Medvedev Moves to Stamp Out Dissent Before Stepping Aside for Putin Return

President Dmitry Medvedev stepped up efforts to stamp out dissent before Vladimir Putin’s planned return to the Kremlin, warning officials against challenging his policies a day after firing Finance Minister Alexei Kudrin.

Anyone in government who questions the president’s plan to boost defense spending must quit or “work elsewhere,” Medvedev said after overseeing a counter-terrorism exercise in the Chelyabinsk region of the Ural Mountains today. “Russia isn’t a banana republic” and must maintain an army that reflects its status, he said.

Medvedev, who agreed last week to swap places with Prime Minister Putin after presidential elections in March, yesterday ousted Kudrin for publicly criticizing his military budget. Putin today named Anton Siluanov, Kudrin’s deputy for overseeing arms spending, acting finance minister, an appointment that he said was approved by Medvedev.

Kudrin, 50, told reporters in Washington on Sept. 24 that he couldn’t work in a future Cabinet led by Medvedev because his plan to spend an additional 2.1 trillion rubles ($65 billion) on defense through 2014 would create too much “additional risk” to the economy. Kudrin had been in office since 2000, crafting the nation’s recovery from its 1998 default by reining in public spending and creating rainy-day funds that cushioned the impact of the global credit squeeze.

Polarization

Kudrin’s removal signals the polarization of the Russian elite, which is on the verge of a “tectonic” shift in ideology, billionaire Mikhail Prokhorov said in a blog post. “We stand on the verge of very important changes,” Prokhorov said. “There’s no doubt” more Cabinet members will resign.

Prokhorov, Russia’s third-richest man with a fortune Forbes magazine put at $18 billion, quit as leader of the Pravoye Delo party on Sept. 15, saying Medvedev’s administration had blocked the group’s preparations for December’s parliamentary elections. The Kremlin on Sept. 25 removed Prokhorov from a presidential commission on modernizing the economy.

Putin, who engineered Medvedev’s succession in 2008 after serving the legal limit of two consecutive terms, told the dominant United Russia party on Sept. 24 that he will run for president and may make Medvedev premier if he wins. The announcement ended years of speculation over how the so-called tandem, by far the two most popular politicians in the country, planned to rule Russia after Medvedev’s term ends in May.

‘Painful’ Policies

“Medvedev made a show of firing Kudrin yesterday in a bid to restore discipline until Putin takes over,” said Nikolai Petrov, a political analyst at the Carnegie Center in Moscow. “Putin sacrificed Kudrin for the sake of the tandem, even though the tandem doesn’t really exist anymore.”

Kudrin said in a statement today that he approached Putin in February to express “his desire to resign” but agreed to stay because leaving before a new budget was formed in an election year was deemed “undesirable.”

Medvedev, as premier, will have to take responsibility for a number of “painful” initiatives the government must undertake to avoid social discontent, including growing budget deficits and the economy’s continued dependence on natural resources, Petrov said. “Putin may make Medvedev the scapegoat for unpopular reforms and bring back Kudrin to replace him in a couple of years,” he said.

Ratings Unaffected

Russia’s credit profile is unaffected by the government reshuffle, Standard & Poor’s and Fitch Ratings said. The rating companies have in the past month both affirmed the country’s long-term rating at BBB, the second-lowest investment grade, citing vulnerability to sudden changes in the oil price.

The nation’s sovereign credit rating was last raised by New York-based Moody’s Investors Service in 2008 to Baa1, the third- lowest investment grade.

“We will see what will happen and whether this signifies a change of policy or a rearrangement in portfolios,” Ed Parker, Fitch’s head of European emerging-market ratings, said by phone.

Even so, Kudrin’s exit may complicate efforts to “consoldiate public finances,” S&P analysts led by Kai Stukenbrock in Frankfurt wrote in a statement released today.

The personnel changes “could make it more difficult for Russia to deal with such challenges as strengthening the country’s long-term growth potential by improving the business environment, competition,” S&P said.

To contact the reporters on this story: Alena Chechel in Moscow at achechel@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editors responsible for this story: Brad Cook at bcook7@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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