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ECONOMIC BULLETIN № DEB-2012.05-02

Economic News

Russia's economy grew by a robust 4.9% in the first quarter, significantly outperforming forecasts,

but economists remained cautious about lifting their growth outlooks for 2012 against the backdrop of a

cooling global economy. The FSS did not provide any breakdown with the GDP figures but Dmitry Polevoy

economist suggested the impressive year-on-year expansion was the result of strong government

consumption and a slowdown in import growth, as well as higher inventories. The figure, which defied a

recent slowdown in industrial output, was "a total surprise to the market," he said. The first official estimate

for first-quarter GDP slightly outpaced the 4.8% year-on-year reading for the final quarter of last year. Russia

has seen robust 7-8% growth in consumption during the first months of this year, driven by higher real

wages and government spending in advance of the presidential election in March won by Vladimir Putin.

However, analysts anticipate consumption growth to slow down later in the year as the government

tightens spending and raises household utility prices. The preliminary GDP headline reading, which is often

subject to revision, was higher than an initial estimate of 4% made by EM Elvira Nabiullina last month. Most

economists had also expected first-quarter growth of around 4%, consistent with a slowdown in industrial

output seen over recent months. Polevoy noted that the FSS is revising its measurement of GDP to include

imputed rental income, which may have provided a nominal boost to GDP. "This is certainly positive news

that may provide some relief to the market," Ivan Tchakarov, chief Russia economist said. He cautioned,

however, that the initial growth estimate may subsequently be revised downwards, and that similarly strong

growth is unlikely to be sustained over the coming months. Economists also cautioned that since the first

quarter, global sentiment has deteriorated, as political uncertainty in the euro zone raises new fears about

global financial stability. The worsening global environment has indirectly impacted Russia, contributing to

falling oil prices and a 20% slump in Russia's stock market since March that has erased all gains for the

current year to date. "This (GDP) statistic tells us that there were positive sentiments in the first quarter,

which unfortunately could have changed for the worse in the second," said economist Natalia Orlova.

Economists polled by Reuters last month anticipated 3.6% growth in Russia's GDP for 2012 as a whole,

compared with 4.3% growth in 2011. / Thomson Reuters

An industrial slowdown in Russia shows that the weakening global economy is taking a heavy toll on

exports, suggesting that the economy will struggle to sustain its strong consumption-led growth of recent

months. Industrial output rose by 1.3% in April compared with a year earlier, data published by the FSS

showed on Thursday (17 May), a deceleration compared with the 2% year-on-year growth seen in March.

The April figure came well below analysts' expectations of a 3.5% increase. Month on month, seasonally-

adjusted industrial output rose marginally by 0.1%, an improvement on March's 1.2% slump, but below

growth rates of 0.4% and 1.5% recorded in January and February. Two days ago, GDP showed unexpectedly

strong 4.9% annual growth in the first quarter, surprising economists. "Clearly the GDP data seem to be

showing a very different picture from what the industrial production numbers show," said Clemens Grafe,

chief economist at Goldman Sachs in Moscow. "Industrial production is largely exports, and the strength in

GDP is driven by domestic demand, and that's why you have this big difference." In recent months Russia's

economy has held up as others have slowed, as rising real wages and a pre-election spike in expenditures

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ECONOMIC BULLETIN № DEB-2012.05-02 lined consumers' pockets. "We expect a modest negative effect (of slowing industrial output) on economic

growth, as ... consumer demand - judging by the data for light industry, food industry and automobiles -

remains strong," said Maria Pomelnikova, economist in Moscow. But while consumption might continue to

power growth for the next few months, the overall economic picture lacks balance. "Clearly you cannot have

consumption rising at 7-8% on an annual basis if your output isn't doing the same," said Grafe. He also said

that the impact of slowing exports on Russia's economy would depend less on their physical volume -

recorded in the industrial output figures - and more on the price they fetched on world markets. While

Russia has enjoyed high prices for its main export, oil, over the last few months, the crude price has fallen

sharply in recent weeks, as renewed political turmoil in the euro zone heightens fears about global growth

and demand for commodities. "There's nothing inside Russia ... that makes you really worried. It's all coming

mainly from abroad," Grafe said. The service provided the following headline data and sector breakdown:

Headline industry output April’12 March’12 April’11 mth/mth pct change -5.4 7.0 -4.7 yr/yr pct change 1.3 2.0 4.5 Extraction of raw materials mth/mth pct change -5.0 7.4 -5.4 yr/yr pct change 1.2 0.8 1.4 Manufacturing mth/mth pct change -2.5 11.7 -3.6 yr/yr pct change 3.6 2.4 5.3 Production and distribution of electricity, gas, water mth/mth pct change -19.7 -6.8 -18.1 yr/yr pct change -0.6 1.3 2.3

/ Thomson Reuters

Russia's CPI rose 0.1% in the week to 14 May, retaining the same pace as in the preceding week, the

FSS said on Wednesday (16 May). This brings the cumulative increase in CPI since the start of the year to 2%

compared to 4.5% in the same period of 2011. Inflation is set to accelerate later in the year due to a hike in

utility tariffs, scheduled for early July. / Thomson Reuters

CBR intends firmly to keep its inflation target at between 5-6% this year, the CBR Chairman Sergei

Ignatyev said on Wednesday (16 May). Ignatyev also told the Duma, Russia's lower house of parliament,

that the country saw $42 bln in net capital outflow between January and April. This is equivalent to half of

the $84.2 bln recorded in the whole of 2011.

Net capital flight from Russian in April came to around $8 bln and the country will also likely record

capital outflows in May, Interfax news agency quoted Deputy EM Andrei Klepach as saying on Monday (14

May). Capital flight from Russia nearly doubled from a year ago in the first quarter of 2012 to $35.1 bln,

according to the CBR data. A Reuters poll of analysts and economists from late April showed Russia could

see around $55 bln in capital flight in 2012. / Thomson Reuters

Russia ran a budget deficit of RUB 60.35 bln, or 0.3% of GDP, in the first four months of the year, the

FinMin said on Tuesday (15 May), citing preliminary data. The FinMin has also revised budget deificit in the

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ECONOMIC BULLETIN № DEB-2012.05-02 period from the beginning of January to the end of March to preliminary 0.5% of GDP from 0.9% reported a

month ago. The figure is calculated on the basis of cash transferred to budget funds recipients.

RUSSIA'S BUDGET (in trln RUB): Jan-April 2012 Plan Revenues 4.066 11.780 Spending 4.126 12.656 Surplus/deficit -0.060 -0 .877 Balance pct/GDP -0.3 -1.5

Russia is expected to run a budget deficit of RUB 68.1 bln in 2012, FM Anton Siluanov said on

Wednesday (16 May). / Thomson Reuters

A close ally of President Vladimir Putin staked a claim on Monday (14 May) to stay on as the Russian

government's No.2, signalling continuity on economic policy and potentially weakening PM Dmitry

Medvedev's future role. With just a week to go until expiry of a deadline to form a new government

following Putin's swearing in for a third Kremlin term on 7 May, the shape of the next government remains

unclear. First Deputy PM Igor Shuvalov stepped into the vacuum by calling in a high-profile newspaper

interview for privatisation and pro-growth spending policies, while slamming as "open hypocrisy" reports

critical of his family's dealings. "We need to cut state property in the economy by half," Shuvalov told the

Vedomosti daily in an interview that gave him a platform to expound on economic policy and to field softball

questions on a series of lucrative investments by his wife. Shuvalov, 45, came under pressure in March from

reports in the Western press that his wife, Olga, had netted over $100 mln from a series of investment deals

involving Russian billionaires. He has admitted the deals but said they were all legal and did not pose any

conflict of interests. "You can be sure that in all my years of government service I have not allowed a conflict

of interests to arise," Shuvalov said, adding that reports suggesting otherwise amounted to "open

hypocrisy". Shuvalov was a key player in the outgoing government, coordinating economic policy and

leading Russia's talks on joining the WTO, which were finally wrapped up at the end of last year. "We would

see it (his appointment) as reinforcement of Shuvalov's position, placing him in the role of Putin's

representative in the new cabinet," said chief economist Natalya Orlova. In Putin's government Shuvalov

was seen as a mediator between the cabinet liberals led by former FM Alexei Kudrin and advocates of a

stronger role of the state, led by Deputy PM Igor Sechin. Sechin is likely to leave the cabinet but may retain

his influence in the energy sector after being appointed as board chairman to the company through which

the government owns its energy assets.

NEW LINEUP. Medvedev will submit a list of ministerial candidates to President Putin for approval this

week, with the appointments expected to be finalised upon his return from this weekend's G8 summit in the

United States. Medvedev, who has said he plans to replace four out of every five ministers, last week made

Shuvalov the point person for hitting a string of targets for creating a "new economy" issued by Putin on his

return to the Kremlin a week ago. Although he has been a public advocate of privatisation to reduce the

state's 50% share of Russia's $1.8 trln economy, he has soft-pedaled on plans to sell off a minority stake in

Sberbank. Shuvalov also said Russia should not be afraid to increase borrowing to finance the innovative

sectors of the economy and infrastructure. "The deficit is not necessarily a risk. It can be an instrument for

development," Shuvalov told Vedomosti. He said that existing fiscal policy guidelines allowed to raise the

state debt to 25% of GDP from the current 10%. Economists have, meanwhile, greeted Putin's new targets

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ECONOMIC BULLETIN № DEB-2012.05-02 with scepticism, likening the decrees to China's Great Leap Forward, a campaign by the Chinese Communist

Party under Chairman Mao Zedong to rapidly transform the economy. "Some goals which in the Russian

reality are achievable in 10-15 years have been squeezed into the six-year presidential term, trampling the

laws of nature and economic development," said Natalya Akindinova from the Development Centre think

tank. / Thomson Reuters

Vladimir Putin, back in the Kremlin for a six-year term, will not bow to calls for drastic pension

reform in Russia and economists' warnings that the existing system is unsustainable are overblown, a

senior official told Reuters in an interview. Many economists, including former FM Alexei Kudrin, see a

demographic crisis and pension fund hole as Russia's main economic policy challenges. They are calling for

the retirement age to be raised. But Yuri Voronin, deputy minister for health and social development, says

there is no need for radical changes. "We do not need a new pension reform, we should not break what we

already have, but need to carry out a gradual transformation of the existing system," said Voronin leads a

group of ministry officials tasked with presenting to Putin and PM Dmitry Medvedev a strategy for the

pension system's development to 2020 by 1 October. Russia carried out a Chilean-style pension reform in

2002 introducing a mandatory saving element. Voronin said the reform had partially failed since 80% of

future pensioners do not actively manage their savings. "We believe that there is a serious problem with

such a design of the system. We say: Let's think, is pushing people into taking financial risk a move in the

right direction?" he said. "I am a determined opponent of the mandatory saving system," Voronin said.

"Herding people into paradise with a stick is a method that belongs to our past, when we wanted to make

everyone happy. Nothing good came of it." Voronin suggested that corporations should play a bigger role in

how savings are invested but also share the responsibility. He suggested the mandatory savings

contributions could instead be used as a boost for the new corporate saving schemes.

FISCAL PURITY. Voronin argued that yields on the pension savings managed by the state bank VEB or

by private pension funds were in most cases below or in line with inflation, which also contributed to a lack

of interest from savers. "It gives us grounds to say that to date the financial market has not generated

sufficiently high yields for the saving element to play a significant role for the future size of the pension,"

Voronin said. Voronin said the Pension Fund deficit, currently 1.8% of GDP and covered from the budget,

was not a result of poor demographics as in the West but a consequence of widespread early retirement,

insufficiently high payroll taxes, and the diversion of funds to finance the mandatory pension savings. The

way to address the early retirement problem, he said, was a review of the sectors where workers were

entitled to it. He said one third of Russians had a right to early retirement and that practices had not been

updated since Soviet times. "We are offering to introduce an additional tax for employers in jobs where

workers retire early," Voronin said, adding that the tax could amount to 15% of the payroll after a 10 year

transition period and would affect the natural resources and chemicals sectors. Voronin suggested that a

discussion over the Pension Fund's deficit and the pension age was a deliberate strategy by lobbyists eyeing

their share of the budget cake. He said there were no grounds for raising the pension age. "An average

Russian lives 10 years less after retirement than his Western peer. We cannot build a system in which

people are not expected to live to retirement for the sake of fiscal purity," Voronin said. Voronin said that

the recent explosive growth of state pensions, which reached 45% in 2010, will not continue with old-age

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ECONOMIC BULLETIN № DEB-2012.05-02 pay expected to grow in line with the Pension Fund's returns, which were slightly higher than inflation.

"Pensions will always be paid out and the state will always have a possibility to find the money. It is not a

problem for the state," Voronin said. / Thomson Reuters

President Barack Obama will skip an Asia-Pacific summit in Russia hosted by President Vladimir

Putin in early September, the White House said on Monday (14 May). The White House made official what

had been widely assumed, since the APEC gathering will take place the same week as the Democratic

national convention in North Carolina, where Obama will accept his party's nomination for re-election on 6

September. Both countries have denied using summit decisions to snub the other. The White House

announcement followed Putin's decision, after his return to the Kremlin last week, to pull out of a summit of

the Group of Eight major industrialized nations to be hosted this weekend by Obama at the Camp David

presidential retreat. U.S. officials had long signaled that a presidential trip to Vladivostok was unlikely so

close to the November election, and one Obama aide had dismissed the notion it was retaliation for Putin's

cancellation. Russia's senior official for APEC, Gennady Ovechko, told reporters in Washington on Monday

that Moscow had heard a year ago that Obama might not be able to attend the Vladivostok meeting

because of the U.S. political calendar. "In May’11, there were some approaches from the United States

government on this issue. And again, it's easy to understand. We were quite sympathetic," Ovechko said

after a talk at the Center for Strategic and International Studies, a U.S. think tank, on Russia's goals for APEC

this year. "We (would) be very happy if the U.S. president could visit Vladivostok for the summit, though we

admit there could be some important domestic circumstances that could prevent him from coming,"

Ovechko said. The two leaders have agreed to reschedule their meeting, the first since a rocky encounter in

2009 at Putin's dacha outside Moscow, to the sidelines of a G20 summit in Mexico in June. Moscow has

denied that Putin's decision to skip the G8 and instead send his junior partner, PM Dmitry Medvedev, was

intended as a slight to Obama. They insist Putin was staying home to fill posts in his new cabinet. But some

Kremlin watchers see it as message from Putin that as long as he is in charge, Russia will not bend to

Washington's will. The "reset" in relations that Obama has pursued is threatened by disputes over missile

defense and Syria. Some U.S. policy makers believe that a key reason that Putin is staying away is to avoid

looking weakened on the world stage while he reasserts himself in the face of recent protests at home.

Putin's absence could also spare Obama, who had planned Oval Office talks with him, from having to fend

off new Republican accusations of being too soft on a former Cold War foe. A trip to Russia just two months

before the election would have cut into Obama's time to devote to his hard-fought run for a second term.

Obama's press secretary, Jay Carney, confirmed the president's decision not to attend the Asia-Pacific

Economic Cooperation summit during a visit to New York. / Thomson Reuters

Global Economy

Thousands of Spaniards fed up with economic misery and waving banners against bankers marched

on Saturday (12 May) to mark the first anniversary of the grassroots "Indignados" movement that has

sparked similar protests around the world. Up to 600 people denouncing the Bank of England rallied in

London and a Reuters witness said scuffles broke out between some demonstrators and police, with at least

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ECONOMIC BULLETIN № DEB-2012.05-02 12 arrests. The Indignados and the offshoot Occupy and Take the Square movements had called for a global

day of action against anti-debt austerity policies and the widening gap between rich and poor, but nowhere

were protests as large as in Spain. A year after tens of thousands set up a month-long camp in Madrid's

central Puerta del Sol square, drawing international attention, indignant Spaniards have even more to be

angry about. Unemployment has soared to over 24%, over half the country's youth is out of work, the

economy has dipped back into recession and one of its largest banks has been nationalised. PM Mariano

Rajoy's conservative government has passed painful austerity measures that have hit once-sacred public

health and education spending in an effort to appease international markets and avoid a Greek-style bailout.

"We have to stand up and say enough is enough! They pull our hair telling us we're lazy so they can

dismantle social welfare and take away health and education and now they're bailing out the bankers," said

Gloria Bravo, 48, a civil servant. Rescue money for banks, crippled after a 10-year building bubble burst four

years ago, is a touchy subject for Spaniards, especially after the government took a stake in lender Bankia on

Wednesday. "They bail out banks but not people," banners read in Cantabria, northern Spain, home to

Spain's biggest bank Santander. Demonstrators gathered in more than 80 cities across Spain, chanting the

slogan that has become a mantra at protests over the past year: "They say it's democracy but it's not." In

central Madrid, streets were blocked as activists convened in various neighbourhoods across the capital to

march towards Puerta de Sol, which filled up with people waving flags and chanting to the beat of horns and

drums. "The situation is getting worse but the root of the problem remains the same; this is a moment of

crisis for capitalism," Jesus Gonzalez, 38, an airline employee said as he made for the Puerta del Sol.

POLICE SEEK TO PRE-EMPT ANOTHER CAMP-OUT. Some 2,000 anti-riot police deployed to prevent

protesters from setting up tent in the capital in a repeat of last year's camp-out. Protesters vowed four days

of demonstrations to inject fresh life into a movement that has suffered internal divisions. The group behind

the Puerta de Sol encampment last May - "Democracia real Ya!" (Dry), or Real Democracy Now - recently

voted to register as a formal organisation, drawing the ire of the group's unconventional purists. In London,

up to 600 people marched through the centre of the city, the number dwindling to around 200 after the

demonstration reached its destination at the Bank of England. Protesters erected 11 tents nearby and flew

banners that read "Bank of England, the St Paul's of money," in reference to St Paul's Cathedral, from which

a long-running Occupy tent encampment was evicted in February. "We're all here to show solidarity with

the global movement..., groups that are forming against financial repression, political oppression," said Mark

Weaver, 31, who is unemployed. "We're here to make change, and making change doesn't happen

overnight, you've got to do it for weeks, months, years, and you've got to be consistent." Occupy activists

said they would dismantle the tents within hours and complained of police "aggression" and

heavyhandedness. "We're under siege," said activist Ronan McNern. Police declined comment on their

tactics. They said only that four people had been arrested for public order offences. / Thomson Reuters

Greek savers may be gripped by a "great fear that could develop into panic" in the words of

President Karolos Papoulias, but many Greeks shifted their money to safer havens in Britain, Switzerland,

Germany and Nordic countries long ago. Worries about a run on Greek banks has rattled Athens this week,

after savers withdrew at least EUR 700 mln on Monday (14 May) alone, according to minutes of Papoulias's

comments to political leaders posted on the presidency's website. It is not only Greeks who are worried

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ECONOMIC BULLETIN № DEB-2012.05-02 about their savings. Data shows depositors have also taken flight from banks in Belgium, France and Italy.

And on Thursday, Spain's Bankia was reported to have seen more than EUR 1 bln drained by its customers in

the past week. Greeks are afraid they could be hit by rapid devaluation if the country leaves the European

single currency, while customers at Bankia have been rattled by the government's takeover of the recently

floated bank on 9 May and growing uncertainty about the final cost of Spain's banking reforms. In Greece,

sources at two banks told Reuters that withdrawals on Tuesday had taken place at about the same rate as

on Monday. "The entire Greek banking system is in danger: the banks are now facing the worst of all

outcomes, deposit flight," said Arnaud Poutier, deputy CEO of IG Markets France. That flight started at least

two years ago, as the debt crisis grew more serious. Greece's banks have lost EUR 72 bln in deposits since

the start of 2010, or about 30%, according to data compiled by Thomson Reuters. Five of Greece's top banks

saw EUR 37 bln taken out last year, including EUR 12 bln from EFG Eurobank and EUR 8-9 bln apiece at

National Bank of Greece, Piraeus and Alpha Bank. In February, Evangelos Venizelos, FM at the time, said only

EUR 16 bln had gone abroad, with a third of that going to Britain. Savers have shifted to property, gold and

other banks, or stashed it privately. In Greece, this slow-speed run on deposits has not caused panic. But

that could quickly change if there is a sudden loss of confidence in the banks. Savers lost faith in Britain's

Northern Rock overnight in September’08, queueing for hours in the days that followed to take out their

cash, despite a guarantee safeguarding most deposits. The British government ended up nationalising the

bank. "It (Greek withdrawals) is not a huge number in percentage terms, but it is still a very worrying story.

But deposit flight has been going on for two years. What we are seeing in the euro zone is a slow-motion

bank run," said Michael Riddell, fund manager at M&G International Sovereign Bond Fund.

SHIFTING DEPOSITS. Deposits shifted around Europe dramatically last year, analysis of data from more

than 120 listed European banks show. More than EUR 120 bln was taken from two banks in Belgium alone,

including an exodus of customer deposits from Dexia which had to be bailed out and restructured. KBC also

saw a big outflow. Some EUR 90 bln was taken from France's banks, including around EUR 30 bln each from

Credit Agricole and BNP Paribas. French banks were hit last year by their heavy exposure to Greece and

concerns about their liquidity that forced them to accelerate plans to shrink. Worries the euro zone crisis

would spread also saw about EUR 30 bln in deposits leave Italian banks, although inflows to BBVA helped

limit the net outflow from Spain. Cash flooded into Britain; more than EUR 140 bln was deposited in four big

banks alone. The UK benefits from its position outside the euro zone and its Asia-focused banks HSBC and

Standard Chartered are seen as particular safe-havens. Other banks to see big inflows included Barclays,

Germany's Deutsche Bank, Switzerland's Credit Suisse and UBS and Russia's Sberbank and VTB. / Thomson

Reuters

Fitch Ratings says that a combination of depressed prices and cost pressures, most notably for

energy, are likely to result in significant changes to the structure of the aluminium industry over the next

three to five years. These changes could include the break-up of some integrated producers, the creation of

new specialist companies and an increase in scale for Middle Eastern producers. For the existing integrated

producers the above changes would be expected to be rating neutral to mildly positive. Over the past 15

years the aluminium sector has re-consolidated with integrated producers (ie. participation in bauxite

mining, alumina refining and aluminium smelting) currently dominating the industry. Integrated producers

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ECONOMIC BULLETIN № DEB-2012.05-02 include Alcoa ('BBB-'/Stable), Rio Tinto ('A-'/Stable) and Rusal. A combination of depressed aluminium

prices, rising electricity input costs and changes in the pricing mechanism for alumina are causing some

integrated producers to re-assess their participation across all stages of the aluminium value chain.

Aluminium smelting is an energy intensive activity and producers have long sought to site smelters in low

energy cost regions such as the Middle East, or in places where "energy islands" exist (eg. Iceland, Siberian

Russia). With increasing competition for energy, and no signs of an abatement in cost increases, low

smelting returns are likely to see some integrated producers shed their higher cost smelters. Rio Tinto

foreshadowed this process with its announcement in October’11 that it would close, sell or spin-off 13

aluminium and alumina assets. The second factor driving change in the aluminium sector is the push for a

higher proportion of alumina to be sold on a spot/index basis, rather than on contracts. Historically, alumina

has been priced as a fairly narrow percentage (generally in the range of 11.5%-13.5%) of the more liquid and

transparent aluminium price. Australian alumina producer Alumina Ltd reported in late 2011 that 20% of its

sales were now on a spot basis with the aim of increasing this to 100% over the next five years. Alumina

producers have long argued that the contract system did not reflect the true value of alumina but rather

that of the end product. Pricing alumina as a product in its own right is likely to result in more volatile, but

structurally higher future prices and margins. With Western producers closing or shedding higher cost

aluminium smelting capacity, Middle Eastern producers will represent a higher percentage of production

over the next decade. While strongly positioned in terms of energy costs, they face operational risk from

their lack of integration into feedstock. With the potential for alumina costs to rise, they are likely to seek to

increase their backward integration into alumina and bauxite assets. The coming years are likely to see the

partial break-up of some existing integrated players. This is likely to result in a number of new companies

and groups being established. Whilst these companies will add operational diversity to the industry, from a

credit perspective they are likely to be smaller with generally weaker credit profiles. This reflects that the

assets they hold would generally be higher cost and/or that they are more indebted as a result of borrowing

to acquire their assets. / Thomson Reuters

Oil prices remain a threat to the fragile global economic recovery despite a recent fall, the

International Energy Agency's chief economist said on Wednesday (16 May), adding the IEA remained

ready to release emergency oil stocks if needed. North Sea Brent crude oil reached a peak of more than

$128 in March before declining around $15 gradually over the last two months as tensions in the Middle

East have eased and oil supplies have increased. "Even current prices are far too high for the current

economic context... and pose a serious risk," the IEA's chief economist Fatih Birol told the 2012 Reuters

Global Energy & Environment Summit. "Economic recovery was especially at stake in Europe, the U.S., Japan

and China," he added. "I'm concerned for Europe and I'm also very concerned that these high prices would

hit the still hesitant and slow U.S. economic recovery," Birol said. Birol repeated that the Paris-based agency,

which advises 28 industrialized nations on energy issues, remained ready to release strategic oil stocks if

neded. Oil markets have been on alert for a possible release from strategic reserves after news in March the

United States had held talks with the British and French on the issue. In an election year, the U.S.

administration is anxious to bring down gasoline prices as the summer driving season looms and further

debate is expected at G8 talks at the end of this week in Camp David, United states. "We are monitoring the

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ECONOMIC BULLETIN № DEB-2012.05-02 oil market all the time, we look at economic and stock data, and remain ready to act if market conditions

warrant," Birol said. The European Commission said earlier on Wednesday it saw no immediate need for any

release of oil stocks although it was in close contact with the United States and the IEA.

LACK OF INVESTMENT APPETITE. Iraq was the only country in the world which could significantly

increase oil production given the decline of existing fields and rising demand in emerging countries, Birol

said. Iraq is potentially one of the world's last great unexplored territories after decades of neglect due to

wars and sanctions. "If there is no good news from Iraq, it's a bad news for the global oil outlook in the

short, medium and long term," he said. Birol said he was concerned over the risk of a lack of investment in

the Middle East and Northern Africa after the Arab Spring, a wave of protests which forced dictators out of

power. "When I look at investment schemes and investment appetite in some key Middle Eastern and

Northern African countries, I see that several investments are diverted to social spending, to infrastructure

spending," Birol said. Beneficiaries from high oil prices included the Organisation of the Petroleum Exporting

Countries (OPEC) and Russia. OPEC's revenue in 2012 was likely to reach or exceed $1.2 trln, up $140 bln on

2011 if oil prices remained at current levels. Russian earnings from oil and gas exports would reach $400 bln,

some 25% of the country's gross domestic product. "In the oil market there are always winners," he said. /

Thomson Reuters

Emerging market credit default swap trading volumes in the first quarter fell 23% compared with

the same period a year ago, as Greece's credit restructuring and anticipated regulatory changes weighed,

a survey showed on Wednesday (16 May). Trading volumes for emerging market CDS dropped to $235 bln

in the first quarter from $306 bln in the first quarter of 2011, according to EMTA, the trade association for

the emerging markets debt trading and investment industry. CDS are used by investors to help protect fixed-

income investments from defaults or restructurings. A number of factors contributed to the decline,

"including speculation that the Greek restructuring might not trigger CDS (which proved false), an expected

ban of 'naked short' CDS contracts in Europe, and higher standards in capital requirements resulting from

anticipated regulatory changes," Hongtao Jiang, emerging markets strategist at Deutsche Bank, said in

EMTA's statement. Volumes were down 1% from the $234 bln reported in the fourth quarter of last year.

Jiang said historically first-quarter volumes are typically much higher than what is traded in the fourth

quarter and the decline confirms a drop in secondary market liquidity for emerging market CDS contracts.

"Such a decline is more pronounced when one considers the record amount of EM hard currency issuance

during January and February, and the large amount of short covering and risk-adding activities at the

beginning of the year," Jiang said. Brazil had the most active CDS trading, with $51 bln in volume. Turkey had

$24 bln and Mexico followed with $18 bln in trades. Russian state-owned energy company Gazprom was the

most active corporate CDS contract at $5 bln, while Mexican state-owned oil company Pemex had $1 bln in

CDS trades during the quarter. EMTA said the latest quarterly survey of emerging market CDS trading

volumes came from 13 major international banks and broker-dealers. The survey offers a snapshot of

trading volumes by combining data on the notional value of CDS trades and includes rollovers but not

netting trades or internal transfers for 19 sovereign and nine corporate credits. / Thomson Reuters

5/18/2012

10

ECONOMIC BULLETIN № DEB-2012.05-02

U.S. President Barack Obama will seek support to tap emergency oil reserves from other Group of

Eight leaders at a summit this weekend before the European Union's July embargo of Iranian crude, Kyodo

news agency reported on Wednesday (16 May). The report suggests that a slide in oil prices to their lowest

in months has not halted U.S. efforts to use strategic oil stockpiles to offset diminishing exports from Iran,

which is facing tough new sanctions on its oil industry. The EU ban on imports comes into full force in July.

Kyodo said Japanese PM Yoshihiko Noda was expected to support the call, which comes after several

months of discussion with allies including France and Britain. It is the first indication that Japan may support

the move, although it is far from clear that skeptical nations like Germany have been won over. The White

House declined comment on the report. "General energy and climate change issues will be discussed at the

G8, as part of a larger focus on the economic issues. As we have said repeatedly, all options remain on the

table, but we have no additional announcement to make," an administration official said. Separately, a

French diplomatic source suggested that newly-elected Socialist President Francois Hollande was also

prepared to go along with efforts to tap government-held stockpiles, a change of stance from prior to the

vote. "The U.S. has an approach that we don't condemn," a diplomatic source under the new presidency

said, without specifying what the U.S. approach was. "I think the discussions will be easy and I don't expect

any conflict on this question," he added ahead of a Friday meeting between Obama and Hollande. In

pursuing what would be an unprecedented second release of the Strategic Petroleum Reserve (SPR) during

his term, Obama may be embarking on a risky political strategy. While he may help head off a damaging

spike in gasoline prices this summer, he also risks attack from foes who argue that the SPR should be

reserved for use only in the event of a supply crisis. "As an economic matter, the timing would require

explanation. As a foreign policy tool this would be a smart bomb detonated in the heart of the Iranian

economy with no physical casualties," said David Goldwyn, who headed international energy affairs at the

State Department until early 2011. "You have to love the move from a strategic perspective." U.S. crude oil

prices, which were already down sharply when the news hit, edged still lower after the report. Oil closed

down 1.24% at $92.81 a barrel. Oil traders have been on alert for a possible SPR release since March, when

news of discussion first surfaced amid signs that Iran's oil exports were already starting to suffer. But prices

have fallen 16% since then, dropping to their lowest in months on concerns about global economic growth.

SATURDAY DISCUSSION. Obama will raise the request during a discussion of energy issues on

Saturday at the meeting in Camp David, stressing the need to stabilize oil prices and demonstrate solidarity

in putting more pressure on Iran, Kyodo reported, citing sources close to Japan-U.S. ties that it didn't name.

Kyodo said that it was uncertain whether other G8 countries would support Obama's call. Some, such as

Germany, have tended to resist using emergency stockpiles. The International Energy Agency's chief Maria

van der Hoeven said two weeks ago she saw no need for tapping stocks as the market was well supplied. A

representative for the IEA, which coordinates energy policy among the world's industrialized energy

consumers, had no comment on Wednesday. Energy Commissioner Guenther Oettinger told Reuters earlier

on Wednesday that the European Commission is in close contact with the United States and the IEA, but

sees no immediate need for any release of oil stocks. Kyodo did not provide any details as to when such a

release could occur, but many analysts say Iran's exports could decline sharply from July as tough new EU

sanctions on oil shipments come into full effect. Last year, the IEA coordinated a global release of 60 mln

barrels in order to offset the war in Libya, which had cut off the OPEC member's 1.2 mln barrel per day of

5/18/2012

11

ECONOMIC BULLETIN № DEB-2012.05-02 exports. High gasoline prices remain a vulnerability for Obama ahead of the 6 November election, even

though they have slipped for six straight weeks. "He's looking for a quick political fix by accessing the SPR,

and he's using any excuse to do that," said Cory Gardner, a Republican congressman from Colorado. Gardner

has introduced a bill that would require the government to make more federal land available for drilling

when it taps the reserves. Joe Barton, a veteran Republican lawmaker from Texas, said the sanctions on Iran

would not constitute a supply shortage required by U.S. law to trigger a release of the reserves. "He has to

declare a national emergency to use it, and there is no national emergency. Gasoline prices are up, but

they're going down," Barton said. But Edward Markey, a Democratic congressman who has urged the

president to use the reserves, argued the move would be warranted. "Going forward, the uncertainties

arising from Iran's nuclear ambitions, and the prospect of economic sanctions against Tehran, justifies the

president's coalition-building to deploy oil reserves if needed to protect American drivers and the world

economy," Markey said in a statement. / Thomson Reuters

The impact of the euro zone crisis on emerging Europe and the political challenges of North Africa

will occupy minds at eastern Europe's development bank meeting in London this week, where a new

president to deal with it will also be chosen. The EBRD, set up in 1991 to enable the former communist

economies of the Soviet Union to make the transition to the free market, hosts its annual meeting for its 65

country and multilateral shareholders on Friday and Saturday. As well as choosing the president from a five-

candidate field, shareholders will be voting on a EUR 1 bln fund for North Africa as one of the first projects in

the bank's new push into a region experiencing vast political upheaval. Shareholders will also discuss the

spillover from banking and growth problems in the euro zone and elsewhere into the EBRD's original region

of central and eastern Europe. "The question of what can be done in order to mitigate risks of further

contagion from the euro zone crisis to the region will be at the centre of discussions," current President

Thomas Mirow told a briefing this week. Mirow and other EBRD officials are worried about the threat posed

to emerging Europe from deleveraging by Western European banks and have started work on the a new

programme, known as Vienna 2.0, to help banking stability. Some analysts say the bank may be in danger of

overstretching itself. "When you think of the EBRD's original mandate, it was quite a different region and set

of problems from the issues it is facing with North Africa," said Vanessa Rossi, global economics adviser for

Oxford Analytica. Emerging Europe, with its close proximity to the troubled euro zone, is still struggling to

recover from the 2008/09 crisis. "The EBRD has not finished with that problem when it has to get started

with another quite different set of circumstances," Rossi said. The EBRD extended its mandate last year to

North Africa due to requests from its shareholders and the international community, and has the expertise

to carry out the job, an EBRD spokesman said. The bank, which will issue revised 2012 growth forecasts at its

meeting, has been predicting growth of more than 3% for emerging Europe this year, though below 2% for

the richer central European economies, such as Poland and Hungary and euro zone countries Slovakia and

Slovenia. Where EBRD member countries in central Europe were once looking to "graduate" from being a

recipient of EBRD funds and in many cases join the euro zone, those bets are off with the whole euro zone

project looking creaky. The EBRD will also publish growth forecasts for the first time for the North African

countries in which it is starting to invest, Egypt, Jordan, Morocco and Tunisia. Egypt and Tunisia overthrew

their presidents last year but are struggling to get back on a firm financial footing, and political instability

5/18/2012

12

ECONOMIC BULLETIN № DEB-2012.05-02 remains a concern for the region. The meeting marks the end of German Mirow's four-year term as

president. Mirow is standing for a second term, but his campaign lacks Germany's backing, and the contest

has turned into a five-horse race, widely seen as part of a tussle for other top European jobs. He is up

against four other candidates for his job, from Britain, France, Poland and Serbia, after European Union

finance ministers, who hold a decisive vote in the process, failed to agree a candidate. Russia and Bulgaria

have proposed his candidacy. When Mirow joined the EBRD in 2008, Lehman Brothers was still a going

concern, the Bank was predicting growth above 5% in emerging Europe and the full impact of the sub-prime

crisis had not yet been felt. The EBRD was facing calls to be closed down, merger with the European

Investment Bank or to pay its shareholders a dividend from the profits made from its largely private sector

investments. The global financial crisis gave the EBRD a new lease of life. Shareholders agreed to increase

the bank's capital to EUR 30 bln from EUR 20 bln and the EBRD spearheaded the Vienna Initiative which

provided EUR 33 bln to support banking sector stability in the region. The EBRD added Turkey to the

portfolio of countries in which it invests, and following the Arab Spring uprisings last year, extended its

mandate to include North Africa. / Thomson Reuters

The EBRD is lending excessively to polluting fossil fuel projects, especially coal, undermining its own

sustainable energy strategy, NGO Bankwatch said in a report released on Thursday (17 May). Lending to

fossil fuel projects, coal, oil and gas, accounted for 48% of the bank's energy-related investments between

2006 and 2011, said the report by Bankwatch, an agency that monitors international financial institutions.

"Firstly the EBRD's continued support for fossil fuel projects, starting with coal, needs to be halted,"

Bankwatch said on the eve of the EBRD's annual meeting. "Secondly there is a need for an increase in the

quantity and sustainability of the EBRD's investments in new renewables." The EBRD, set up in 1991 to

invest in the ex-communist states of eastern Europe, in 2006 unveiled a sustainable energy initiative (SEI) to

focus on renewables or energy efficiency projects. The plan was to reduce carbon emissions across the

region, considered one of the world's least energy efficient. The strategy looked set to gather pace in 2007

after the EBRD quit Russia's Sakhalin gas project which was criticised for potentially harming endangered

whales' habitat. Bankwatch praised the EBRD for its efforts but urged it to do more. It noted renewables

lending rose to EUR 272.9 mln in 2011 from EUR 6.8 mln in 2006 while investment in power sector efficiency

quintupled to 394 mln in this period. Bankwatch also said the EBRD had almost quadrupled energy efficiency

investments since 2006 to EUR 1.7 bln. But it questioned the sustainability of many of these projects, saying

some had actually extended the working life of potentially polluting developments such as coal mines. In

response, the EBRD says its involvement raises environmental standards at big projects. Josue Tanaka, EBRD

managing director for energy efficiency and climate change, told Reuters the SEI now accounted for a third

of EBRD business and the net carbon effect of its activities was negative. The EBRD last year invested EUR

100 mln in fossil fuel-based power generation projects but EUR 1.1 bln had gone to renewables, Tanaka said,

adding: "Since the SEI was launched, we have managed to fulfill our business and development mandate and

been able to be carbon negative over this period."

SEEKS PHASE-OUT. The Bankwatch report said of the EUR 6.7 bln the EBRD had invested in energy and

energy-related sectors, fossil fuels received EUR 3.26 bln or 48% of funding. It said 70% of EBRD's energy

lending goes outside the European Union to countries such as Russia and Ukraine, but the new EU states

5/18/2012

13

ECONOMIC BULLETIN № DEB-2012.05-02 such as Poland and Hungary account for around 80% of its renewables lending. "A phase-out of fossil fuel

lending (by the EBRD) would send a clear signal to those countries which have so far been unenthusiastic

about new renewable energy that they should start to take it more seriously," Bankwatch said. Bankwatch

expressed disappointment that the EBRD's new draft mining law did not exclude coal, widely considered one

of the most polluting sources of power generation. Lending to coal projects diverts resources away from

renewables, it argues. It said support for coal projects had risen to EUR 262 mln last year from EUR 60 mln in

2006. / Thomson Reuters

Markets: FX / MONEY MARKET

FX MARKET

On this week

the rouble

weakened 3.55% to

31.21 against the

dollar and will post

the biggest weekly

fall in eight. Vs the

euro, the rouble

gave down 1.7% to

39.67 and eased

2.6% to 35.01

against the basket,

its weakest since

end-January. "In

such circumstances

there is only one

recommendation,

which is to avoid

short positions in

the rouble at least

until the degree of

panic declines,"

said Pavel

Demeshchik, a

dealer in Moscow. "Any unstoppable fall is sooner or later followed by a correction," he said, adding that the

rouble is unlikely to be shielded by exporters in the near future as they have already converted the bulk of

revenues to pay value added tax on 21 May. Weak economic data added to the market gloom. Industrial

output rose 1.3% year-on-year in April vs forecasts of a 3.5% rise, in a sign that the global economy is taking

a heavy toll on exports and that Russia will struggle to sustain its strong consumption-led growth. The CBR

5/18/2012

14

ECONOMIC BULLETIN № DEB-2012.05-02 policy of switching towards a policy of inflation targeting, thereby allowing more freedom for the rouble to

float, is expected to soften the impact of weak exports on economic growth, while intensifying volatility in

the currency. "This is the right approach as, from a macroeconomic perspective, a weaker rouble is exactly

what the doctor should order during such times of trouble," Ivan Tchakarov, chief Russia economist said. "If

the rouble were allowed to act as a shock absorber, it could limit any possible damage to GDP by about

40%," he said.

CBR has

lowered the

share of the U.S.

and Canadian

dollars in its

foreign exchange

reserve and

increased its

holdings in the

euro, the CBR

annual report

showed on Wednesday (16 May). As of 1 January, 45.5% of Russian reserves were held in U.S. dollars,

42.1% in euros and 9.2% in sterling. The Japanese yen and the Canadian dollar each accounted for a 1.6%

share in the reserves, the data showed. In February CBR First Deputy Chairman Alexei Ulyukayev said the

dollar's share in the forex reserves was 46.5%, while the euro's was 40.5%. Sterling accounted for 9% of the

reserves and the yen and the Canadian dollar 2% each. / Thomson Reuters

Russia's gold and foreign exchange reserves declined to $518.8 bln in the week to 11 May from

$522.9 bln a week earlier, CBR data showed on Thursday (17 May). The reserves include monetary gold,

special drawing rights, reserve position at the IMF and foreign exchange. / Thomson Reuters

MONEY MARKET

Tax payments

squeezed liquidity

on the money

market, pushing

interbank overnight

lending rates to

around 5.5-6.5%

compared to levels

of 5% seen in first

half of April.

5/18/2012

15

ECONOMIC BULLETIN № DEB-2012.05-02

The poll of Cbonds was held on 25.04.2012-28.04.2012. Number of respondents: 14.

Policy rates, % & Index Simple average

forecast Median Actual as of 28.04.2012

Consumer Prices (CPI, Russia) (monthly), % 0.51 0.5 0.3 Refinancing Rate of CBR, % 8.0 8.0 8.0 Deposit rate, O/N, % 4.0 4.0 4.0 3M LIBOR USD 0.46 0.47 0,47 MOSPRIME 3M (nva.ru, reuters.ru) 6.7 6.7 6.75 RUR/USD NDF 1 year 5.88 5.8 5.89 USD/RUR 29.68 29.5 29.42 EUR/USD 1.31 1.31 1.32 Brent Crude 118.0 117.0 119.57 Gold (USD/ounce, London) 1648.0 1650.0 1651.25 / CBONDS

Markets: FIXED INCOME

The poll of Cbonds was held on 25.04.2012-28.04.2012. Number of respondents: 14.

Benchmark yield, % Simple average

forecast Median Actual as of 28.04.2012

UST 10Y YTM 1.98 1.95 1.91 Russia-2030 YTM, % 4 4 4.04 OFZ YTM 3Y, % 7.08 7.05 7.04 OFZ YTM 5Y, % 7.63 7.6 7.61 Muni YTM (3Y), % 8.23 8.2 7.83 Domestic corporate bonds (1st tier), YTM (3Y), % 8.28 8.28 8.47 Domestic corporate bonds (2nd tier), YTM (3Y), % 8.9 8.9 8.9 Domestic corporate bonds (3d tier), YTM (3Y), % 10.8 10.8 10.8

/ CBONDS

MegaFon, Russia's No.2 mobile operator, may issue a Eurobond to refinance the loan it took from

Western banks last month, CEO Ivan Tavrin told Reuters on Monday (14 May). "We are in preparations

now, we are preparing the prospectus," he told Reuters on the sidelines of a conference. Last month,

MegaFon took $4.5 bln in separate loans from Russian and Western lenders to help finance a buyout of

Mikhail Fridman's 25.1% stake. As part of that, MegaFon took out a $2 bln loan for six months, with an

option to extend the loan by another six months. It also obtained a credit line of up to $1.5 bln from

Sberbank, and raised another $1 bln from Gazprombank. Tavrin added that the timing of Eurobond issue will

depend on the decision of MegaFon's IPO. / Thomson Reuters

Russia's fifth-largest oil company Gazprom Neft started to organise a Eurobond roadshow, a

financial source told Reuters on Tuesday (15 May). Russian companies have increased borrowing abroad

this year, taking advantage of relatively low costs of long term funds, while the domestic financial system is

undergoing tighter liquidity. / Thomson Reuters

5/18/2012

16

ECONOMIC BULLETIN № DEB-2012.05-02 Markets: STOCKS

Russian shares

tumbled to seven-

month lows on this

week, battered by

sliding oil prices

and euro zone

financial jitters. The

dollar-based RTS

index fell 9.9% to

1310 bps, hitting its

lowest level since

early October. Its

rouble-traded peer MICEX shed 7.0% to 1289. The protracted formation of a new Russian government - yet

to be announced almost two weeks after the start of Vladimir Putin's new presidential term - has

compounded the investor gloom. "It is amazing that they haven't got their act together. It's not as if these

people have just had a shock election victory," said Christopher Granville, managing director at Trusted

Sources, a London-based emerging markets research firm. The sell-off was also fueled by compulsory closing

of long positions and stop-losses, while market activity remained below average, traders said. Russia-

dedicated funds recorded a fourth consecutive week of capital outflow, losing $52.7 mln in the week to 16

May, according to EPFR data. "As long as Greece is at risk of default and exit from the euro zone, investors

will remain risk averse and flows to Russian funds are unlikely to recover, despite compelling valuations,"

analysts said. Greece concerns also hurt the oil prices below $107 per barrel, while the country's budget this

year was calculated on the assumption that oil prices will average $115.

Russian banks lost RUB 198 bln on equity and bond markets last year, the CBR said on Tuesday (15

May), describing the losses as "moderate" in a year when the country's benchmark stock index fell by

17%. Banks lost RUB 33 bln on stocks and another RUB 165 bln from bond investments, but the sector as a

whole still turned a profit of RUB 848 bln, CBR figures showed. Stock and bond holdings accounted for

around 13.4% of total Russian banking assets, leading the CBR to describe the losses as "moderate" in a

document posted on its web site. Russia has around 1,000 banks, with dominant state-controlled lenders

controlling around half of banking system assets. Russian banks have low direct exposure to European

sovereign debt, but are vulnerable to 'contagion' from the euro zone debt crisis resulting from capital

outflows and volatility in the oil price. / Thomson Reuters

CBR has not given up on the idea of selling a 7.6% stake in the Sberbank this year, CBR Chairman

Sergei Ignatyev said on Wednesday (16 May). "We are in constant talks, discussions (on Sberbank),"

Ignatyev told the Duma, Russia's lower house of parliament. A decision on the sale of the Sberbank stake is

ultimately a matter for the government, although the central bank is the formal majority owner. Sberbank

5/18/2012

17

ECONOMIC BULLETIN № DEB-2012.05-02 initially planned to sell the stake last September but postponed the deal after global risk aversion wiped

around $1.5 bln off the stake's value. First Deputy PM scotched hopes of a near-term sale last month. /

Thomson Reuters

Russia's deputy PM, Igor Sechin, opposes the sale of a stake in state oil pipeline monopoly

Transneft, saying that public trading of the shares would complicate the firm's debt refinancing,

Vedomosti reported on Wednesday (16 May). The business daily, citing minutes from a government

meeting on privatisation this month, said Sechin asked the energy ministry, the EconMin and Transneft to

"explain to potential investors the government position". Sechin has long opposed the sale of government

stakes in major commodity companies, including top oil producer Rosneft, and hydroelectric power

producer RusHydro. He has been nominated by President Vladimir Putin to the board of Russia's state

energy holding company, ensuring he wil remain influential. Transneft only has preferred shares in

circulation, meaning the state has a 100% voting stake and a 78.1% economic interest. Last year, the

EconMin proposed selling a 3% voting stake, in a proposal backed by PM Dmitry Medvedev, who was then

president. Transneft preferred stock, which more than doubled in value from October through April on

hopes of further privatisation and higher dividends, has fallen 23% since peaking last month. / Thomson

Reuters

5/18/2012

18

ECONOMIC BULLETIN № DEB-2012.05-02 Macroeconomic indicators of Russia

ECONOMIC INDICATORS PERIOD LATEST PREV YR AGO Nominal GDP (bln RUB) Q4 15.462 14.406 13.019 GDP Y/Y Q1 +4.9 +4.8 +4.0 CPI M/M Apr +0.3 +0.6 +0.4 CPI Y/Y Apr +3.6 +3.7 +9.6 PPI M/M Mar +2.1 +1.1 +1.4 PPI Y/Y Mar +7.4 +7.0 +21.0 Ind output M/M Apr -5.4 +7.0 -4.7 Ind output Y/Y Apr +1.3 +2.0 +4.5 Retail sales Y/Y Mar +7.3 +7.8 +5.2 Unemployment (mln) Mar 4.87 4.82 5.35 Real disposable income Y/Y Mar +2.8 +3.1 -1.9 Real average wage Y/Y Mar +12.6 +12.1 +2.4 Nominal average wage (rbls) Mar 26.440 24.036 22.673 Capital investment (bln RUB) Mar 601.4 567.9 535.5 Capital investment Y/Y Mar +4.9 +15.1 -0.3 Trade surplus ($bln) Mar 19.43 20.28 16.70 Exports ($bln) Mar 47.95 45.51 43.64 Imports ($bln) Mar 28.52 25.23 26.94 Budget balance (bln rbls) Jan-Apr -60.4 -121.0 n/a CBR reserves ($bln) 11-May 518.8 522.9 504.5 Monetary base (bln rbls) 02-Apr 6.717 6.816 5.672 M2 (blnR) 1-Mar 23.851 23.678 19.537 REER rouble Feb/Jan +3.5 +0.7 +1.8 Oil output (mln bpd) Apr 10.33 10.36 10.27 Oil output (mln T) Apr 42.3 43.8 43.1 Gazprom gas output (bcm) Mar 62.2 60.2 61.5 URALS oil, $/bbl 18-May 107.65 111.90 109.69 BRENT oil, $/bbl 18-May 108.67 112.90 113.74

ANNUAL DATA 2011 2010 2009 2008 2007 Nominal GDP (bln USD) 1692.4 1479.2 1292.1 1403,8 1349,3 GDP (pct) +4.3 +4.3 -7.8 +5.2 +8.5 CPI Y/Y (pct) +6.1 +8.8 +8.8 +13.3 +11.9 M2 (bln R) 24,543 20,012 15,698 13,490 13,27 Oil/gas cond.(mln T) 511 505 494 488 491 Natural gas (bcm) 671 650 582 665 653 Coal (mln T) n/a 323 298 326 315 Grain (mln T) n/a 61 97 108 82 Beet Sugar (mln T) n/a 2.7 3.3 3.6 3.2 Gold (T) n/a 201 205 184 163

5/18/2012

19

ECONOMIC BULLETIN № DEB-2012.05-02

GOVT FORECASTS 2012 2013 2014 Nominal GDP (bln USD) 1 913.3 n/a n/a GDP Y/Y (pct) +3.4 (+3.7) +3.8 (+3.9) +4.4 (+4.6) Industry output (pct) +3.1 (+3.6) +3.4 (+3.8) +4.1 (+4.2) CPI Y/Y (pct) 5.0-6.0 (5.0-6.0) 4.5-5.5 (4.5-5.5) 4.0-5.0 (4.5-5.5) Cap. Investment pct +4.0-5.0 (+6.6) +7.1 (+7.1) +7.0 (7.2) Retail Sales pct +5.5 (+5.5) 5.3 (5.3) 5.5 (5.5) Exports $ bln 513.4 (533.1) 515.0 (535.9) 543.4 (565.3) Imports $ bln 368.6 (397.4) 412.7 (444.6) 454.0 (486.1) Trade Balance $ bln 144.8 (135.7) 102.3 (91.3) 89.4 (79.2) Urals oil, ave., $/bbl 115 (100) 97 (97) 101 (101) Rouble rate/$1 29.20 (31.1) 31.3 (29.4) 31.80 (30.50) Rouble REER +0.2 (+3.5) +2.0 (0.0) 1.2 Reserve fund, trln RUB as of yearend 1,568 1,619 1,624 Revenue, trln RUB 12.588 (11.779) 12.729 (11.674) 14.116 (12.646) Expenditure, trln RUB 12.656 (12.185) 13.766 (13.418) 14.631 (14.294) Budget deficit, trln RUB -0.068 (-0.877) -1.037 (-1.744) -0.514 (-1.648) Budget deficit, % of GDP -0.1 (-0.3) -1.6 (-2,7) -0.7 (-2.3) Real incomes, % 4,2 (4.8) 4,8 (4,8) 5.3 (5.3)

BALANCE OF PAYMENTS ($bln) 2011 2010 2009 Current account 98.8 71.1 48.6 Cap/fin account -76.2 -26.0 -43.5 Net errors/omissions -10.0 -8.3 -1.7 Reserve assets -12.6 -36.8 -3.4

LONG-TERM FOREIGN CURRENCY RATINGS Moody's (December 12, 2008) Baa1 (outlook stable) S&P (December 04, 2011) BBB (outlook stable) Fitch (January 16, 2012) BBB (outlook stable)

CJSC Denizbank Moscow Treasury Ksenia Mayorova ksenia.mayorova@dexia.com Alexander Shetler alexander.shetler@dexia.com +7 (495) 789-97-20, +7 (495) 783-31-41 Corporate Banking Savas Citak savas.citak@dexia.com Oguz Yalcin oguz.yalcin@dexia.com Koray Akefe koray.akefe@dexia.com Mine Arpadji mine.arpadji@dexia.com Elena Kislova Elena.kislova@dexia.com Roman Otavin roman.otavin@dexia.com Marina Kalashnik marina.kalashnik@dexia.com Oksana Korzhuk oksana.korzhuk@dexia.com +7 (495) 783-31-40, +7 (495) 725-10-20

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