COMMENT: Putin to remain most important politician in Russia

By bne IntelliNews October 2, 2007

Chris Weafer, head of strategy at UralSib Bank in Moscow -

If President Vladimir Putin were to become prime minister after March 2008 it would represent the start of a very radical change in the structure of government in Russia. It would also support the view of continued political stability over the medium term, but raises longer-term uncertainties. For investors it is a positive proposal for the investment case at least through 2008.

Putin will remain the most important politician in Russia. He has again surprised the country by announcing, as "a realistic proposal," that he could become the head of the United Russia party and prime minister after he leaves the presidency next March.

While we are regularly surprised by the president's decisions and the various mechanisms that he puts in place as part of the political transition, the important issue is the fact that all of these changes are consistent with the view that Putin will remain at the centre of political power in Russia for at least the next few years, and that this will ensure the continuation of the domestic stability that has underscored the country's economic success over the past eight years and allowed for the rapid appreciation of the stock market.

Putin as PM makes the process more complex. After the surprise promotion of Viktor Zubkov to the position of prime minister three weeks ago, the debate has focused on whether Zubkov is to be Putin's preferred choice as Russia's third president and what that might mean for the power structure going forward.

One of our key assumptions for the investment case in Russia from 2008 is that Putin will remain in a central and powerful role, and that the profile of a person such as Zubkov is the ideal choice to allow the outgoing president to achieve that. Zubkov, or a person with a similar profile, paves the way open for Putin to return as president in 2012, or even earlier.

But today's announcement points to another option: devolving powers from the presidency to the office of prime minister.

The previous assumption of Putin staying on as some sort of senior adviser to the next president and waiting for an opportunity to return had the merit of simplicity, while taking a formal role as prime minister makes the process more complex and raises plenty of questions about power sharing.

A Putin premiership would have to result in an upgrade. Right now all of the (important) executive power in Russia is with president; the PM is directly responsible to the president and essentially takes his orders from him. That is a situation that simply could not exist if Putin were to be prime minister. The opinion polls consistently show that his public popularity is between 75% and 80%, and that he will retain the moral authority of leader of the country even after March 2008. The office of prime minister would simply have to be upgraded to allow it have much greater power if Putin were to have that role.

Positive for 2008 but later transition risks

While such a move would represent continued stability in the early part of the next presidency, ie. 2008 and most of 2009, it does raise the risk of uncertainties arising later. This is especially the case if Putin does pursue a more radical change in the structure of government power.

The people with power in the Kremlin may be happy to see some additional powers accrue to the prime minister, but would they support a radical change that would effectively see power shift from the office of the president to the prime minister? On the other hand, critics of Russia's democratic process will see this as a further example of the return to the power structures of the Soviet Union. In that period, the formal head of government was merely the figure head, while the real power lay with the head of the Communist Party.

United Russia will remain the dominant party

United Russia is expected to retain its role as the dominant party within the Duma after the general election on December 2. For this year's election the threshold for parties to be able to participate in government has been raised to 7% of the vote. This is up from 5% in the previous Duma election in December 2003. That effectively means there will only be four parties in the next Duma: United Russia, A Just Russia, LDPR and the Communists. Of course, given Putin's personal popularity, if he were to take over as head of the United Russia party, then the number of parties might easily be reduced, with an even more dominant United Russia.

Will Russia assume UK or French form of government?

The longer-term question is what type of government Russia will have: the current French model, where the president remains the dominant power; or the UK model, where the prime minister has that role. This is a much more fundamental question that will - should Putin actually follow through with his "realistic proposal" - provide the dominant debate through the next presidency. Powerful people in the Kremlin will have as much of a vested interest in the process as Putin and punters investing in Russia.

However, unlike in Ukraine, where the devolution process has contributed to instability, given the dominance of the pro-Kremlin parties in the Duma, the debate will not be on the streets or even in the Duma. It will be, as usual, in the offices and the corridors of the Kremlin.

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