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. Last Updated: 07/27/2016

Investors Look for Action on Graft

Investors reacted calmly to Prime Minister Mikhail Fradkov's resignation Wednesday and expressed hope that the next Cabinet would get tough on corruption.

While Fradkov's departure had been widely expected, several business leaders said they were concerned that the change might be the prelude to reformist ministers being edged out as a new government is formed ahead of March's presidential election.

Viktor Zubkov, head of the Federal Financial Monitoring Service, was likely being brought in as an interim prime minister due to his anti-corruption credentials, said Chris Weafer, chief strategist at UralSib.

"He has a very strong background and successful track record of fighting money laundering and corruption. The government wants to demonstrate that it is tackling this," he said.

A senior banker said he expected to see several prominent victims as a result of Zubkov's appointment, given that the government has attached considerable importance to its anti-corruption drive.

A Western business representative speculated that Economic Development and Trade Minister German Gref and Finance Minister Alexei Kudrin might resign in the next three to six months.

Kudrin told reporters Wednesday that his "future will be decided after my meeting with Zubkov. I will always find a job I enjoy."

Corruption is a top concern among foreign investors, who have seen it flourish during President Vladimir Putin's seven years in office.

Andrew Somers, president of the American Chamber of Commerce in Russia, said he was worried that the shuffle might affect the day-to-day running of the government. "We hope that the progress we are making on a lot of issues is not frozen because bureaucrats are not sure of their jobs," he said.

But he welcomed the appointment of Zubkov. "He is a proven expert in the financial area. He is not going to be a political animal ... and he doesn't identify with any faction," Somers said.

Frank Schauff, CEO of the Association of European Business in Russia, said he did not expect a drop in political stability. "We believe that this is a conscious decision of the Russian leadership and not a sign of instability," he said.

Much depends on who would be in the next government, said Neil Cooper, director of the Russo-British Chamber of Commerce. Reform-minded officials such as Kudrin and Gref had been of vital importance for business, he said.

"It is in the interest of investors to have strong ministers," Cooper said.

A key question is whether Putin will manage to hold his team together, said Rory MacFarquhar, an analyst with Goldman Sachs in Moscow.

Zubkov would probably not be a presidential candidate, and Putin would likely maintain an influential position after the March election, MacFarquhar said. If Zubkov did emerge as a candidate, this would imply that the next head of state would be no more than a figurehead, he said in e-mailed comments.

Roland Nash, head of research at Renaissance Capital, said that Zubkov had likely been chosen "as a means of cementing some stability during the period of power transfer, a prime minister who could serve under both the current and the next president."

George Lilis, co-head of research at MDM Bank, suggested that Putin would give fair treatment to the two likely front-runners in the presidential race, first deputy prime ministers Sergei Ivanov and Dmitry Medvedev. "They will start the race from an equal basis," Lilis said, adding that he would favor Medvedev as the next president.

"If I had to say, then I would prefer Medvedev. He is a bit more liberal and more involved in the business world."

A less likely scenario, Weafer said, was that Zubkov, a loyal Putin ally, might actually be put forward as a presidential candidate. "Zubkov is someone who could be trusted, would allow Putin an ongoing influential role, and would be trusted to take early retirement if Putin wanted to come back before 2012," he said.

Putin is constitutionally prevented from running for a third consecutive term, but could run again in 2012.

Stocks were unmoved by the announcement. The dollar-denominated RTS index closed down 0.6 percent, while the ruble-denominated MICEX index lost 0.8 percent.

Erik DePoy, strategist at Alfa Bank, said markets had shown a muted reaction at best and that they were just following European and U.S. markets. "This is positive," DePoy said. "It underscores the sense of political stability, at least from the investor stance."

Some businesses expressed hope that the regulatory environment would improve after the shake-up.

"Licensing policy for telecoms operators was particularly murky under the outgoing government," said Alexander Shugol, project director at telecoms consultancy J'son & Partners. "Hopefully, a new government will have fairer rules of the game that apply to all players."

Staff Writers Tai Adelaja and Miriam Elder contributed to this report.