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. Last Updated: 07/27/2016

Investors Bullish on Putin, for Now

President Vladimir Putin's clear signals that he intends to hold on to the reins of power may be calming investors' nerves and sending stocks climbing, but that strategy might not bode well for the country in the long term, economists and analysts said Tuesday.

Putin agreed Monday to top United Russia's federal party list for State Duma elections and indicated that he might become prime minister after he leaves office next year.

On Tuesday, the RTS index rose to a record high, jumping 3 percent to 2,108.57 points, as investors broadly praised the news as providing continuity to a country that witnessed huge political and economic fluctuations in the 1990s.

"In the short term, it will settle lots of nerves," said a Western economist who has studied Russia for 15 years.

But Putin's hint that he may cling to power as prime minister could have fairly bad repercussions in the long run, said the economist, who spoke on condition of anonymity because he was not authorized to comment on Russian politics. "Everything hangs on this one man," he said.

"You can't have a free economy and a tightly controlled state," said a Western banker, who asked not to be identified, citing the sensitivity of the matter.

"Corruption is the oil that keeps things going," he said.

Sergei Ulatov, an economist with the World Bank, said the latest announcements could easily turn conservative economists from countries such as Japan and Germany off Russia. "What is happening with Putin is not entirely good" because it further complicates decision making for investors who are looking to invest into Russia for 10 or more years, Ulatov said.

Russia-watchers are putting a positive spin on recent events, arguing that Putin would at least ensure continuity, but those considering investing in the country increasingly need assistance in explaining where the country is heading.

"Investors are meeting me more often" now, Ulatov said.

Ulatov said a further concentration of power and increased state control over the economy were real concerns around the country.

"Unfortunately, the concentration of power in one person's hands in Russia tends to crowd out everything else," he said. Putin has overseen the consolidation of industry into state-run corporations, from arms sales to aviation to nanotechnology.

"All functions, both political and financial, have been gradually taken from state institutions [and given to] private state companies, which are controlled by Putin's buddies," said Garry Kasparov, who on Sunday was selected as the presidential candidate of opposition group The Other Russia.

Kasparov criticized Western bankers for failing to register the long-term effects of Putin's potential transition from president to prime minister.

"In the short term, the benefits can be significant, but in the long term the country is going to be destroyed," Kasparov said. "Western bankers are looking for a profit, we're looking [out] for the country's future."

Western analysts said Putin's relations with his successor could become very complicated as a new president consolidated his position.

The prime minister's role is currently limited and many commentators expect Putin to amend the Constitution to make the post more powerful, as a means of keeping control. The ultimate power is vested in the office of the president, who is also the commander in chief.

With his popularity ratings hovering above 75 percent, Putin would likely be able to push through the constitutional changes easily, analysts said.

For now, investors are calm.

"That means stability and relative certainty. Everybody has a more or less clear idea of what scenarios will be playing out," said Alexander Ivlev, a partner at Ernst & Young who coordinates the Foreign Investment Advisory Council, a group that represents foreign investors in the country.

"Business learned how to operate even during more radical changes than we see now," he added.

"[Putin's] administration has been very good for foreign business and foreign investment. It has provided stability and a transition to the market economy," said Andrew Somers, president of the American Chamber of Commerce in Russia.

Oleg Zasov, deputy director of macroeconomic forecasting at the Economic Development and Trade Ministry, said he did not see how Putin's most recent announcement was related to economic performance.

"The forecasts will not change," he said, declining to comment further.

Foreign investment has skyrocketed since Putin acceded to the presidency Dec. 31, 1999, upon the resignation of Boris Yeltsin. Foreign direct investment stood at $28.7 billion last year, compared with around $2 billion in 2002. Yet Putin's tenure has also seen foreign investors squeezed out of key sectors such as energy, as oil prices have quadrupled to more than $80 per barrel.

Shell and TNK-BP have handed over to Gazprom control of key oil and gas projects Sakhalin-2 and Kovykta, respectively, after prolonged pressure from state officials.

Several bankers declined to comment at all for fear of repercussions. Many point to the case of Hermitage Capital CEO William Browder, an outspoken minority investor, who has been denied entry to the country since late 2005. "We can expect more of the same ... with the net being cast wider," said the banker who declined to be identified. "Those that think it's just the oil and gas sector are wrong. Everything that can make money will come under state control."

Analysts also said corruption remained a concern, citing the recent accusations of bribe taking involving officials at the Audit Chamber.

Yet few expressed concern over the makeup of the current Cabinet, where the defense minister is the prime minister's son-in-law and the health and social development minister is married to the industry and energy minister.

"It doesn't matter for economic policy because ministers are nominal anyway," said another Western banker who declined to be identified because he was not authorized to speak to the press. "There is a big gap between business and politics in what actually matters."