Putin Positions Himself for Influence

The Russian President's nomination for Prime Minister indicates that he's trying to fill key positions, not just the presidency, with allies

Is history repeating itself? It's an obvious question to ask, after Russian President Vladimir Putin dismissed his government on Sept. 12, nominating the little-known Viktor Zubkov, the head of Russia's anti-money-laundering watchdog, to head his government. The appointment, just seven months before presidential elections in March, invites obvious parallels with Putin's own route to office. Pundits in Moscow have long predicted that Putin would follow the same tactics as his predecessor Boris Yeltsin, handing the premiership to his preferred successor.

Putin, though, has a habit of springing surprises, and he seems to have deliberately rejected the model that smoothed his own path to high office. Few in Russia believe that Zubkov, 66, will be Putin's choice when it comes to backing a successor next March. Instead, Putin looks as if he is positioning himself to play the role of arbiter in Russia's future political system, placing reliable allies in senior positions. "Putin doesn't want to repeat the same scheme as Yeltsin," says Vladimir Pribylovsky, head of the Panorama political think tank in Moscow. "What he wants is for both the next President and the next Prime Minister to be personally tied to him."

He notes that it will be difficult for the next President to sack Zubkov so soon after Putin had appointed him. Unlike outgoing Prime Minister Mikhail Fradkov, Zubkov has a close personal link to Putin, having served as his deputy when Putin chaired the External Relations Committee of the St. Petersburg mayor's office in the early 1990s. (Previously, Zubkov served as a senior official in the Communist Party in the Leningrad region.)

Leaving His Options Open

With a close personal ally still in charge of the government, Putin would have an additional tool for influencing policy under the next President. "Instead of transferring all his authority immediately to the next President, Putin could divide it up between the future President and future Prime Minister," says Sergei Markov, director of the Institute for Political Studies in Moscow.

With Zubkov unlikely to step into the President's shoes next March, Putin also leaves his options open, regarding whom he will eventually back as his preferred candidate during next March's election. Until that becomes clearer, the reaction of investors to political changes in Russia is likely to be limited. "The investor reaction has been very muted so far," says Roland Nash, head of research at Renaissance Capital investment bank in Moscow. "At the moment, there's uncertainty, so the market is taking a wait-and-see attitude." Russia's benchmark RTS index fell by a modest 0.6% on the day of Putin's decision to dismiss the government.

Investor concern is likely to intensify only once it becomes clear which candidate Putin will back for the succession. The change in government has done little to dampen speculation that it will be one of two first-deputy-prime ministers, Dmitry Medvedev and Sergei Ivanov. Medvedev, a former lawyer who also chairs the board of Gazprom (GAZP.RTS), is seen as representing the more liberal wing of Putin's entourage. Ivanov is a former colleague from Putin's KGB days. He served as Putin's defense minister until his promotion to deputy PM in March.

Should Investors Worry?

Over recent months, more and more people have been putting their money on Sergei Ivanov, who has enjoyed lavish media attention since becoming the head of Putin's science and industrial policy earlier this year. And with so many senior officials drawn from the ranks of Putin's alma mater, the KGB, many have long suspected that the next President would also be a fellow intelligence officer. "Ivanov has always been the favorite," says Markov. "He has been a member of Putin's team from the very beginning."

If, as many now expect, the more hawkish Ivanov eventually gets the nod from the President, it could come as a disappointment to some investors hoping for the somewhat more liberal and pro-Western outlook represented by Medvedev. But seasoned investors aren't too spooked either way. "There's a very simplistic assumption that Medvedev equals good and Ivanov equals bad, which is wrong," says Nash from Renaissance Capital. "Ivanov represents stability of the Putin regime. And under Putin a trillion dollars of equity market value has been created."

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