Medvedev Seeks to Recapture Lost Russian Electoral Momentum at G-8 Summit

Russian President Dmitry Medvedev’s most important audience during the Group of Eight summit may be a world leader who isn’t present: Prime Minister Vladimir Putin.

Medvedev met yesterday with U.S. President Barack Obama, who said improved relations have led to greater cooperation on issues such as a planned missile-defense system, Iran and nuclear security. The summit in Deauville, France, may help Medvedev demonstrate the importance of his links to world leaders, said Chris Weafer of UralSib Financial Corp. in Moscow.

"Medvedev has clearly lost domestic momentum in the race for the March election," said Weafer, UralSib’s chief strategist. "A successful G8 summit, even without any specific concessions won, is important for him as it shows the domestic audience that he is a credible and respected leader that can successfully represent Russia’s interests on a global stage."

Putin, who stepped down as president in 2008 because of a ban on serving more than two consecutive terms, this month formed the All-Russia People’s Front to rally support for his United Russia party, a move many analysts interpreted as a sign he would run for president next year. He won the backing of billionaire Alexander Lebedev, who joined the movement.

Putin, 58, chose Medvedev as his successor in 2008, and neither men have ruled out running in the March 2012 elections. The premier, who has remained at the center of power as prime minister, leads Medvedev in opinion polls.

‘Man in Charge’

"In the end, it is Putin, not Medvedev, despite his more western-friendly image, who has the best chance of controlling power in Russia beyond 2012," Ariel Cohen, a senior fellow at the Heritage Foundation in Washington, said by phone yesterday. "The G-8 leaders better recognize that and prepare to deal with the man in charge."

While Medvedev and Obama discussed missile defense in France and agreed to work together to maintain the "strategic balance," the two countries remain divided on the issue. A resolution may take until 2020 and be left to future U.S. and Russian presidents, Medvedev said yesterday.

Putin returing to the presidency is the scenario priced in to Russian equities ,Julian Rimmer, a trader of Russian shares at CF Global Trading in London, said by phone on May 18. The stocks would jump 10 percent in "short order" if Medvedev, who has pledged to improve the rule of law and promote foreign investment, would continue as president, he said.

Russian stocks are the cheapest of the four so-called BRIC nations, with a price-earnings ratio of 8.1 compared with 9.7 for Brazil and about 16 for China and India, according to data compiled by Bloomberg.

‘Same Old Excuses’

"If Medvedev stays then the same old excuses for not investing in Russia will fade away, and it could lead to Russia becoming a conventional investment target," said Mattias Westman, chief executive officer of London-based Prosperity Capital Management Ltd., which oversees $5.2 billion in Russia and the Commonwealth of Independent States.

Uncertainty continues to cloud the succession as Putin and Medvedev delay announcing which of them will run.

"The chance that the next president of Russia will be either Medvedev or Putin is astonishingly high," Peter Jarvis, senior investment manager at Pictet Asset Management Ltd., which has about $1.5 billion invested in Russia, told reporters in London on May 17. "In terms of backing one horse or the other, only two people have the answer to that."

Medvedev, a 45-year-old former corporate lawyer from Putin’s hometown of St. Petersburg, has staked out diverging positions from Putin in recent weeks.

‘Dangerous Thing’

Speaking at a conference of youth activists in central Russia on May 13, Medvedev said an excessive concentration of power is a “dangerous thing,” and that he opposed building a political system tailored to one individual.

The comments amounted to a veiled criticism of Putin and reflect disappointment at what Medvedev sees as a move to sideline him, according to Masha Lipman, an analyst at the Carnegie Moscow Center.

At a news conference outside Moscow last week, his first major appearance before journalists since he became president, Medvedev said that freeing imprisoned billionaire Mikhail Khodorkovsky wouldn’t be “dangerous at all” and that he supports faster modernization of the economy than Putin.

The Moscow City Court on May 24 rejected Khodorkovsky’s appeal of his conviction on money-laundering and oil-theft charges that added six years to his original eight-year sentence. The court agreed to reduce the sentence by one year.

‘Doesn’t Deliver’

Khodorkovsky, once Russia’s richest man, says Putin targeted him because he funded opposition parties, a charge the prime minister denies. The U.S. and European governments said the latest verdict was a step backward for judicial independence in Russia and would harm the investment climate.

While Medvedev’s platform enjoys some support, he hasn’t shown the ability to implement his policies, said Mikhail Dmitriev, head of the Moscow-based Center for Strategic Research, which advises the government. As president, Medvedev has the right to pardon Khodorkovsky.

"The problem is not with Medvedev’s political agenda but this is a confidence problem," Dmitriev said. "The public is convinced that he promises too much and doesn’t deliver."

Medvedev and Putin have governed Russia through a so-called tandem of power, with the president serving as the face of Russia in international affairs. While Putin will consider Medvedev’s role in foreign policy when deciding whether to run next year, it will be of secondary importance, said Mikhail Vinogradov, head of the St. Petersburg Politics Foundation.

"The chances of Putin taking presidency in 2012 are 65 percent versus Medvedev’s 35 percent, but this is not final," he said. "Foreign policy is, of course, something that Medvedev can claim as his success, and he needs foreign leaders’ support as he is criticized in Russia for being a weak president."

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Lyubov Pronina in Moscow at lpronina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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