Publication: Monitor Volume: 4 Issue: 12

The U.S. credit-rating agency Standard & Poor’s (S&P) has given a BB- credit rating to Samara Oblast. (Western agencies, January 16) This means Samara can join a handful of other Russian regions in borrowing in the form of international bond issues — admittedly, at a time when the cost of such borrowing on world markets has risen. Samara is a highly industrialized region on the Volga with a population of just over three million. Within Russia it is seen as a region that has adapted well to the post-Communist world. Ekspert magazine recently placed it fourth out of all Russia’s 89 administrative regions for its attractiveness to investors, after Moscow, St. Petersburg, and Moscow oblast. (Ekspert, December 12, 1997)

Samara’s BB- rating is the same as that for Russia as a whole, as are the ratings of the other regions that have S&P’s imprimatur. (It is standard practice not to grade securities issued by sub-national governments higher than those of their national governments.) It is a speculative (sub-investment) grade, but still enough to allow the issue of Eurobonds or similar securities on world markets.

S&P in their announcement noted that the rating reflects "restricted revenue flexibility" caused by tight federal control over tax rates and tax-bases, significant tax arrears, especially with the giant car manufacturer AvtoVAZ (Samara Oblast’s major employer), and the need for large capital expenditure to modernize infrastructure. This means, the agency said, that debt growth will have to be closely monitored, even though current levels are low. What this amounts to is that Samara’s weaknesses are those of the whole of the Russian economy apart from Moscow city and the oil and gas fields of west Siberia.

The ratings agency also notes some of the strengths of the region, including its diversified economy (oil and petrochemicals as well as car-production), substantial export earnings and signs of an output recovery that is stronger than that of Russia as a whole (estimated 1.2 percent growth of gross regional product last year). The level of the population’s real incomes is substantially above the Russian average — though of course well below that of Moscow.

Samara is a net donor to Russia’s federal budget, a position that penalizes a region’s budget but at the same time gives it some useful leverage in Moscow. Samara’s governor Konstantin Titov is a powerful player on the federal stage and an ally of Prime Minister Chernomyrdin. Last spring, he was reported to have opted to remain in his present position rather than moving to Moscow as a deputy prime minister. The job was subsequently accepted by Nizhny Novgorod Governor Boris Nemtsov — who may now be wondering whether he should have followed Titov’s example.

Chubais Presents Rail Reform Program.