higher than that of many countries such as Bulgaria, Latvia and Slovenia. The city generates more than 20% of its GDP and is a magnet for foreign direct investment a quarter of the country. But the lack of diversification of income sources can build capital budget changed into a worrying vulnerability. Almost 80% of the total revenue generated solely from city taxes and fees. Russian analysts warn that the fees are set by the federal government and the new mayor has no such mechanism to increase the budget. On the contrary, there is a risk that some companies to circumvent the tax system by translating the Moscow headquarters to other regions more relaxed fiscal.

Income growth, however, remains in the hands of the new mayor and depends on “political weight” to its highest circles of the Kremlin. Vladimir Klimanov, director of the Institute for Public Finance Reform, warns about the existence of a project to regions that receive substantial revenues could be forced to redeploy some of them to other financial less fertile regions. “There will be a redistribution of income from taxes, and Moscow could lose 10% of the budget,” said the official. The privatization of several companies, now owned by the city, seems to be the solution to offset a loss in tax funds. Kriştanovksaia Olga, Russian sociologist, believes that “all the profitable assets will be sold. The new mayor will try to privatize as much.”

Corruption has kept investors at bay
Momentum investors so far been tempered by allegations of corruption hanging over the previous administration and how public infrastructure contracts were awarded.
At stake is an important city of the procurement budget for 2011 hovering around EUR 9.5 billion dollars.
Moscow’s economy is showing solid and sustainable, however, stand as proof that when you press that Mayor Luzhkov titled “lost the trust of the president, refused to float stock quotes.

Rating agency Standard & Poor’s affirmed the rating BBB credit risk of the city, saying it “continues to reflect the position of capital as economic, administrative and financial problems of Russia, and the presence of a diverse economy with orientation services sector, which raises income levels well above the national average.
Agency representatives have said that this status depends directly on the city’s fiscal policy.
The new management team of local government will need to succeed more than the continuation of economic and financial policies of the previous government to attract residents and investors sympathy.
Hotel and several other sectors of Moscow are currently underdeveloped, despite significant potential for growth.
Other economic areas could get better results through privatization, hence higher revenues from taxes for the city.

Privatizations, a priority for the new mayor

The new mayor of Moscow plans to sell major packages of shares in government owned companies in sectors such as banking or air transportation at Bloomberg. Intention to sell part of state-controlled assets is a Kremlin move to correct the budget deficit.

The government plans to acquire in this way $ 10 billion annually over the next five years to be able to reduce the deficit to 5.3% of GDP. The municipality owns 63.8% of Bank of Moscow, which in turn has a 65.9% stake in Mosvodokanalbank. City Administration has significant stakes in the Mosstroieconombank and Atlant-Soyuz airline. The mandate of the former mayor can be characterized by its opposition to the federal government and fervent rejection of the privatization program during President Yeltsin. Privatizations of the early 1990s in Russia were made for prices “symbolic” as signs that Luzhkov has received unanimous sympathy for refusing to give up easily capital industry. Sergei Sobyanin, close to the couple Medvedev-Putin deals with the mayoral task of turning Moscow into an economy which is “open and competitive.”11

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