Putin Aims for Stability by Keeping Russia’s Key Ministers

President Vladimir Putin
President Vladimir Putin wants to boost economic growth to at least 6 percent a year to turn Russia into one of the world’s five largest economies by purchasing power by 2015. Photographer: Alexander Zemlianichenko Jr./Bloomberg

President Vladimir Putin retained key ministers in Prime Minister Dmitry Medvedev’s new Cabinet, keeping control over the levers of power during what he called a challenging time for the global economy.

Putin, who returned to the presidency this month after four years as premier, today reappointed the finance, defense and foreign ministers as well as First Deputy Prime Minister Igor Shuvalov, his pointman for relations with foreign investors and the country’s richest businessmen. The Russian leader named Medvedev’s economic aide, Arkady Dvorkovich, to oversee the energy industry as one of the seven deputy prime ministers.

“Judging from the make-up of the new government and past experience, Vladimir Putin will play the decisive role in economic policy, he’ll have the final word,” said Kirill Rogov, an economist who worked on one of the panels reviewing the government’s Strategy 2020.

The new Cabinet takes over as Europe’s deepening sovereign-debt crisis, falling oil prices and opposition protests against Putin’s rule have accelerated capital flight from the world’s largest energy exporter. Russia’s benchmark ruble-denominated Micex Index had the biggest drop in seven months last week.

‘Difficult Situation’

“I want to wish you success in the difficult situation in which the world economy finds itself, a situation of uncertainty with many unknown factors,” Putin, 59, said in a Kremlin ceremony in Moscow. “In these conditions you will have to carry out the program for Russia’s development.”

Putin wants to boost economic growth to at least 6 percent a year to turn Russia into one of the world’s five largest economies by purchasing power by 2015. The nation needs to maintain its output of oil, its main export, at more than 10 million barrels a day, on par with Saudi Arabia, the Russian leader said in October 2010.

Putin’s former deputy premier in charge of energy, Igor Sechin, while leaving the government, will “remain influential” in the oil and gas industry, said Ronald Smith, a Moscow-based analyst at Citigroup Inc. Sechin has been nominated to lead the state company that owns stakes in OAO Rosneft and OAO Gazprom.

Putin presented the new Cabinet today in a meeting broadcast on state television. Anton Siluanov will keep the post of finance minister, Sergei Lavrov the foreign minister’s job and Anatoly Serdyukov remains as defense minister. Putin also named Andrei Belousov as economy minister and Alexander Novak as energy minister.

Oil Prices

While high oil prices from 2000-2008 enabled Russia to post average economic growth of 7 percent, the European Union, Russia’s largest export market, is grappling with its worst economic crisis in decades just as the struggling world economy puts a cap on crude prices.

Russia is dependent on oil and gas sales for half of government revenue. The budget is slipping into a deficit and the current-account balance is likely to turn negative in 2014 or 2015, said Ivan Tchakarov, chief economist for Russia at Renaissance Capital in Moscow.

Investor concerns spurred $42 billion in capital flight in the first four months. The authorities also face the largest unrest in Putin’s 12 years in power, sparked by demonstrations against alleged fraud in December parliamentary elections.

First-Quarter Growth

Still, Russia’s economy grew 4.9 percent in the first quarter, the fastest rate since the three months ended September 2011.

There will be close coordination between Medvedev’s Cabinet and the Kremlin, who agree on the need divest state assets and for Russia to be competitive in attracting foreign capital, Kirill Dmitriev head of Kremlin-backed private-equity fund, the Russian Direct Investment Fund, said by phone. Shuvalov, as a “big champion” for foreign investors, will play a “key role,” he said.

Shuvalov said today that the government will prepare an accelerated schedule for the sale of state assets within the next 10 days.

A major challenge for the Cabinet will be to accommodate $160 billion in spending increases promised by Putin while reducing the $115 oil price required to balance the budget, said Chris Weafer, chief strategist at Troika Dialog, the investment bank owned by state-run OAO Sberbank.

Putin’s team will also spar with Medvedev’s because it wants to limit the sale of stakes in strategic state companies and delay raising the retirement age, a measure needed to cut the deficit in the pension system, Weafer said.

The problem for Russia is that Medvedev’s Cabinet doesn’t have the political weight to carry out major programs, said Gleb Pavlovsky, a Kremlin adviser until last year.

“In reality, it is a technical Cabinet, with the exception of the prime minister, who has been handed unique vice-presidential powers,” he said.

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