Slide 1 | March 2011 | Russia: Spontaneous Modernization Drives Growth Statistical revisions were significant in the case of industrial output and are yet to come for GDP Source: State Statistics Service Revised industrial output figures, y-o-y2010 GDP growth breakdown, y-o-y Source: State Statistics Service GDP 4.0% Agriculture -12.1% Fishing -4.7% Raw materials extraction 4.8% Manufacturing 13.4% Supply and redistribution of electricity, gas and water 5.9% Construction -0.9% Retail, wholesale trade 4.5% Hotels and restaurants 0.3% Transport and communication 7.0% Finance -3.0% Real estate 0.8% State administration, military, social services 2.4% Education -1.4% Health care 1.3% Other housing and social services -6.8% Net taxes on products7.1%

Slide 2 | March 2011 | Russia: Spontaneous Modernization Drives Growth Russian statistics keep eyebrows raised and eyes wide open * State Statistics Service (first estimate) ** State Statistics Service (second estimate) *** State Statistics Service (third estimate) Last column – Troika’s old estimate Source: State Statistics Service, Troika estimates * 2009 *** 2009 GDP4.0%- 7.9%-7.8%-7.0% Consumption2.1%- 5.4%-3.7%-3.2% Household consumption 2.7%- 8.1%-4.8% -5.0% Public sector consumption0.7% 1.9% -0.5% 2.0% Consumption of other sectors-1.5%- 1.8% -8.7% 0.0% Gross investments24.3%- 37.6%-41.0% -30.0% Fixed capital investments 3.5%- 18.2%-14.4%-17.0% Changes in stocks –––– Net export of goods and services-27.3% 58.0%56.7% 34.0% 2009 ** -7.9% -5.1% -7.7% 2.0% -1.4% -37.4% -15.7% – 56.8%

Slide 3 | March 2011 | Russia: Spontaneous Modernization Drives Growth “But actually, he thought as he re-adjusted the Ministry of Plenty’s figures, it was not even forgery. It was merely the substitution of one piece of nonsense for another” (George Orwell, Nineteen Eighty-Four) Source: State Statistics Service RetailServicesHousehold consumption Real disposable incomes Real wages 1Q0817.2%7.4%14.6%14.6%7.5%13.4% 2Q0814.9%5.4%12.1%12.1%5.7%12.5% 3Q0915.0%5.1%11.2%4.5%12.2% 4Q088.7%1.8%6.2%6.2%-6.9%5.0% %4.8%10.7%1.9%11.5% 1Q09-0.1%-0.9%-2.6%-2.6%0.7%-0.8% 2Q09-5.6%-4.7%-7.5%3.4%-3.9% 3Q09-9.2%-6.4%-10.8%-3.4%-3.4%-5.2% 4Q09-6.1%-4.4% -9.4%8.2%8.2%-0.7%-0.7% %-4.3%-7.7%2.3%2.3%-2.8%

Slide 4 | March 2011 | Russia: Spontaneous Modernization Drives Growth Russia’s nominal GDP (in dollar terms) correlates with the oil price Source: State Statistics Service, Troika estimates ,000 1,500 2, Urals, $/bbl GDP, $ bln ,000 1,500 2,

Slide 5 | March 2011 | Russia: Spontaneous Modernization Drives Growth Source: State Statistics Service, Troika estimates Rising oil price and expanding foreign borrowing failed to accelerate Russia’s growth: in principle, Russia can grow at any oil price

Slide 6 | March 2011 | Russia: Spontaneous Modernization Drives Growth Source: Central Bank, State Statistics Service Growth and lending: searching for a more balanced combination

Slide 7 | March 2011 | Russia: Spontaneous Modernization Drives Growth Following the short correction two years ago, consumption is rising steadily amid a resumption in consumer lending Source: State Statistics Service, Central Bank, Troika estimates Growth accelerated amid excessively rapid credit expansion

Slide 8 | March 2011 | Russia: Spontaneous Modernization Drives Growth Bonds temporarily replaced loans in banks’ portfolios; the latter returned to growth in 2Q10 Source: Central Bank Bonds and loans in banks’ portfolios

Slide 9 | March 2011 | Russia: Spontaneous Modernization Drives Growth Russia is returning to a more balanced model of economic development after several years of overheating Source: State Statistics Service, HSE, Troika estimates

Slide 10 | March 2011 | Russia: Spontaneous Modernization Drives Growth New equilibrium: Since 1999, South Korea’s growth has moderated after decades of unbalanced investment-led growth Source: National statistics, Troika estimates

Slide 11 | March 2011 | Russia: Spontaneous Modernization Drives Growth China: a balance is yet to be found… Source: National statistics, Troika estimates est % 0% 5% 10% 15% 20% 25%30%35%40%45%50%55% Investments/GDP GDP, y-o-y ?

Slide 12 | March 2011 | Russia: Spontaneous Modernization Drives Growth GDP per capita in the former Soviet republics in 1991 and 2009, $ Source: IMF

Slide 13 | March 2011 | Russia: Spontaneous Modernization Drives Growth GDP per capita in the former Soviet republics in 2009 and external borrowing Note: Data for 2009 Source: IMF, CIA, national banks Russia did not borrow a lot Russia 2010

Slide 14 | March 2011 | Russia: Spontaneous Modernization Drives Growth Russia will not face limitations on the labor market in the medium term… Source: State Statistics Service, Troika estimates

Slide 15 | March 2011 | Russia: Spontaneous Modernization Drives Growth … although the share of the working age population in the total figure will continue to fall Source: State Statistics Service Expected population dynamic (left chart) and share of the working age population (right chart)

Slide 16 | March 2011 | Russia: Spontaneous Modernization Drives Growth Budget revenues fell in 2009, but not as much as the government expected, R bln... Note: The government initially forecast revenues in 2009 at R6,713.8 bln. In 11m10, revenues reached R7,432.4bln, while the deficit was R911.5 bln. Source: Finance Ministry E Total revenues5,1276,2767,7799,274 7,338 7,784 Profit tax – Social tax – VAT1,4721,5112,2622,1322,050 – Raw materials extraction tax8551,0941,1231, – Export duties1,3521,8961,8352,8592,042 – Import duties – Other , ,092–

Slide 17 | March 2011 | Russia: Spontaneous Modernization Drives Growth … but expenditures increased massively, R bln Note: The government initially planned expenditures in 2009 at R9,845.2 bln. Source: Finance Ministry E Total expenditures3,5144,2815,9837,5679,660 10,212 State administration National defense ,0411,188 1,264 National security ,005 1,096 National economy ,0251,651 1,583 Housing sector Education Medical care, sport Social policy Transfers1,2461,4991,9002,6753,594 3,633 Other

Slide 18 | March 2011 | Russia: Spontaneous Modernization Drives Growth Larger government expenditures and an increased budget deficit in Russia usually mean worse economic performance Source: State Statistics Service, Finance Ministry, Troika estimates

Slide 19 | March 2011 | Russia: Spontaneous Modernization Drives Growth Government interventions were inflationary: public consumption shrank in real terms Source: State Statistics Service Deflator for public consumption remained higher than for other elements of GDP Source: State Statistics Service Public consumption to GDP ratio shrank in real terms, its contribution to economic growth diminished

Slide 20 | March 2011 | Russia: Spontaneous Modernization Drives Growth The breakeven oil price has grown substantially over recent years, increasing budgetary risks Source: Finance Ministry, Troika estimates Budgetary policy was generous and the Reserve Fund shrank in , as the budget was in the red (right-hand chart)

Slide 21 | March 2011 | Russia: Spontaneous Modernization Drives Growth Finance Ministry has become too generous: expenditures set to grow November 2009, R bln Source: Finance Ministry E2011E2012E2013E Revenues 7,336.07,783.88,843.89, ,378.9 Expenditures 9, , , , ,174.9 Federal budget deficit -2, , , , ,796.0 % of GDP-5.9%-5.4%-3.6%-3.1%-2.9% E2011E2012E2013E Revenues 7,336.07,783.88,617.89,131.79,983.9 Expenditures 9, , , , ,749.1 Federal budget deficit -2, , , , ,765.2 % of GDP-5.9%-5.4%-3.6%-3.1%-2.9% August 2010, R bln September 2010, R bln E2011E2012E2013E Revenues 7,336.06,950.08,077.08,549.09,147.6 Expenditures 9,662.29,886.99,857.49, ,078.7 Federal budget deficit -2, , , , % of GDP-5.9%-6.8%-3.6%-2.4%-1.5%

Slide 22 | March 2011 | Russia: Spontaneous Modernization Drives Growth Sources of deficit financing, R bln Source: Finance Ministry

Slide 23 | March 2011 | Russia: Spontaneous Modernization Drives Growth Due to increased expenditures, the breakeven oil price will exceed $100/bbl Urals in 2011 Source: Troika estimates

Slide 24 | March 2011 | Russia: Spontaneous Modernization Drives Growth Source: Central Bank, Troika estimatesSource: Central Bank Voluntary reserves increased sharply in 1H10 Central Bank deposit and bond rates Voluntary reserves increased as the Central Bank offered an attractive risk-free rate

Slide 25 | March 2011 | Russia: Spontaneous Modernization Drives Growth The Central Bank has absorbed previously extended loans, R mln Source: Central Bank

Slide 26 | March 2011 | Russia: Spontaneous Modernization Drives Growth M2 declined in nominal terms, but started to rise in February 2009, a sign that the economy is recovering (R bln); the sort of “currency board” regime is seemingly over: money is becoming endogenous ($ bln) Source: Central Bank, Troika estimates

Slide 27 | March 2011 | Russia: Spontaneous Modernization Drives Growth The ruble has appreciated since February 2009 after the Central Bank stopped targeting the exchange rate, which became more volatile; the Central Bank’s role as lender of last resort grew in importance Source: Central Bank, Troika estimatesSource: Central Bank

Slide 28 | March 2011 | Russia: Spontaneous Modernization Drives Growth Historical exchange rate and oil price: new regime emerges as the Central Bank reduces interventions Source: Central Bank, Bloomberg, Troika estimates Urals $/bbl RUB/USD Exchange rate regime since February 2009 High oil price appreciates the ruble, while high domestic inflation depreciates it

Slide 29 | March 2011 | Russia: Spontaneous Modernization Drives Growth Two regimes of targeting: currency first, money market second Source: Central Bank Volatility high on the money market, low on the forex market Volatility high on the forex market, low on the money market

Slide 30 | March 2011 | Russia: Spontaneous Modernization Drives Growth Nominal interest have rates declined, but may go up again Source: Central Bank, State Statistics Service

Slide 31 | March 2011 | Russia: Spontaneous Modernization Drives Growth Source: Central Bank, State Statistics Service Market capitalization and the money supply move together