1. 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%

2. 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 20102009 * 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%

3. 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% 200813.5%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% 2009-5.5%-4.3%-7.7%2.3%2.3%-2.8%

4. 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 0 500 1,000 1,500 2,000 020406080100 Urals, $/bbl GDP, $ bln 1999 2007 2008 2003 2004 2005 2006 0 500 1,000 1,500 2,000 2009 2010 2011

5. 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

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

7. 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

8. 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

9. 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

10. 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

11. Slide 11 | March 2011 | Russia: Spontaneous Modernization Drives Growth China: a balance is yet to be found… Source: National statistics, Troika estimates 2008 2009est 2006 2003 1999 1996 1993 1992 1990 1987 1980 1984 1986 1981 1978 -5% 0% 5% 10% 15% 20% 25%30%35%40%45%50%55% Investments/GDP GDP, y-o-y ?

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

13. 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

14. 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

15. 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)

16. 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 200520062007200820092010E Total revenues5,1276,2767,7799,274 7,338 7,784 Profit tax378510641761 195 – Social tax268316405507 510 – VAT1,4721,5112,2622,1322,050 – Raw materials extraction tax8551,0941,1231,605 982 – Export duties1,3521,8961,8352,8592,042 – Import duties271342488626467 – Other5336081,0267841,092–

17. 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 200520062007200820092010E Total expenditures3,5144,2815,9837,5679,660 10,212 State administration501530812835829 839 National defense5816828321,0411,188 1,264 National security4505506678361,005 1,096 National economy2493456931,0251,651 1,583 Housing sector753295130152 198 Education162212295355418 433 Medical care, sport88148197278352 341 Social policy178201214294324 329 Transfers1,2461,4991,9002,6753,594 3,633 Other52627999147496

18. 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

19. 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

20. 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 2009-10, as the budget was in the red (right-hand chart)

21. 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 20092010E2011E2012E2013E Revenues 7,336.07,783.88,843.89,502.710,378.9 Expenditures 9,662.210,212.410,658.011,237.312,174.9 Federal budget deficit -2,326.2-2,428.6-1,814.2-1,734.6-1,796.0 % of GDP-5.9%-5.4%-3.6%-3.1%-2.9% 20092010E2011E2012E2013E Revenues 7,336.07,783.88,617.89,131.79,983.9 Expenditures 9,662.210,212.410,385.110,844.611,749.1 Federal budget deficit -2,326.2-2,428.6-1,767.3-1,712.9-1,765.2 % of GDP-5.9%-5.4%-3.6%-3.1%-2.9% August 2010, R bln September 2010, R bln 20092010E2011E2012E2013E Revenues 7,336.06,950.08,077.08,549.09,147.6 Expenditures 9,662.29,886.99,857.49,895.610,078.7 Federal budget deficit -2,326.2-2,936.9-1,780.4-1,346.6-931.1 % of GDP-5.9%-6.8%-3.6%-2.4%-1.5%

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

23. 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

24. 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

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

26. 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

27. 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

28. 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 20 24 28 32 36 40 20406080100120140 Urals $/bbl RUB/USD Exchange rate regime since February 2009 High oil price appreciates the ruble, while high domestic inflation depreciates it. 2010 2011 2009

29. 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

30. 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

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