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As Crisis Deepens, Russian Finance Ministry Battles 'Siloviki'

Putin in the eye of a storm?
Putin in the eye of a storm?
For nearly a decade, hard-nosed security-service veterans and bean-counting economists have comprised the two key pillars of Vladimir Putin's authoritarian regime in Russia. Today they are locked in a high-stakes and potentially destabilizing bureaucratic war.

The resuscitation earlier this month of a dormant corruption probe alleging fraud in the Finance Ministry marked the latest move in an ongoing struggle between these two Kremlin factions that is only intensifying as Russia's economy craters.

The criminal investigation is viewed by many analysts as a politically motivated attack. It came just a week after Finance Minister Aleksei Kudrin made an abrupt U-turn in the Kremlin's anti-crisis program, shutting down direct assistance to companies struggling to refinance their foreign debts. That move reportedly angered many politically connected corporations -- and their allies in the security services -- who were counting on the state assistance.

The assault on the Finance Ministry is yet another example of how the sagging economy is exposing deep cracks in the Russian elite as officials scramble for control over shrinking resources. And in a top-heavy political system marked by weak institutions and highly personalized rule, such rifts tend to be resolved with heavy-handed tactics.

"Under the conditions that have been created by Putin, there is neither transparency, nor justice, nor a tradition of civil behavior," says David Satter, a senior fellow at the Hudson Institute and author of the book "Darkness At Dawn: The Rise of the Russian Criminal State." "And the easiest way oftentimes to make ones point is to fabricate a case against the person who is causing you problems."

There has long been tension between the green-eyeshade set at the Finance Ministry and the security service veterans, or "siloviki," who dominate Putin's inner circle.

But with the economic crisis damaging Kudrin's reputation for sound economic management, analysts say the most influential of the siloviki, First Deputy Prime Minister Igor Sechin, now sees an opening for a full-on assault.

"People in the Finance Ministry are concerned with...macro-economic stability and the future of the country's economic system," Satter says. "People like Sechin and those around him, many of whom control large state-run corporations and have skimmed money [from] those corporations, are experiencing problems because of the fall in raw materials prices. Their first concern is not the economic stability of the country, but their own economic stability and that creates an inevitable conflict in the leadership."

Political Scapegoat?

Earlier this month, Investigative Committee chief Aleksandr Bastrykin accused two top Finance Ministry officials of embezzling $18 million in connection with an agreement to settle Russia's debts to Algeria. Bastrykin said an investigation into Deputy Finance Minister Sergei Storchak and former Deputy Finance Minister Vadim Volkov is "nearing completion and the case will soon be sent to court."

Storchak was released in October pending trial after spending nearly a year in prison. Volkov is still in custody.

Some Kremlin-watchers claim the case, which has sputtered along since late 2007, has little to do with Storchak, Volkov, or Algeria. Instead, most call it a proxy attack against Kudrin.

"A confrontation between Sechin and Kudrin has been going on for some time," says political analyst Dmitry Travin, academic director of the Center for Modernization Studies at the European University of St. Petersburg. "Sechin wants to force Kudrin's resignation and install his own person as Finance Minister. He is using the Investigative Committee and his ally Bastrikin to discredit Kudrin."

Kudrin has long been an irritant for the siloviki and their corporate allies.

When Russia's economy was booming, he successfully argued in favor of placing oil revenues in a "stabilization fund," a move that infuriated Sechin and the siloviki who coveted access to the billions in petrodollars.

Kudrin and his allies now argue that the approach tuned out to be prescient. Without this nest egg, they say, Russia would not have had the cash on hand to defend the ruble from freefall and prop up the country's floundering banks, which are reeling from a credit crunch.

Earlier this month, Kudrin abandoned direct government assistance to struggling companies, arguing instead that firms should instead seek financing from commercial banks, which became the main recipients of the government's cash injections.

Kudrin is now arguing for steep budget cuts as Russia readjusts its spending plans amid falling oil revenues, a position at odds with the security services' desire for increased funding for defense-related industries.

Analysts say that despite whatever merit Kudrin's policy arguments may have, the economic crisis makes him vulnerable as inflation and unemployment rises, the stock market tanks and the ruble sinks.

"The Finance Ministry is no longer the rock of the Putin era's stability, but instead has returned to the role it played in the 1990s as the party that gets blamed for all the country's economic problems," Stanislav Belkovsky, director of the Moscow-based National Strategy Institute, tells RFE/RL's Russian Service.

He says the situation "makes it more possible for Aleksei Kudrin to be made into a political scapegoat," setting the stage for "a systematic attack" on the Finance Ministry.

Master Of Intrigue

A master of intrigue and bureaucratic manipulation, Sechin is widely seen as the bete noire of Russian politics. He is believed to have been the key behind-the-scenes player in the prosecution of oil tycoon Mikhail Khodorkovsky and the subsequent break-up of his Yukos oil company.

Most of Yukos's assets were eventually gobbled up by the state-run oil giant Rosneft, where Sechin is chairman.

Travin says Sechin is "a person who aspires to expand his power until it is unlimited" by using "his ties with Putin to the maximum effect." Control of the Finance Ministry would significantly buttress Sechin's already considerable clout.

"If Sechin gets his own person appointed as Finance Minister, it would give him colossal power," Travin says. "He would have control over where and to whom government money flows throughout the whole country. This would allow him to expand his influence. It is something he has long aspired to."

But Travin and other analysts say removing Kudrin will not be easy. Kudrin and Putin are believed to be close friends, having worked together since the early 1990s when both served in the St. Petersburg local government.

"I think it is only because [Putin and Kudrin] have good personal relations that Kudrin has not yet been removed," Travin says. "Otherwise, Sechin would have been able to replace him. It is difficult to remove Kudrin. But if Putin thinks this is politically advantageous then he can fire Kudrin [as Finance Minister] and appoint him to another position."

Analysts also note that the embezzlement case against Storchak and Volkov that is being used to discredit Kudrin is transparently weak and riddled with inconsistencies.

"This is an extremely flimsy case. Bastrykhin is always talking about what the investigation and its experts have concluded," political commentator Yulia Latynina tells RFE/RL's Russian Service. "But they are always citing different figures. Now he is saying $18 million [was embezzled]. In an earlier interview he said it was $80 million, also citing some experts. The investigation is very unprofessional."

RFE/RL's Russian Service contributed to this report

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