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. Last Updated: 07/27/2016

Confidence Takes Plunge in May

Business confidence plunged in May as judges took almost two weeks to read out the sentence in the trial of former Yukos CEO Mikhail Khodorkovsky and a power outage crippled Moscow for several hours one day.

The MT Business Confidence Index, compiled from a pool of managers and market watchers, dropped by six points to 26. On the MT scale, 10 represents the lowest confidence and 50 the highest. The six-point fall is the biggest drop since winter 2003.

The index showed that concerns over tax vulnerability and legal vulnerability skyrocketed.

"It's such a shame to realize that Russia's plan to boost the GDP is to put Mr. Khodorkovsky's intellectual capabilities to work making boxes and other goods in the gulag," said Alexei Zheltov, general director of CheckPoint Advisors, a consultancy specializing in corporate governance.

Respondents also complained that the government has not delivered any tangible results in key spheres, such as the energy sector.

"Since it is the last month before the summer lull, May is big on business expectations and they probably have not been met," Zheltov said. "Everything that happened is linked to the actions of the state in spheres it hasn't touched before. And we haven't had any good news from the stock market, either."

As the Khodorkovsky trial reached its climax, the indexes measuring concerns about on tax and legal vulnerability shot up by a total of four points, an unprecedented leap.

Anna Azarnova, general director of the Dialysis Center, said that President Vladimir Putin's state of the nation address made clear that the gap between state declarations and reality was growing wider each day.

"They say that hope springs eternal, but there comes a day when hope dies. Perhaps a rather large amount of people have come to the conclusion that civilized relations between the authorities and business will be pushed back for an indefinite time."

Yet, others cited strong macroeconomic trends and said their own businesses were continuing to perform well.

"Maybe I was going against the trend, but I didn't see a major dip in May," said Dennis Hopple, president of the Center for Business Skills Development, a consulting service. "On the whole, business in Moscow remains good in spite of everything else."

Data for the survey was collected between May 4 and May 27.

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 on the same scale as the overall confidence index: A score of 10 shows the least confidence, while 50 indicates the most.

In the other nine core indexes, 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 the opinions of management 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, and 49 respondents took part in the latest poll.

Bozkurt Kaplangi
General Director of Yapi Kredit Bank Moscow

In the short term, we don't see any issues to be pessimistic about. Macroeconomic figures -- foreign trade surplus, Central Bank reserves -- are positive. Of course, there are lots of things to do in terms of infrastructure. But for the near future, we're optimistic.

Konstantin Babkin
Economics editor at WPS (What the Papers Say)

The drop can be explained only by the situation surrounding Yukos. The course of events has shown that neither positive assessments by Western auditors nor promises from the authorities can protect a business. Drastically increased capital flight is being skillfully presented by the media as a natural process.

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