Wednesday, April 16, 2014


The Power Vertical

Kudrin's Game: The Man In The Middle

Former Finance Minister Aleksei Kudrin.
Former Finance Minister Aleksei Kudrin.
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Aleksei Kudrin is at it again.
 
Speaking at a conference on April 3 at Moscow's Higher School of Economics, the former finance minister said Russia needs to cut military and security spending, slash subsidies to industry, and increase funding for road construction, education, and health care.

He also warned that the government won't be able to continue relying on high oil prices to finance its expenditures.
 
"There has to be some kind of reform and it needs to be spelled out now because the budget preparations finish up in the beginning of June," Kudrin said.
 
We can probably expect to hear many more such warnings from him in the coming months.
 
Since resigning from the government in September after a very public spat with President Dmitry Medvedev, one of the big mysteries of Russian politics has been where Kudrin would land once Putin returns to the Kremlin.
 
It is more or less clear where he wanted to land.
 
Kudrin's stated reason for resigning was that he opposed Medvedev's plans to increase military spending by $65 billion over the next three years. He is apparently sincere about this as given his persistent warnings about the dangers ahead for Russia's budget.
 
But there is more to it than that. Informed speculation has it that Kudrin had hoped to be tapped as Putin's prime minister, and was furious when Medvedev, with whom he has strained relations, got the nod instead.
 
According to a thought-provoking piece by political analyst Mikhail Rostovsky in "Moskovsky komsomolets" last week, Putin was less than pleased with Kudrin's resignation. "How could you let me down in this way?" Putin reportedly said.
 
Putin stressed publicly that Kudrin remained a valued member of his team and, according to Rostovsky's report, offered him the chairmanship of the Central Bank.
 
He turned down that offer but Putin nevertheless reportedly instructed members of his economics and finance team "to do what Kudrin was telling them to."
 
Putin obviously values Kudrin greatly. The two have been close friends since serving together in the St. Petersburg city government in the 1990s. And Putin is also smart enough to understand that it was Kudrin's steady management of Russia's finances -- as much as high oil prices -- that facilitated the macroeconomic stability of the past decade.
 
Kudrin's closeness to Putin clearly gives him some leverage -- and some latitude. How else would he be able to get away with resigning against Putin's wishes, turning down the Central Bank job, and speaking out in favor of political reform at opposition rallies?
 
But what is Kudrin planning to do with this leverage?
 
After flirting with forming a center-right political party with billionaire oligarch Mikhail Prokhorov, he seems to have settled on starting up a foundation -- it is unclear whether this will be a classic think-tank, a lobbying outfit, or both -- to promote economic and political reform.
 
A recent story in "Polit.ru" compared the initiative to a similar foundation that the late former Prime Minister Yegor Gaidar formed after leaving government.
 
At first glance, this doesn't look terribly exciting, nor does it look like a great career move. Ex-government officials forming think-tanks, after all, are a dime-a-dozen.
 
But as Rostovsky points out in his "Moskovsky komsomolets" piece, given Kudrin's prominent position in the elite, there appears to be more going on here:
 
Kudrin decided to assume responsibility for formulation of a new positive agenda. He promptly raised the money necessary for establishment of a research center and set up office in the business center in central Moscow. It is from there that Kudrin intends to dish out economic recipes and say in which direction the country ought to be moving. That Medvedev will disagree with Kudrin's suggestions on some points need not be said.

Rostovsky suggests that Kudrin will play the role of something akin to a shadow prime minister -- or a prime minister in waiting -- as Medvedev struggles to keep Russia's financial house in order and carry out badly needed public sector reforms.
 
"Medvedev had a co-president when he was in the Kremlin. When he is chairman of the government, he will have a co-premier. Either a co-premier or leader of the opposition to the government. This is going to be Aleksei Kudrin," Rostovsky wrote.
 
Significantly, Kudrin has said that he was open to having his new think tank cooperate with Prokhorov's fledgling new center-right party.
 
Whether Kudrin's role will be that or a de facto co-premier or the intellectual leader of the opposition to the government depends largely on what Putin intends to do with his new term.
 
In one scenario, Medvedev will carry out deeply unpopular social reforms, take the heat, become the fall guy, and retire to some ceremonial post. Kudrin would then step in as prime minister and implement the economic and political reforms he has long championed. (Writing on  his blog, "In Moscow's Shadows," back in January, Mark Galeotti spelled out the optimistic scenario of Kudrin eventually becoming Putin's reformist premier.)

In another scenario, Putin will play his classic game of balancing different power centers off against each other -- in this case Medvedev and Kudrin -- to preserve his role as the ultimate power broker. But Kudrin would likely tire of that game quickly.
 
Kudrin is very much the man in the middle in Russian politics. He is personally close to Putin (but reviled by his siloviki courtiers) while being politically aligned with the reformist technocratic wing of the elite. He held a prominent place in Putin's system of managed democracy and has recently made overtures to the Russian Street, offering to play the role of intermediary between the opposition and the authorities. He continues to flirt with the idea of teaming up with Prokhorov.
 
He is therefore something of a barometer and his actions merit watching as things move forward.
 
-- Brian Whitmore

Tags: Vladimir Putin, Dmitry Medvedev, Aleksei Kudrin

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by: Mark from: Victoria
April 04, 2012 05:03
This post does a nice job of promoting the conventional wisdom that Aleksei Kudrin was - and is - some kind of economic savant who guided Russia through the tumultuous waters of fiscal uncertainty to the golden shores of Cash Surplus Land. Well, it comes right out and says it, doesn't it? "...it was Kudrin's steady management of Russia's finances -- as much as high oil prices -- that facilitated the macroeconomic stability of the past decade."

Does that mean Kudrin could have achieved a balanced budget and a cash surplus with oil at $55.00 a barrel? The above statement seems to dangle the suggestion that Kudrin's genius was equally responsible for Russia's prosperity.

Well, let's take a look. I'm intrigued right away by Kudrin's contention that the government won't be able to continue relying on high oil prices to finance its expenditures. Really? Why not? What would lead him to make such a forecast?

Not research into world energy prices.

http://www.wtrg.com/oil_graphs/oilprice1970.gif

World oil price has risen steadily since 2003, when the world's biggest per capita consumer decided to punish a major oil producer for the 9-11 attacks on its soil, who...ummm...didn't actually have anything to do with those attacks, and dropped significantly only when the subprime meltdown sent that economy - and much of the world - into recession. Perhaps Kudrin sees another worldwide recession approaching, but based on his displayed forecasting skills so far, I would have to say that's unlikely.

But hold on! Maybe the world can just increase production, and the price will drop!!

Nope. As you can see here,

http://www.wtrg.com/oil_graphs/PAPRPOP.gif

and here,

http://www.wtrg.com/oil_graphs/PAPRPNT.gif

production by both OPEC and non-OPEC sources has increased pretty steadily since the mid-80's for OPEC and the mid-90's for non-OPEC, and it has had diddly for effect on the upward price trend. Moreover, Kurt Cobb at oilprice.com argues persuasively that the U.S. and Saudi Arabia are powerless to bring prices down, the one by tapping the strategic reserves and the other by increasing production. As evidence, he offers, "It's true that oil markets move on rumours and sentiment, but not as far nor for as long as people believe. The joint U.S.-Great Britain announcement caused oil prices to fall sharply the same day before recovering nearly the entire loss by the close. The Saudi announcement that it might increase production caused a sharper one-day fall which was largely recouped the following day."

http://oilprice.com/Energy/Oil-Prices/Why-Saudi-and-US-Attempts-to-Influence-Oil-Prices-are-Ineffective.html

See anything in there that suggests the Russian government will not be able to rely on high energy prices for much longer? I don't.

About This Blog

The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It covers emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or

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