Putin and the Cabinet, Putin and business: "All eyes on the Kremlin!"


“I will dissolve your Cabinet!” This comment by President Vladimir Putin in Novosibirsk, in response to the theft of two capacitors from the Nuclear Physics Institute, led to a stream of comments and forecasts on all national TV channels. But later it turned out that, as the newspaper Izvestia said, “the president never said anything like this, or at least no one heard him say it”. Researchers from the Nuclear Physics Institute have turned out to be the only source for the president’s statement. The work of this institute was paralyzed for six months because of the stolen capacitors. But it seems that the president’s “joke” has fallen on fertile soil.

Izvestia says “the Moscow elite is tired of waiting for political developments”. The public grew used to cabinets being replaced a couple of times a year under Yeltsin, so it expects the new president to maintain this tradition: “Kasianov’s government has spent six months in office, so it’s high time to for them to go.” According to the newspaper these expectations are caused by the need for “political commentary as a genre”. Russian politics doesn’t have enough subject matter: “the topic of oligarchs is fleeting”. Regional election battles do not generate interest, as a rule. That’s why the topic of a possible Cabinet dismissal has come in handy: “It would be very interesting to predict who will be appointed next.”

In addition, Izvestia attributes rumors about the replacement of the Cabinet to “the major domestic political conflict”. This is a reference to disputes over the role and place of the State Council in the government system.

Izvestia notes: “Most of the presidential envoys say they can reach an agreement with regional leaders. This cannot be said for the Cabinet, which is not always happy about attempts by the presidential envoys to encroach on its authority.” This is another argument in favor of dismissing the ambitious Cabinet, which might be hampering the presidential envoys.

According to Vitaly Portnikov, writing in the Vedomosti newspaper, the reaction of Russian politicians to Putin’s remark on “dissolving the Cabinet” was so dramatic because everyone understands “he was not making a slip, but letting let the cat out of the bag.”

According to Portnikov, Putin wants to dismiss the Cabinet, but he has not yet found a plausible pretext: “That’s why he is happy about any opportunity to remind the Cabinet of the fate awaiting it.”

Vitaly Portnikov thinks the president should not be reproached for his impatience. Suffice it to recall how this Cabinet was formed under Sergei Stepashin, who was not allowed to participate in its formation: “Yes, this is the very same Cabinet. I don’t want to argue about whether it’s good or bad. But it is not Putin’s Cabinet. That’s why the president will always be afraid of this Cabinet, awaiting the moment when he will be able to form his own cabinet.”

This is a natural desire. The problem is that judging by rumors, it is very likely that Kasianov will be replaced by Sergei Ivanov, currently Secretary of the Security Council.

According to Portnikov, this means that the president considers the replacement of the Cabinet to be a political rather than economic matter: “He should not do this, because a ‘political’ Cabinet government headed by General Ivanov could only run Russia successfully as long as oil prices remain high.” When the oil prices start falling, Putin will need some economists.

Nevertheless, the president clearly seems set on doing this, and the task of “leading Russia out of its economic difficulties and political disappointments” will be given to “a political Cabinet, in which Putin will more confident”.

The Segodnya newspaper considers that the recent “invitation” for Deputy Prime Minister Alexei Kudrin to visit the St. Petersburg prosecutor’s office – to give evidence in a criminal case connected with abuses by the St. Petersburg municipal government when it was headed by Anatoly Sobchak – is an indirect confirmation that Sergei Ivanov is preparing to become prime minister.

The newspaper notes that the “invitation” was sent by fax to the Finance Ministry, where Alexei Kudrin rarely appears. Moreover, the fax was sent on November 17, when Kudrin was in Novosibirsk with President Putin (this was known by the prosecutor’s office).

Segodnya states: “It seems that this was actually not an invitation, but a ‘black spot’, a kind of warning shot.” According to Segodnya this action was instigated by Security Council Secretary Sergei Ivanov, who has recently been encouraged by the president, who promised him the post of prime minister. (Ivanov is a very convenient person for the president’s team, for several reasons. According to Segodnya, if Kasianov is replaced by Ivanov there’ll be no need to dismiss Alexander Voloshin, head of the Presidential Administration… At present, Voloshin can call Kasianov and tell him what to do. If Ivanov is appointed prime minister, Voloshin will have to ask him nicely.)

Kudrin and Ivanov represent different political groups. Secondly, according to Segodnya the president’s relations with Kudrin are better than with Ivanov. “This does not bother Ivanov, but will not satisfy the prime minister.” The article is titled “St. Petersburg team versus the St. Petersburg team”.

Tatiana Koshkareva and Rustam Narzikulov explain in Nezavisimaya Gazeta why Kasianov’s replacement by Ivanov may be considered inevitable.

The “oil bonanza” which has allowed the Russian government to get by without any serious problems is almost over. OPEC has already announced that oil prices will fall. In the worst-case scenario, Russia could be short about $7 billion in 2001. Moreover, the excess of oil dollars in Russia has led the International Monetary Fund to refuse Russia loans for next year. According to Nezavisimaya Gazeta, IMF representatives noted that “the Russian economy is doing so well that Russia should pay back its debts”.

This stand by the IMF will lead to the Paris club of creditors refusing to restructure Russia’s debt: this means that Russia will lose another $5 billion. In all, next year Russia’s treasury will lose about $12 billion. But the federal budget drawn up for 2001 relies on having this money.

The most regrettable aspect of the government’s performance is the absence of a coherent economic policy. Koshkareva and Narzikulov say: “Russia’s economy is dominated by external factors: oil prices and share prices in the US and worldwide. But it is not controlled by the government.”

This situation is very dangerous, because the global economy is expecting a new crisis. It is preparing for a storm. The Western media is talking of a possible sharp drop in economic growth in the developed world, including the US. This may lead to a global economic slump, from which Russia will not be able to hide. It is clear that the Russian government must do something about this situation. This is a very difficult question: what should be changed?

The answer is clear: “First of all, the Cabinet should be changed. The passivity of the present government can be compared with the navel-gazing of Primakov’s cabinet.

Replacing Kasianov is not a problem. By studying the political and economic trends of the past few years, one can learn that liberal economists whose plans are actively discussed by the media will not make it into the new Cabinet: “The government has gained control over all export sectors: oil and gas, metallurgy and defense.” According to Nezavisimaya Gazeta the former oligarchs have turned into proteges of the federal government, while nominally remaining the owners of their companies. Why replace Kasianov, if preparation for a global crisis is going well while he is in charge?

According to Koshkareva and Narzikulov, Kasianov’s successor will be a skilled auditor, rather than an economist. It’s clear that Ivanov’s candidacy meets the requirements.

The Vek weekly gives a very interesting description of relations between big business and the government. According to Vek, Russian business leaders have not supported Boris Berezovsky’s prediction that “Putin’s regime will collapse before the end of its constitutional term if he continues with his destructive policies” (a quote from Kommersant-daily).

Putin has corrected at least one fault of the former regime: tycoons no longer “kick” at Kremlin doors.

Vek states that the business sector has responded to Putin’s new course quite calmly and reasonably. Business leaders have reorganized the Union of Industrialists and Entrepreneurs, turning it into the main organizational body of the business community. “The business sector has not supported Berezovsky and Gusinsky, and has not opposed the government. On the contrary, the business sector has started creating a completely new mechanism for protecting its interests, using legal and transparent measures”.

Finansovaya Rossia paints a gloomier picture of relations between the regime and big business.

The fact that such influential figures as Anatoly Chubais, Alexander Mamut, Mikhail Khodorkovsky, Vladimir Potanin and Mikhail Fridman have joined the Russian Union of Industrialists and Entrepreneurs (RUIE) can be explained by “the change of eras”. Business leaders do not think it’s out of the question that they could be imprisoned for disobeying the regime.

The newspaper quotes Igor Lisinenko, deputy President of the RUIE, as saying: “Until recently, business developed through links with the government. Now everyone is in the same boat. That’s why they will have to move in the same direction.” According to Finansovaya Rossia Russian tycoons have decided “to blend into the crowd.”

It is possible that the Union of Industrialists and Entrepreneurs is not a 100% reliable refuge. But this is the only organization which is not associated with major scandals, thanks to its president Arkadii Volsky.

According to analysts, “the oligarchs are trying to gain an unsullied reputation”: the RUIE represents Russia in the International Labor Organization and in the International Workers Organization. As for Volsky, he is a member of all state councils and commissions for supporting business. That’s why “if the government offends a member of the RUIE, this will mean that it has encroached on the freedom of business”.

The Moscow News called the new membership of the Russian Union of Industrialists and Entrepreneurs (RUIE) “a capitalists’ trade union”. According to the weekly, it is hard to assume that big business could seriously decide to establish an additional body for resolving its problems: “Each of the tycoons who are members of the RUIE has so many well-developed methods of exerting pressure on the parliament, the government, and the Kremlin, that additional methods can only be a hindrance.”

Neither the tax situation nor the customs situation in Russia have changed – so business leaders have no reason to start a new dialogue with the authorities.

It is more likely, according to the Moscow News, that the regime has decided to demonstrate to the public that “the business sector now has honest and equal relations with the government”. Despite President Putin’s declaration about “equal distance”, it is still necessary to communicate with business leaders somehow. That’s the major reason for the invention of this “theoretically impeccable plan”. (The weekly notes that this scheme is the exact analogue of presidential envoys’ meetings with regional business elites.)

There is another thing The Moscow News considers strange: “Why has the super-cautious Putin failed to sense the potential danger in the new membership of the RUIE?”

Business is now trying to please the government, which has led the regime to relax. However, the moment any move which will be unpopular among tycoons is made, the situation is likely to change. The magnates have already proved that they are able to act in unison: all of them signed the letter in support of Vladimir Gusinsky, including his known and covert opponents.

The Moscow News says: “Even now, the RUIE is reminiscent of a rebel army. So the regime had better stop provoking the tycoons by saying that they are no longer masters of Russia.”

Nikolai Vardul, editor of the economic policy section of Kommersant-Vlast magazine, believes that the president’s fight against the tycoons is “the most dramatic event of the past year”. At the same time, Vargul does not think that the time of the tycoons is over; according to him, “We just need different tycoons.” And indeed there are other tycoons in Russia, mostly in industry: ferrous and non-ferrous metallurgy, as well as the oil sector, where the role of the state is traditionally very significant. (Vardul also stresses that if there are any new major figures in the oil business, they are, as a rule, directly connected to state companies).

However, according to Vardul, there are some fields where the state openly supports tycoons, and their ranks will swell by the direct order of President Putin. “This field of miracles is called the banking sector. That’s where the new business elite will start their campaign against the old tycoons.”

The formation of the new elite began with amendments to the law on the Central Bank, which gives the Central Bank the status of a state body. This seems, says Vardul, just an obvious step in bringing order to Russia; however, he says it is “actually the subordination of the Central Bank to the executive branch”. Besides, the government has already announced its plans to concentrate all state funds in three or four major state-owned banks, “which, in these terms, will automatically become monopolists”. In fact, this means the whole banking sector will be subordinated to the government.

Vardul says: “This is far from being socialism, but neither is it a free market economy.”

Chief executives of such state-owned banks will have to become “Putin’s tycoons”. Rumor has it that Alexander Voloshin might also be one of them, for example as the head of the Savings Bank (Sberbank), since he “understands perfectly well that his time in the Kremlin is nearly over.” Apparently, thenew tycoons will fully meet the current demands, they will be “fully accountable and follow all the orders of the president and Cabinet; moreover, they will be easy to replace.” Vardul also stresses that they will be “direct economic counterparts of the presidential envoys”.

Thus, it cannot be said that there are no changes taking place in the economy: in this sphere, all the changes are synchronized with the formation of the power hierarchy in the government system.

The process of establishing relations between government and business can be considered multilateral: there are always new projects in the federal districts. and as usual their authors are “more royalist than the king himself”.

According to Itogi magazine, Sergei Kirienko, presidential envoy for the Trans-Volga federal district, is ready to propose to the presidential administration his own version of strategies for the near future.

Unlike other presidential envoys, who have concentrated their efforts on implementing the “compulsory program” of the federal government (bringing local laws into compliance with the federal constitution), Kirienko has found time to work out a program of his own. According to him, “a presidential envoy is simultaneously a center for anti-crisis measures and the draft of a new model of management”.

A branch of the Strategic Developments Center has been opened in the Trans-Volga federal district. Kirienko’s major idea, which he is planning to submit to the president, is to break the old administrative system in the Russian regions (this system, according to Itogi, has both Soviet and feudal characteristics). Then Kirienko suggests building a new, unified economy and creating an attractive investment climate. Moreover, Kirienko suggests not only reviewing federal legislation, but also creating “normal work conditions for entrepreneurs in the regions”.

However, this idea was first discussed by analysts at Herman Gref’s Strategic Developments Center last spring. The essence of the idea is to break the “closed-circle economy” which has formed in recent years, the characteristic feature of which is alliances between regional governments and regional business leaders; removing administrative barriers to competition; and eliminating the habit of living on borrowed money.

According to an official from Kirienko’s staff, “regional leaders are so used to federal subsidies that they cannot draw any money from their own regions.”

It is this tradition, according to which the prosperity of regional governments has depended on the federal government, while prosperity of business has depended on the attitude of the regional governments, that Kirienko wants to replace with a new model of relations, based on competition between regional governments that will be trying to attract investors to their regions. Such a model could also help solve the problem of opposition to the federal government, since investors will never work with unstable regions.

Kirienko hopes his ideas can be useful in the near future: there are reports that a special group of presidential aides in the Kremlin has already started to prepare the annual presidential address to the upper house, the Federation Council, which President Putin will make in February.

What’s more, according to our source in the presidential administration, the authors of the address have not yet come up with a central idea for it: “They cannot think of anything new, and are just shuffling the cards trying to guess what the president wants… at the same time, Putin demands: ‘Stop guessing. Make your decision!’ Still, the authors of the address are scared that their boss may not approve of their work.”

And in these terms, the ambitious presidential envoy considers that his proposal could be a smash hit. What else is there?… According to Itogi, Kirienko’s current post is not as high as he might climb; it is just a step to his real goal – “in the near future, more or less” – the presidency.

Over summer there were rumors in Moscow that Kasianov was likely to be replaced by Kirienko. Now these have died down, and Kirienko says he is in no hurry to move to Moscow. He says: “I would like to be a presidential envoy for at least two to three years… I’m really interested in all that is happening, and all I’m doing. I have a lot of work still to do, and I have enough time.” Kirienko is convinced he will be useful to the state: according to Itogi, he is ambitious, decisive, successful; and whenever he is faced with a choice between the purity of an idea or power, he always chooses power. In that respect, he is also “a Putin person”.

Profil magazine considers the swing from Yeltsin’s liberal irresponsibility to Putin’s militarized sovereignty has been determined by many factors, including foreign affairs; in part, by the results of the ongoing presidential election in the US.

Most analysts agree that the Republican candidate will eventually win. This will also mean that the US will start to build its national missile defense system; thus, the US will automatically withdraw from the 1972 ABM treaty. According to Profil this will be a catastrophe for the Russian Foreign Ministry.

However, the magazine continues, it should be taken into account that all the negative domestic consequences for Russia of a Bush presidency will be outweighed by “some huge strategic bonuses for Russian conservatives: officers of the special services, who support a strong state; proponents of ‘civilized isolation’, who are aiming to get into power after President Putin”.

Undoubtedly, as soon as Bush takes power the US will reduce all forms of aid to Russia. Policies on Russia’s debts will also be tightened. In short, US policy toward Russia “must clear up the last doubts about the real balance of forces in the world” (especially once the national missile defense goes ahead, and the US refuses to negotiate on START agreements).

As a result, Profil considers, the sovereignty rhetoric of the current Russian government is very likely to be replaced by real politics, “an almost overt anti-Americanism in diplomacy, and increased defense spending.” This, in turn, will mean reduction of all liberal programs and dismissal of the present Cabinet, which has been formed by people like Anatoly Chubais, Herman Gref, and Mikhail Kasianov.

They will inevitably be replaced by “home-grown Republicans” from teams which are close to Putin: Yevgeny Primakov and Security Council Secretary Sergei Ivanov. According to Profil, this, as well as the forthcoming purge in the presidential administration, will mean “the gradual elimination of the post-Yeltsin power hierarchy – only then will it be clear who Vladimir Putin is and what he wants.”

However, as journalist Lilia Shevtsova of Obshchaya Gazeta notes, it is already clear what is happening in Russia, and where it will lead. “It is regrettable, but we seem to have lost Berezovsky: once he had nothing left to lose, he started to tell the truth… Now, everyone else will have to discuss this truth in their kitchens. “