Saturday, October 25, 2014


The Power Vertical

Kudrin's Game: The Man In The Middle

Former Finance Minister Aleksei Kudrin.
Former Finance Minister Aleksei Kudrin.
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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Comments
     
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.

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17:49 October 24, 2014

EVENING NEWS ROUNDUP

From RFE/RL's News Desk:

PUTIN ACCUSES UNITED STATES OF 'UNILATERAL DIKTAT'

Russian President Vladimir Putin has accused the United States of escalating conflicts around the world by imposing what he called a "unilateral diktat."

Putin made the remarks in a combative speech to political experts at the Valdai International Discussion Club, in Russia's Black Sea resort of Sochi.

Putin said the United States has been "fighting against the results of its own policy" in Iraq, Libya and Syria.

He said risks of serious conflicts involving major countries have risen, as well as risks of arms treaties being violated.

He also dismissed international sanctions over Russia's actions in Ukraine as a "mistake," saying they aimed at pushing Russia into isolation and would end up "hurting everyone."

We did not start this," he added, referring to rising tensions between Russia and the West.

(Based on reporting by Reuters, AP, Interfax, TASS)

MERKEL URGES PUTIN TO SOLVE UKRAINIAN GAS DISPUTE

German Chancellor Angela Merkel has urged Russian President Vladimir Putin in a telephone call to push for a quick resolution of the ongoing gas dispute with Ukraine as winter looms.

The call by Merkel to Putin on October 24 comes as representatives of the EU, Russia, and Ukraine are due to meet again next week in EU brokered talks aimed at solving the gas dispute between Kyiv and Moscow.

Merkel also underlined that upcoming elections in areas of eastern Ukraine controlled by Russian-backed separatists must respect Ukrainian national law.

Pro-Russian insurgent leaders are boycotting a parliamentary snap poll on October 26 in Ukraine and are holding their own election in the Lugansk and Donetsk regions, home to nearly three million people, on the same day instead.

(Based on reporting by AFP and Reuters)

UNHCR SAYS MORE THAN 800,000 DISPLACED IN UKRAINE CONFLICT

By RFE/RL

The United Nations says the conflict in Ukraine has forced more than 800,000 people from their homes.

Around 95 percent of displaced people come from eastern Ukraine, where government troops have been battling pro-Russian separatists.

UNHCR, the UN refugee agency, told a briefing in Geneva that an estimated 430,000 people were currently displaced within Ukraine -- 170,000 more than at the start of September.

It said at least 387,000 other people have asked for refugee status, temporary asylum, or other forms of residency permits in Russia.

Another 6,600 have applied for asylum in the European Union and 581 in Belarus.

The agency said it was "racing to help some of the most vulnerable displaced people" as winter approaches.

It also said the number of displaced people is expected to rise further due to ongoing fighting in eastern Ukraine.

THREE ALLEGED MILITANTS KILLED IN NORTH CAUCASUS

Three alleged militants have been killed by security forces in Russia's volatile North Caucasus region.

Russia's National Antiterrorism Committee says that two suspects were killed in the village of Charoda in Daghestan on October 24 after they refused to leave an apartment and opened fire at police and security troops.

One police officer was wounded.

Also on October 24, police in another North Caucasus region, Kabardino-Balkaria, killed a suspected militant after he refused to identify himself, threw a grenade towards police, and opened fire with a pistol.

A police officer was wounded in that incident.

Violence is common in Russia's North Caucasus region, which includes the restive republics of Daghestan, Kabardino-Balkaria, Ingushetia, and Chechnya.

Islamic militants and criminal groups routinely target Russian military personnel and local officials.

(Based on reporting by Interfax and TASS)

MOSCOW LAWYER IN HIGH PROFILE ORGANIZED CRIME CASE KILLED

A lawyer, who represented an alleged victim of the notorious Orekhovo criminal group in Moscow, has been assassinated.

Police in the Russian capital say that Vitaly Moiseyev and his wife were found dead with gunshot wounds in a car near Moscow on October 24.

Moiseyev was representing Sergei Zhurba, an alleged victim of the Orekhovo gang and a key witness in a case against one of the gang's leaders Dmitry Belkin.

Belkin was sentenced to life in prison on October 23 for multiple murders and extortion.

Last month, another of Zhurba's lawyers, Tatyana Akimtseva (eds: a woman), was shot dead by unknown individuals.

The Orekhovo group was one of the most powerful crime gangs of the Moscow region and in Russia in the 1990s. Its members are believed to be responsible for dozens of murders.

(Based on reporting by TASS and Interfax)

17:27 October 24, 2014

LITTLE GREES VOTERS, ANYONE?

17:26 October 24, 2014

SPY VS. SPY

17:00 October 24, 2014
08:29 October 24, 2014

MORNING NEWS ROUNDUP

From RFE/RL's News Desk:

UKRAINIAN PM WARNS OF RUSSIAN DESTABILIZATION OF ELECTIONS

Ukrainian Prime Minister Arseniy Yatsenyuk is warning that Russia could attempt to disrupt Ukraine's parliamentary elections scheduled for October 26.

Yatsenyuk told a meeting of top security officials and election monitors on October 23 that "It is absolutely clear that attempts to destabilize the situation will continue and will be provoked by Russia."

Yatsenyuk said "we are in a state of Russian aggression and we have before us one more challenge -- to hold parliamentary elections."

The prime minister said Ukraine needs the "full mobilization of the entire law-enforcement system to prevent violations of the election process and attempts at terrorist acts during the elections."

Interior Minister Arsen Avakov said authorities have ordered some 82,000 policemen on duty for election day.

He said 4,000 members of a special reaction force would be among those maintaining order during polling hours and would be concentrated in "those precincts where there is a risk of some terrorist acts or aggressive actions by some...candidates."

The warning by Yatsenyuk comes on the heels of three violent attacks on parliamentary candidates in the past week.

The latest, against Volodymyr Borysenko, a member of Yatsenyuk's People's Front Party, occurred on October 20 when Borysenko was shot at and had an explosive thrown at him.

He allegedly survived the attack only because he was wearing body armor due to numerous death threats he had recently received.

Elections to the Verkhovna Rada, the parliament, will be held despite continued fighting in the eastern part of the country between Ukrainian government forces and pro-Russian separatists.

Voting will not take place in 14 districts of eastern Ukraine currently under the control of the separatists.

Those separatist-held areas -- in the Donetsk and Luhansk regions -- are planning on holding their own elections in November.

Additionally, Russia's illegal annexation of Crimea in March means the loss of 12 seats from the 450-seat parliament.

Polls show President Petro Poroshenko's party leading with some 30 percent of respondents saying they would cast their vote for the Petro Poroshenko Bloc.

It that percentage holds on election day it would mean Poroshenko's bloc would have to form a coalition government, likely with nationalist groups who oppose conducting peace talks over fighting in the east.

(Based on reporting by Reuters and Interfax)

RUSSIA DENIES ESTONIAN AIRSPACE VIOLATIONS

By RFE/RL

Moscow has denied claims of an incursion by a Russian military plane into Estonia's airspace.

A Russian Defense Ministry spokesman told Interfax news agency on October 23 that the Ilyushin-20 took off from Khrabrovo airfield in the Russian enclave of Kaliningrad on October 21.

The spokesman said the reconnaissance plane flew "over neutral waters of the Baltic Sea" while on a training flight.

On October 22, Estonia’s Foreign Ministry summoned the Russian ambassador in Tallinn, Yury Merzlakov, after the Estonian military said the Russian plane had entered its air space.

In a statement, NATO said the Ilyushin-20 was first intercepted by Danish jets when it approached Denmark, before flying toward non-NATO member Sweden.

Intercepted by Swedish planes, the alliance said the Ilyushin entered Estonian airspace for “less than one minute” and was escorted out by Portuguese jets.

NATO has stepped up its Baltic air patrols and Moscow has been accused of several recent border violations in the region amid heightened tensions between Russia and the West over the Ukraine conflict.

Last month, Estonia accused Russia of abducting one of its police officers on the border.

Russia claims Eston Kohver was seized inside Russia on September 5, while Estonian officials say he was captured at gunpoint in Estonia near the border and taken to Russia.

The European Union and United States have called for the immediate release of the Estonian security official, who is facing espionage charges in Russia.

Meanwhile, the Swedish Navy has been searching for a suspected submarine sighted six days ago some 50 kilometers from the capital, Stockholm, although it said on October 22 it was pulling back some of its ships.

Swedish officials have not linked any particular country to the suspected intrusion and Moscow has denied involvement.

(With reporting by Interfax, TASS, and the BBC)

RUSSIAN COURT POSTPONES RULING ON OIL FIRM BASHNEFT

A Moscow court postponed to next week a ruling on a move to take control of Bashneft, an oil company from tycoon Vladimir Yevtushenkov.

The judge said on October 23 that the next hearing will take place on October 30 after the prosecution requested more time to prepare its case.

Prosecutors filed the suit in September to regain state ownership of Bashneft, citing alleged violations in the privatization and subsequent sale of the company to AFK Sistema investment group.

Yevtushenkov, the main shareholder of the conglomerate, is under house arrest on suspicion of money laundering during the firm's acquisition in 2009.

Yevtushenkov, 66, was arrested on September 16.

He is ranked Russia's 15th richest man by U.S. magazine Forbes, with an estimated fortune of $9 billion.

(Based on reporting by Reuters and TASS)

11:11 October 23, 2014

THERE IS NO RUSSIA WITHOUT PUTIN?

According to a report in the pro-Kremlin daily "Izvestia," deputy Kremlin chief of staff Vyacheslav Volodin told a meeting of the Valdai Discussion Club in Sochi that Western politicians "do not understand the essence of Russia."

"Volodin stated the key thesis about the current state of our country: As long as there is Putin there is Russia. If there is no Putin, there is no Russia," Konstantin Kostin, head of the Foundation for the Development of Civil Society, told "Izvestia."

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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