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Moody's: Positive outlook to Russia's foreign and local currency debt

Moody's Investors Service has assigned a "positive outlook" to Russia's foreign and local currency debt ratings.

This outlook change follows several years during which the Russian Federation has experienced exceptionally strong macroeconomic fundamentals alongside prudent fiscal and monetary policies and outstanding growth of both official foreign currency reserves and foreign currency reserves in a new "stabilization fund."

Strong current account and budgetary surpluses have led to sharp improvements in all liquidity ratios and a declining debt and debt servicing burden. Ample revenues have allowed prepayment of external debts, while domestic debt and debt servicing payments are very small and do not represent a significant burden on government revenues. At the same time, the annual rate of inflation continues its downward trend and will reach single digits during 2005.

Government regulatory control of the rate of price rises for utilities provides a lever for ameliorating upward pressure on prices coming from large foreign currency inflows associated with the current account surplus.

Moody's said that current centralizing trends in the political sphere do not appear to lead to weakening of the country's fundamental creditworthiness.

Moody's said it will continue to assess the sustainability of recent developments. If present trends continue, further upward pressure on the ratings will result.

The outlook change affects the following ratings of the Russian Federation: the medium-to-long term foreign currency country ceiling for bonds (currently rated Baa3), the medium-to-long term rating for all outstanding bonds of the government of the Russian Federation (Baa3), the foreign currency ceiling for bank deposits (Ba1), the medium-to-long term rating for local currency bonds of the Russian Federation (Baa3), the ratings for Ministry of Finance tranches (tranche V -- "Soviet era debt" -- is rated Ba2, while tranches VI and VII -- "Russian era debt" -- are rated Ba1) and the short-term foreign currency country ceilings (currently Not Prime).

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