Approval and implementation of the revised tax code will be the first test of the new cabinet's credibility. Passage before the end of the year is crucial toward setting the stage for improved tax collection and more transparent laws, given that many companies struggle under a heavy tax burden. Progress on tax collection and privatization, both of which showed better prospects prior to the cabinet shakeup, and reductions in fiscal expenditures are also key items. Given that the government is the biggest delinquent payer in the economy, reform of the fiscal deficit is a critical issue toward creating the conditions for sustainable economic recovery. The recent volatility in the market has highlighted the importance of reform, especially on the fiscal side.
Reality shows, however, that Russia is quite different from Indonesia.
First of all, leverage for Russia is relatively low, as it is for most companies. Unlike in Indonesia, where banks constituteda significant part of the economy and GDP and whose demise affected many citizens, banks in Russia do not form a large part of the economy, and failures of small private banks would actually be healthy for the country. Finally, more than half of the Russian equity market consists of oil and gas companies, unlike in Southeast Asia, where banks and real estate holdings constitute a substantial portion of the market. The portfolio is positioned primarily in Russia's blue chip companies in the oil, telecommunications and electric utility sectors. Although Russian oil companies are being affected by the decline in international oil prices, they earn revenues in U.S. dollars and have some costs based in rubles.