COMMENT: Medvedev's multiple challenges

By bne IntelliNews December 12, 2007

Ariel Cohen of the Heritage Foundation -

Dmitry Medvedev's endorsement as a presidential candidate by four pro-Putin political parties and by Vladimir Putin himself ends months of speculation in Moscow. Investors are happy with Medvedev's nomination as the jump in the RTS indicated - stability is good for Russia.

Medvedev's appeal to Putin to serve as his prime minister not only confirms that Putin will play a pivotal role in Russian politics after he steps down, it signals that Putin, not Medvedev, will remain the number-one politician in Russia for years to come.

Putin is most likely to be a "super-Prime Minister," with responsibility for foreign, security and defense policy. It is possible that after the March elections Medvedev will transfer control of all or some of these branches to Prime Minister Putin. In that, Russia fundamentally differs from Mexico under a 70-year rule by the Institutional Revolutionary Party (PRI). There, an outgoing president would select a successor, who would then keep him safe. However, he wouldn't play an active role in the government.

In a September meeting this columnist attended in the Black Sea resort of Sochi, Putin said he hoped to play a role influencing public affairs in Russia. "My successor will have to negotiate with me on how we divide power," Putin said. Soon thereafter, it became widely accepted that Putin would become PM. A United Russia Party leader advised me to watch out for who the party would nominate to head its list, as "this will be a good indicator of whether Putin stays or goes," he said. So far, he stays.

At a press briefing in Moscow, Igor Shuvalov, Putin's top economic aide, articulated Medvedev's vision that state-owned companies should be privatizated. Specifically, Shuvalov said the Kremlin has plans to privatize Rosneft, chaired by the Kremlin insider Igor Sechin, by 2008 or 2009. Rosneft insiders mocked this idea in private interviews; now they may take it more seriously.

In meetings this author attended in 2006-2007 in Moscow, Putin and Medvedev stated that they do not support state capitalism. In these meetings, Medvedev was always keen to speak the language that Westerners understand, including the importance of property rights, a robust private sector, greater transparency and fighting corruption. He sounded serious and sincere.

However, as Putin will remain in the driver's seat, the chances of massive liberalization in strategic sectors remain dim. Russian oligrachs, many of whom are tight with top politicians, don't favour economic openness, which brings with it competition. Western investors will be allowed to buy minority stakes in "strategic" companies, as recent acquisitions in VAZ by Renault and negotiations over GAZ by General Motors has showed.

The situation in the oil and gas sector is even clearer: Putin clearly expressed his views on this in his PhD dissertation, which hails the role of giant Russian state-owned natural resources companies in the global economy.

In the famous Davos speech of January 2007, Medvedev stated: "Even in the case of the state preserving the control stake (in corporations), we are focusing on the creation of public companies with a significant share of private investment in the capital." Medvedev's Gazprom is a good model of such an arrangement.

Standing on his own two feet

Medvedev, a Putin protégé, is perceived as a weak bureaucratic player and will require Prime Minister Putin's support as he consolidates power in the brutal world of Russia's politics and business.

In contrast to Putin and other KGB veterans, Medvedev is soft-spoken and bookish. Having focused on domestic politics and policy, Medvedev lacks experience in foreign policy and national security, and may depend on PM Putin's advice and support in these areas.

Medvedev's greatest long-term threat is his perceived weakness. Historically, the rule of thumb is that each regime in Russia is very different from its predecessor. There are discontinuities in each. Thus, Gorbachev's reign was different than Brezhnev's, Yeltsin's was different than Gorbachev's, and Putin's rule is different than Yeltsin's. Gorbachev, Yeltsin and Putin all "campaigned" as the antithesis of their predecessors; Medvedev, on the other hand, is the "official" heir of Putin and will find it impossible to shed his boss's control and vision, even if he wants to.

There are two key reasons why Medvedev, while keeping the economy reasonably open, won't be able to implement a classic liberal economic policy and allow even more foreign investment and competition. First, there are personal promises to keep, especially to the group with close ties to the security services called the siloviki, who control some of the choicest morsels of the economy.

Kremlin sources disclose that Putin was furious about the public fight between the Federal Security Service, headed by the Igor Sechin's ally Nikolay Patrushev, and Putin's ally General Viktor Cherkesov, who is the director of the federal drug control agency. Cherkesov penned a controversial op-ed in Kommersant blasting his FSB competitors.

Putin also didn't appreciate a recent interview by Oleg Shvartzman, also in Kommersant. Shvartsman is essentially a business manager for the Sechin group, and he disclosed many more details about the inner workings of the Kremlin-affiliated Russian businesses than anyone would be comfortable with. But while these publications may have weakened the siloviki, their power remains considerable, and Putin and Medvedev have to take their interests into account.

Second, Medvedev, lacking a KGB, military or other security service background, needs to keep the siloviki happy and may have a hard time establishing his control over the levers of power. So he will need Putin's continued support for the foreseeable future. But even if Medvedev ever, for some reason, stands on his own two feet, he must remember that public opinion in Russia and the former USSR has always been unenthusiastic, to say the least, toward weak leaders: Nicholas II, Georgii Malenkov, Nikita Khrushchev, Mikhail Gorbachev, and Boris Yeltsin all are viewed with disdain by the majority of Russians, while "strong leaders" such as Peter the Great, Catherine the Great, Alexander II and III, Putin, and even the monstrous Joseph Stalin and bumbling Brezhnev are viewed by many in a positive light.

To succeed, Medvedev will need to show his mettle.

Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security at the Heritage Foundation.

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COMMENT: Medvedev's multiple challenges

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