KUDRIN: Mr Prudence quits

Russia’s widely respected finance minister Alexei Kudrin quit days after Russian Prime Minister Vladimir Putin announced he wants his old job back as president and suggested he swap jobs with Russian president Dmitry Medvedev, who would become prime minister.

 “I do not see myself in a new government. The matter is not only that no one has offered me the job. I feel that the disagreements I have will not allow me to join this government,” Kudrin said, citing a string of disagreements with Medvedev.

Kudrin is widely respectedby Russia watchers and credited with stabilising the Russian economy and creating the foundation for the strong economic growth of the last decade. The departure of “Mr Prudence”, as Kudrin has been dubbed by some, raises two questions: will he come back to government sometime soon; and does his departure mean there will be a dramatic change in the cautious fiscal policy Kudrin has come to personify?

It was widely believed that after 11 years in the job Kudrin is tired and wanted to step down, but would have stayed on if offered the position of prime minister. At the same time he has clashed with Medvedev over policy and is critical of the president’s plan to dramatically increase both military and social spending.

“It is clear that Kudrin chose to leave because he did not want to be a prime-minister-in-waiting for the next decade as well. But he also left because he was in disagreement with Medvedev over his plans to spend $65 billion on the military in the next three years,” says Lilit Gevorgyan, a political analyst with IHS Global Insight. 

The fear that many investors and businessmen expressed after Kudrin’s ousting is that the prudent economic policies he represented will be abandoned.

 “On the policy side, in a sense Kudrin has not done as well as he used to because the pressure to spend has grown so much in recent years,” says Sergei Guriev, the dean of Russia’s New Economic School, pointing out that cost of oil needed for the federal budget to break even has risen from $23 in 2007 to $118 today, according to Citi. 

With a western Europe teetering on the edge of a major financial crisis, the Russian economy is already feeling the pain caused by growing uncertainty; in the first week of October the stock market sold off returning valuation to the same levels as 2008. 

“I don’t think this is the last we have seen of Kudrin,” says Nikolai Petrov, research fellow at Carnegie Endowment for Peace in Moscow. “I wouldn’t be surprised to see him back as prime minister next year.” 

However, most Moscow-based analysts are confident that Kudrin’s successful policies will not be undone. Under “Kudrin’s scissors”, the Russian oil industry pays taxes equal to around 90% of crude export revenues over $28 per barrel, the proceeds of which were parked in a Stabilization Fund that cushioned Russia from the worst of the financial carnage in 2008. At the same time Kudrin used the windfall oil receipts to rapidly repay almost all of Russia’s national debt; under Kudrin the debt to GDP ratio has fallen from 160% in 2000 to about 10% today, according to Renaissance Capital. 

“Kudrin’s views weren’t popular. But the then President Putin backed him to the hilt,” says Liam Halligan, chief economist with Prosperity Capital Management. “Kudrin’s actions provided the stable macroeconomic platform that Russia so desperately needed. Kudrin’s policies will be broadly maintained because they have been successful and, in the aftermath of the 2008 crisis, were acknowledged as successful even by many of his former oil lobby detractors.” 

Still, some analysts have actually been buoyed by the whole affair. Under Boris Yeltsin Russian politics was all about who held raw power, but increasingly under Putin political battles are fought over policy. 

“The Kudrin-Medvedev spat also suggests Russia’s nascent democracy, while still very much a work in progress and far from perfect, is already capable of generating more meaningful public debate on fiscal policy in the run-up to crucial elections than many of the much older democracies in the Western world,” says Halligan.

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