One reason for Putin’s adventurism

The latest issue of Bloomberg Businessweek offers a clue about one potential reason for Russian strongman Vladimir Putin‘s recent adventurism: the county’s shaky economy.

The Big Three ratings agencies have hit Russia with a barrage of debt downgrades and warnings as its economy has faltered and sanctions imposed by the West have started to bite. Now Russia is hitting back.

The country’s central bank has drafted legislation that would require foreign-owned ratings agencies to establish local subsidiaries under the bank’s supervision if they want to continue operating in Russia. Standard & Poor’s (MHFI), Moody’s (MCO), and Fitch Ratings now maintain Russian branch offices of their European operations, which the Paris-based European Securities and Markets Authority regulates. That arrangement makes it difficult for Russian officials “to apply supervisory authority,” said the central bank’s press office in a statement. …

… The Kremlin is fuming over recent ratings downgrades: S&P cut Russia’s sovereign debt rating last April to one notch above junk. Economy Minister Alexey Ulyukayev complained that the U.S.-based agency’s downgrade was “partially a politically motivated decision.” Ekaterina Pavlova, an S&P spokeswoman in Moscow, says the agency is neutral and has “no political agenda.” Warnings of potential downgrades have also driven up the cost of borrowing.

Since its downgrade the government has canceled nine bond auctions, as yields demanded by investors on its 10-year bonds have jumped from 7.8 percent to almost 9.5 percent this year. (On Sept. 24, the Russian Financial Ministry sold 10 billion rubles [$261 million] of bonds at 9.37 percent yield.)

Besides cutting Russia’s sovereign rating, S&P has downgraded the ratings of state-owned industrial giants including Gazprom (GAZPM:RU), the natural gas export monopoly, and Rosneft (ROSN:RU), the biggest oil producer. Regional and local government debt ratings are generally pegged to national ratings, so Moscow and St. Petersburg, as well as some regional governments, have also suffered ratings cuts.