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A headline like this is bound to be widely poo-poo'd, whereas if I had led with the other half of this story, "Putin building a fascist police state," most would have seen this as a bit over the top, but basically right.

But Medvedev has been actively pushing transparency, introducing liberal reforms and bolstering the rule of law since being elected. Barely a word of this story has been reported, while any ugly moves that the state makes (and there are plenty of these) is headline news.

Medvedev kicked off his presidency by signing off on a law to make life easier for small- and medium-sized enterprises and started this year by reaching out to opposition parties in an effort to find competent mangers that will make up the "golden 1000" of top civil servants. His laws and comments have got progressively more radical as the year wore on. Here is a short and incomplete list starting from January this year:

Jan 13: Medvedev orders amendments to constitution published on internet;

Jan 12 : Medvedev starts a blog and welcomes comments;

Jan 27: Medvedev orders amendments to laws on state secrets, high treason, as his office was afraid there was a danger of defining them "too broadly";

Feb 9: Medvedev signs law cancelling election bail: now any candidates and parties can collect signatures to register for elections; previously only the parties represented in the parliament were allowed to collect signatures;

Feb 9: Medvedev signs law on access to data about government's activity, part of an anti-corruption package and aimed to make the activity of state bodies and local self-governments more transparent, according to the chairman of the State Duma Committee on Information Policy, Information Technologies and Communications, Valery Komissarov;

Feb 12: signs off on an insider trading bill, making it a crime;

Feb 13: submits a draft law to give prosecutors more powers in defending people's civil rights through civil litigation;

Feb 27: proposes bill to cut number of signatures parties have to collect to be registered in Duma elections from 200,000 to 150,000;

Feb 27: submits bill on parties' equal access to state media to Duma;

April 16: advises citizens to defend freedom of assembly in courts. "Of course, the authorities never want to allow such actions for reasons easy to understand. Anyway, those are not law-based decisions," the president said;

April 24: Duma passes bill entitling so-called "small" parties to be represented at parliament;

April 24: Medvedev inks decree on nomination of governors by parties.

Okay, this is not exactly a revolution, but Medvedev clearly seems to be serious about doing something to end the "legal nihilism" he famously complained off on taking his current job. Admittedly, things like the so-called small party bill is only a half measure, as introducing a quota for small parties is not the same as reducing the voting threshold to get into the Duma from the currently high 7% of the vote. But compared to Prime Minister Vladimir Putin, Medvedev already looks like Nelson Mandela.

Hard graft

What coverage this story has got in the international press has been spun as a power struggle between Medvedev and his mentor, despite the only evidence produced to support this view being the fact that Putin and Medvedev have recently decided to have a note-taker in their meetings.

Everyone covered Medvedev's interview in April 2008 with the outspoken Kremlin critic, Russian daily Novaya Gazetta, his first interview with a Russian paper since becoming president. But the hook to this story is that two of the paper's journalists had been murdered and the stories missed the key element: "The institution of democracy cannot be set off against prosperity," Medvedev said in the interview.

This should have been earth-shattering stuff: this view is the antithesis of the "Putin deal" that has made the prime minister unassailable in Russian politics. Commentators have gleefully pointed out that the current crisis has destroyed Putin's unspoken deal with the people and widely predicted a social uprising as a result (while failing to mention Putin remains one of the most popular leaders in the world). If Medvedev is moving in the opposite direction from Putin, the big question is "why?"

"Medvedev was brought in to reform the system and chosen to fight battles. This was not expected if he was only to be a placeholder [for Putin]. The first law he signed after his election was to promote SMEs. Then he keeps talking about reducing corruption and making Moscow an international financial centre. What he is actually talking about is introducing the rule of law to Russia. Why is Medvedev there? Putin realises that the main threat to his legacy is corruption," says a seasoned head of a major investment bank in Moscow, who didn't want to be named talking about politics.

An anti-corruption drive has begun. Putin brought corruption up in nearly all his state of the nation addresses while president, but nothing ever happened. Since Medvedev got the job, there has been a steady flow of arrests and sacking for abuse of office. In the most recent, the chairwoman of the Federal Arbitration Court for the Moscow District, Lyudmila Maikova, was disbarred in February for buying an apartment at below market rates from the defendants in a case she was overseeing - a first for Russia. The change in the Kremlin's tone has been lost on the press, but not on foreign governments. "The small party law was a very encouraging sign," says one western diplomat, who also wouldn't be named. "But we will wait and see how far this goes before we break out the brass band."

And this caution is merited. The problems with state control and corruption became worse under Putin. A source in Germany's secret service tells bne they have become worried by signs of increased criminality in the upper echelons of the Kremlin, while sources in the banking and real estate sectors say that corruption has escalated in recent years.

If Putin put Medvedev in to make a difference, he now finds himself between a rock and hard place. On the one hand, he wants to stay close to the centre of politics to ensure there is a smooth transition to a prosperous Russia. On the other hand, his mere presence makes the problems worse.

Strong leaders automatically cause an increase in authoritarianism, as sycophantic state organs hope to curry favour by sucking up to the centre. And Putin has compromised himself by cutting deals with the oligarchs. His informal "ZAO Kremlin", a giant state corporation, has a veto over corporate investment plans, but in return the Kremlin supports oligarchs business interests - Putin has intentionally erased the divide between state and the private sector. "They are opening a Pandora's box and they can't make real change unless they break the system. Russia is facing Gorbachev-like challenges now," says the banking source. "Putin is too compromised - which is the not the same as saying corrupt. Even if they rescue the system, you will be left with a fat, self-satisfied bureaucracy with a less competitive economy that will under perform for years."

So which way will it go? Ironically, the crisis is probably good news for the liberals. The three factors that drove Russia's rapid return to economic health in 1999 - a deep devaluation of the ruble, soaring oil prices and strong import demand from the CIS countries - are all missing this time round: the government has to reform, as there is no other way to make the Russian economy grow again.

The Kremlin came out of the last crisis vowing "never again," which allowed political neophyte German Gref to push through his reform plan and Finance Minister Alexei Kudrin to build up a $600bn reserve fund. The Kremlin clearly thought its cash pile made Russia immune to the international crisis as late as the start of this year, but soon realised the fallacy of its self-confidence. "There are two possible scenarios. In the first more optimistic one, the crisis would prompt Russian president Dmitry Medvedev to adopt a more liberal approach to policymaking than he promised during his election campaign," says Neil Shearing, an emerging Europe analyst from Capital Economics. "The pessimistic scenario suggests the elite increase their authoritarian hold on power and turns its back on the West."

At the moment, the liberals have the upper hand and it seems that policy is still driven by the "never again" crowd, who have a better idea of what they need to do. But the trouble with crises is they are inherently unpredictable and things can quickly spin out of control: as Eurasia Group's Ian Bremmer pointed out in his book "the J Curve," increasing openness in times of crisis adds to the chaos, whereas flexing a little muscle produces a lot of extra stability.

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