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. Last Updated: 07/27/2016

Confidence Ends 3-Month Climb

Business confidence fell in June on concerns over a potential banking crisis and the appearance that the Yukos affair was coming to a head.

The MT Business Confidence Index, compiled from a pool of managers and market watchers, fell by four points to 29, the biggest drop since February. On the MT scale 10 represents the lowest confidence and 50 the highest.

"People are losing confidence in banks," said Alexander Lopukhin, spokesman of the European Business Club. Isolated bank closures over the last month sparked fears of a crisis throughout the banking sector.

The quickening pace of the legal assault against Yukos may have touched off nervousness in some respondents, said Matthew Roazen, general counsel with SUN Group.

The MT Index showed that concern over tax vulnerability had moved up from 32 to 35 this month, where 50 marks highest concern.

During the time the survey was taken, between June 15 and June 25, Yukos and the government appeared to be engaged in negotiations over payment of a $3.4 billion tax bill.

"Everybody knew [Yukos] would get saddled with the tax judgements," Roazen said. "But they felt comfortable in the fact that it would be a while off. Now, that ... is starting to turn into weeks or days."

Iwao Ohashi, Moscow representative of Jetro, the Japan External Trade Organization, said he was surprised by the low confidence level.

"My personal impression is that it should be improving," he said. "The so-called external environment is more favorable than unfavorable."

Ohashi said that low confidence levels could be a result of expectations improving faster than the actual business environment.

The planned reform of energy giants Gazprom and Unified Energy Systems is not weighing too heavily on the business community, said Roazen, because glitches in the process are to be expected.

Roazen said that confidence may be down on a collective hunch.

"August is coming. [People] have a gut feeling that something is about to happen because it's overdue," Roazen said.

EBC's Lupokhin agreed.

"August is usually a psychologically difficult month," he said. "It's connected with bad things like the [1991] putsch, the [1998] default and so on. After August, people will expect improvements in the situation."

The MT index is based on 10 indices measuring respondents' attitudes toward issues such as corporate governance, unemployment and inflation.

The personal business index, which measures respondents' confidence in their own enterprises, is like the overall confidence index: a score of 10 shows the least confidence while 50 indicates the most.

In the other nine core indices, it is the reverse: at the lowest possible score of 10, no one is worried about it, while at 50 it is on everyone's mind.

The index relies heavily on management opinion and is weighted according to the size of the company and position of the respondent.

A pool of 440 managers and market watchers participate in the survey, 85 respondents took part in the latest poll.

Kuldeep Dugar
Financial controller, Industrial Credit Bank
"In the summer, business falls in Russia. It's traditional. That's the only reason [for the drop in confidence]. There might be some setbacks like Khodorkovsky, but that's part of life. I've been living here nine years. I always see volumes falling in the summer."

Konstantin Smolentsev
President, Region Group
"There could be a number of reasons why the business confidence index fell. The fundamental reason is the lack of a state policy toward business that is clearly formulated and, most importantly, open and consistent-- both toward big companies, like UES and Gazprom, and to medium and small companies."

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