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Putin Names Medvedev His Successor

Investors breathe a sigh of relief as the Russian President finally endorses a pro-Western, market-friendly candidate

At long last, the biggest mystery in Russian politics has finally been resolved. On Dec. 10, Russian President Vladimir Putin revealed the long-awaited name of the candidate he will back in Russia's presidential election in March. Ending months of feverish speculation, the President has chosen his First Deputy Prime Minister and former chief of staff, Dmitry Medvedev.

At a key meeting with leaders of the pro-government United Russia party, which is due to officially endorse a candidate on Dec. 17, Putin left both party and nation in absolutely no doubt about whom he would back. "I've known him for 17 years, am very close to him, and fully and entirely support this candidate," Putin said of Medvedev.

(Editor's Note: On Dec. 11, Medvedev returned the favor. He revealed in a speech that if elected he would ask Putin to serve as Prime Minister and head of the government.)

Everyone understands that Putin has for all intents and purposes anointed his successor. "We've got the name of the next President of the Russian Federation," says Vyacheslav Nikonov, a well-known Russian political commentator close to the Kremlin. Putin's own prestige and popularity mean that whomever he backs will almost certainly be elected by a large majority in March.

Protecting Medvedev from Rivals

The news follows months of political intrigues, which had kept people guessing until the last minute. Ever since Putin promoted Medvedev to the rank of First Deputy Prime Minister two years ago, he has long been seen as one of the most likely candidates to succeed Putin. (BusinessWeek called it right at the time (BusinessWeek, 11/28/05).)

More recently, Medvedev's star had appeared to wane, as Putin apparently tilted first toward Sergei Ivanov, a hawkish former defense minister, and then to Viktor Zubkov, who was unexpectedly promoted to Prime Minister in September (, 9/12/07). Until Putin's Dec. 10 announcement, all three candidates were regarded as strong possibilities.

But in retrospect, such maneuvers appear to have been part of an elaborate bluff designed to prevent rivals from damaging Medvedev in advance of the election campaign. "I think Putin decided on him from the very beginning," says Nikonov. "He's quite smart. He grasps things immediately. He's young and is a long-term political shot. He's quite efficient and can deliver results."

Investors Relieved

Putin's backing of Medvedev is the best news that investors could realistically have hoped for. Russia's benchmark stock market index, the RTS, was up nearly 2% on the day of the announcement. Medvedev, 42, is seen as representing the more liberal and pro-Western wing of Russia's ruling establishment. "There has been resolution of the uncertainty," says Clemens Grafe, economic and political analyst at UBS (UBS) Investment Bank in Moscow. "It will also mean a change of image. You can't see Medvedev continuing with the strong anti-Western comments you saw in the runup to the Duma elections. He'll rebuild relations with Western leaders."

Medvedev's relative youth is one reassuring quality. "Medvedev is someone who was formed after Russia became a democracy, with a market economy," says Alexei Makarkin, a political analyst at Russia's Center for Political Technologies. It also helps that, unlike so many of Putin's close entourage (notably former defense chief Sergei Ivanov), Medvedev does not hail from the Russian security services.

A former law professor at St. Petersburg State University, Medvedev became closely associated with Putin when he advised the St. Petersburg mayor's office on legal questions, while Putin was deputy mayor. He subsequently became one of Putin's closest and most trusted subordinates, serving as the Kremlin chief of staff between 2003 and 2005 and as the chairman of Gazprom (GAZP.RTS) since 2002.

More recently, Putin has picked Medvedev to spearhead the Kremlin's social policy initiatives in health, education, housing, and agriculture (, 3/29/07). In this new role, Medvedev has had mixed success. Although the Kremlin has recently been plowing money into schools, hospitals, and housing, Russians continue to grumble about the poor state of social services. Yet Medvedev's achievements seem to have satisfied Putin about his abilities as a manager. They've also turned him into one of Russia's best-known public officials, which should make him a relative easy sell to the Russian electorate.

Putin's Puppet?

While Putin's choice has answered one of the most important questions, other intriguing questions remain. The most important is what role Putin will play in the future. Some analysts emphasize that the much younger Medvedev has always been in a clearly subordinate position to Putin, who has been in effect Medvedev's mentor. By picking such a protégé, Putin has ensured that he will retain considerable behind-the-scenes influence.

More generally, there are questions about just how much authority Medvedev will wield as Russian President. As the transfer of power approaches, evidence of factional rifts within Putin's entourage is mounting. No doubt some of the President's former KGB colleagues would have been happier to see a more hawkish successor, such as Ivanov. It remains to be seen just how successfully Medvedev, a mild-mannered former academic, will deal with the scorpion's nest of Kremlin intrigues. "Of course he won't be the dominant figure in Russia," says Makarkin. "He'll be a part—an important part—of the system of checks and balances that is being created by the departing President."

Nevertheless, Medvedev's authority has gotten a massive boosted from Putin's public endorsement. At least for the foreseeable future, that should be enough not only to win the backing of the Russian electorate, but also to bring the squabbling Kremlin factions in line behind Putin's man. In the long term, it will be up to Medvedev to prove he has what it takes to justify the positive expectations of Putin and investors alike.

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