Epilogue: a minister falls

The resignation of Russia's finance minister Aleksey Kudrin is a much more significant event than the Putin-Medvedev reshuffle, says Dmitry Travin. Kudrin's cool foresight was the driving force behind Russia’s economic resurgence of the early 2000s, and the main reason why the country avoided total collapse during the later Credit Crunch.

Last Saturday Russia’s leadership tandem, Vladimir Putin and Dmitry Medvedev,  swapped roles. In March 2012 Prime Minister Putin will stand in the Presidential elections and will certainly win. Current President Medvedev will head the electoral list of the ruling party, United Russia, in this December’s parliamentary elections and will also definitely win. Consequently, once Putin steps into the role of President he will invite Medvedev to form the new Russian government. This is the nub of the agreement between the two members of the ruling tandem, as announced to the people of Russia last Saturday.

Medvedev_Kudrin

Electioneering Russian politicians have never been fond of Russia’s former finance minister Alexei Kudrin. President Dmitry Medvedev was one of Kudrin's more vocal opponents. The two vehemently disagreed over military and social budgets, and the confrontation led to Kudrin’s dismissal. The country may well pay a high price for the departure of this investor-friendly minister.

The announcement didn’t cause many ripples among the public. The majority of commentators had been expecting something of the sort, or at any rate were expecting the return of Putin, the country’s real boss, to the Presidential seat. Many liberal minded commentators are not even attempting to analyse what this will mean for the country’s development (after all, the tandem’s role swap will make no tangible difference to its political direction), and are merely expressing their disgust at the cynicism behind the swap. The commentators who toe the government line also have nothing new to say, since their reaction to any turn of events can only be positive.

The reaction of the man in the street can be judged by a conversation I had with a taxi driver on Sunday. The cabbie, a typical Russian of around 35, with a taste for hard work and hard cash and an antipathy to foreign workers who take jobs away from the native population, ridiculed the cynical Putin-Medvedev swap at great length, but in the end told me that he would be voting for Putin. He can’t stand the communist Zyuganov, Zhirinovsky’s nationalism is too aggressive for his liking and could lead to civil war, and he doesn’t rate any of the liberal politicians as serious competitors to Putin. And I’ve heard this sort of assessment of the situation many times before.

"The announcement didn’t cause many ripples among the public. The majority of commentators had been expecting something of the sort, or at any rate were expecting the return of Putin, the country’s real boss, to the Presidential seat."

This attitude of ordinary Russians is the reason why Putin can feel so confident about his latest political feat. Some analysts, it is true, were saying earlier that Putin would not be returning to the presidency, since he needed to take into account the West’s wariness towards him: they would evidently prefer to be dealing with Medvedev. But in fact Putin can be assured of the loyalty of all of Europe’s leaders, whatever their political allegiance, since Russia exports gas to Europe, and no Western politician would want to risk any disruption in its supply. Not all European leaders of course pander to Putin like Gerhard Schroeder or Silvio Berlusconi, but experience shows that practically all are willing to tolerate any antidemocratic action taken by Russia’s rulers. The fact that Russia has been able to build its new Nord Stream gas pipeline into Europe, whilst the Western ‘Nabucco’ consortium has made very little progress in the last year with its plans to import gas from Azerbaijan and Central Asia, has greatly strengthened Putin’s position.

The fall of Alexei Kudrin

In fact any discussion of Saturday’s leadership job swap died away within the next two days, as the scandal around Russia’s Finance Minister Alexey Kudrin replaced it in the headlines. After hearing that Dmitry Medvedev would head the next government, Kudrin announced his refusal to serve in it. And he did so not in Russia, but in the USA, which he was visiting when the news came out. As an explanation for his position he cited his serious disagreements with Medvedev on key economic questions. In response to Kudrin’s announcement, Medvedev  demanded his immediate resignation, pointing out that Putin’s present administration had also been put in place by him as President, and that therefore there was no place in it for Kudrin if he had any disagreement with the Head of State. Kudrin heard him out, but replied that he would resign only after consultation with Putin. Nevertheless on Monday evening the Minister of Finance tendered his offer of resignation, which was immediately accepted by the President.

Once, in the times before the crisis of 2008-2009, Dmitry Medvedev gave an interview to the eminent Russian journalist Nikolay Svanidze, who was writing a book about the new President. One of the areas they talked about was economics, and the fact that the soaring growth rate of the GDP was wholly determined by high prices for oil and gas, Russia’s main exports. Medvedev, wishing to stress that the achievements of the Putin era were not dependent on oil, made the following statement: “The economic position in Brezhnev’s time was not bad either, but where are his achievements now? Nowhere. Whereas in the last few years, however you look at it, we have made obvious progress.  We have a new direction in economics; it is no longer dependent on primary resources; we have no need to lie to anyone; diversification is taking place (author’s italics).

“Before the crisis, Medvedev had no real idea of how the Russian economy was structured, and had to try to grasp the situation when serious difficulties were already developing…. It is no surprise that he has had serious differences of opinion with Alexey Kudrin, who has a solid background in economics”

A year later, when Russia was sinking into a critical state with incredible speed, Medvedev gave an interview to journalist Azer Mursaliev of the influential ‘Kommersant’ newspaper, in which he said:”I can honestly say that I am not happy about our economic structure. We were already aware of that before the crisis… we did not diversify our economic structure as much as we should have; […] we entered the crisis with the same old reliance on our primary resources (author’s italics). And as soon as oil and gas prices dropped, we found ourselves in difficulties. “

Medvedev’s knowledge of economics

One cannot fail to notice that Medvedev here contradicted his own earlier opinion, using moreover the same turn of phrase, but meaning the opposite. This is the actual level of Medvedev’s knowledge of economics.  Before the crisis, he had no real idea of how the Russian economy was structured, and had to try to grasp the situation when serious difficulties were already developing. Even today he probably does not understand the real threat to the Russian economy, with its dependence on oil and gas. It is no surprise that he has had serious differences of opinion with Alexey Kudrin, who has a solid background in economics, has been working in finance since 1991 and has been several times awarded the accolade of ‘Best Finance Minister’ (according to ‘The Banker’ magazine in 2005, the publication ‘Emerging Markets’ in 2006 and the journal ‘Euromoney’ in 2010).

Medvedev was well aware of these conflicts of opinion. Kudrin has used the press to criticise government economic policy many times, since being a mere minister, he has had insufficient influence on the budget, which is put before parliament after its key parameters have been set by the President and Premier. Neither could Kudrin have any influence on the shameful workings of Russia’s judicial system (the best example of this being the Mikhail Khodorkovsky case), the seizing of privately owned businesses by functionaries of state security agencies, the corruption of officials and other factors that place Russia in one of the lowest places in world indices of climates favourable for investment.

Medvedev knew all this, but for a long time avoided conflict with Kudrin, since he needed a minister with experience. However after Kudrin’s speech last Saturday, in which the myth of Medvedev the moderniser was definitively demolished, the President lost his self control. He realised how he was regarded with contempt by all the clever, highly educated technocrats on whose support had had relied over the past years.

“After Kudrin’s speech last Saturday, in which the myth of Medvedev the moderniser was definitively demolished, the President lost his self control. He realised how he was regarded with contempt by all the clever, highly educated technocrats on whose support had had relied over the past years.”

Putin is an independent and cocky character – in a situation like this he could stand up to a public whom in his heart of hearts he probably despises. But Medvedev lost his nerve, and decided he needed to show the public that he was capable of taking hard decisions and would not allow himself to be pushed around. So when the Finance Minister put his head above the parapet, the President dealt with him decisively, ignoring the looming crisis and thinking only about his own reputation. In any case, as he demanded Kudrin’s resignation he said nothing about Russia’s complex economic problems. This was seen on television by the whole country. 

Kudsrin_Putin

Alexei Kudrin and Vladimir Putin have worked since the early 1990s, when they both served in the St. Petersburg city administration. It is widely believed that Kudrin helped Putin to find a job in Moscow after the 1996 election defeat of their former boss Anatoly Sobchak. The question that many are now asking is whether Vladimir Putin will repay the favour and find a job for Kudrin.

So what led to Kudrin’s demarche, which led to his resignation six months earlier than planned? In Russia there has recently been much talk about how, if Putin is re-elected President, it would be logical to offer the post of Prime Minister to Kudrin. It is no surprise that many have taken his statement about disagreements as an expression of umbrage at Medvedev’s being appointed Premier rather than himself. On closer examination, however, it becomes clear that such an analysis does not match the facts. Only a naïve commentator could expect Putin to hand the post of Head of Government to an independent figure who is committed to passing unpopular economic reforms. All independent leaders in Putin’s Russia inevitably end up marginalised. And the post of Prime Minister in Putin’s regime can only be occupied by a puppet who has no weight with either the elite or the masses – someone like Fradkov or Zubkov, who between them occupied the post between 2004 and 2008.

Medvedev, who as President has shown that he presents no threat to Putin, is a perfect de jure candidate for the role of Head of Government, given that de facto it will be headed by Putin himself.   

So, Putin would never have given the post of Premier to Kudrin in the future. But his demarche can be understood if one looks closely at what Kudrin has been saying these last weeks. Which is, that Russia is completely unprepared for its impending economic crisis. The administration takes populist decisions which will be disastrous for the country. And one can understand the Minister of Finance. He saw this gloomy prospect and had no wish to officiate at the funeral of the financial system that he had spent many years establishing.

The point of the demarche, however, is not Medvedev; Putin is equally responsible for the growing populism of Russian politics. The point is that Kudrin was yet again trying to draw attention to a problem he had been raising for many years.    

Among Russia’s elites, Kudrin’s authority is pretty high. In his ten years as Minister of Finance he achieved in real terms two very important things. In the first place, at the very beginning of the last decade he pushed through tax reforms which significantly lowered the fiscal burden on business. And in the second, in the middle of the decade he created a stabilisation fund, thanks to which the administration had enough money to carry out its budgetary obligations when the crisis broke. Neither of these steps was an obvious one. Many criticised Kudrin, saying that with the lowering of taxation the budget would come unstuck, and that salting cash away in a ‘moneybox’ would put a brake on economic development. The Finance Minister had the confidence to stick to his guns, although he was probably risking his position even then. And Putin, incidentally, had the common sense to understand his Minister’s logic. Medvedev, however, was oblivious to this common sense.

About the author

Dmitri Travin is Research Director at the European University in St. Petersburg's Centre of Modernization Studies