MOSCOW BLOG: New team on the way?

By bne IntelliNews March 26, 2015

Ben Aris in Moscow -


A rumour was doing the rounds in Moscow on March 25: Russian President Vladimir Putin is due to hold a big press conference on March 26 and will sack the entire cabinet – presumably including Russian Prime Minister Dmitry Medvedev – and appoint a new team.

The speculation is probably another #putindead story; the halls of the Kremlin are still echoing with the ridiculous rumours surrounding Putin's 11-day disappearance earlier this month. But still, the speculation about the cabinet sacking is intriguing, as this is exactly what needs to happen.

The need for a new "big plan" is screamingly obvious. And yet there has been a deafening silence from the Kremlin on anything other than (for the most part entirely sensible) short-term fixes to Russia's current economic woes.

There have been two opportunities over the past few months for Putin to announce a new "Gref plan" – the reform plan that he personally backed and saw through after taking office in 2000, named after the then-economy minister German Gref, now chairman of Sberbank. First there was Putin's state of the nation speech and second there was the Gaidar Institute conference, an annual get together of Russia's liberal and financial elite to have a pragmatic and realistic discussion of the issues the country faces. Both events produced not a single concrete idea on what to do to fix the ailing Russian Inc. You have to ask why. 

If not now, when?

To any long-term Russia observer the need for radical and deep reform is now more obvious than ever before. Russia's economy had already slid into stagnation before the collapse of the oil price in December as fixed investment fell to next to nothing. It was already clear that Russia is suffering from a crisis of confidence amongst its own leading businessmen, let alone the pall of despair that has fallen over the international investors. And this was happening with oil above the $100 a barrel mark. Clearly something needs to be done and just improving Russia's place on the World Bank's "Doing Business" ranking is not enough.

One of the more obvious explanations for why Putin is ignoring the problem – and remember he gets the need for reforms as demonstrated by the Gref plan, which was his personal initiative at a time when no one else wanted to change the oligarchic system – is because it will not be the current team that implements any Gref Plan II. What is the point of starting the debate when an entirely new team will make a clean break with the past and go back to the drawing board?

Why hasn’t Putin acted earlier? Again the answer to this question is obvious. He has decided to sacrifice the economy while he concentrates on spending every spare penny Russia has on military reform, as he needs to improve his hand in what has turned into a major geopolitical standoff with the West over the future of how the world is run. The Ukrainian crisis has precipitated this clash and made it obvious, but Putin had already committed Russia to a massive rearmament programme in 2013, which caused the then finance minister and one of the most well-respected liberal reformers inside the system, Alexei Kudrin, to quit his job.

The dream scenario would be that Kudrin comes back as premier – a job he is known to covet – but with the full powers of a prime minister as described in the constitution to appoint his own team to make the deep changes needed to ensure Russia flourishes again. This will also necessarily mean sidelining the Siloviki fraction centred on Rosneft CEO Igor Sechin.

If this theory is right, then this change of guard can only come when Putin feels that he has won his geopolitical standoff. That time could be now, as Russia's economy seems to be doing a bit better than was expected following December's meltdown and certainly the rally on the equity market – Russian stocks are amongst the best performing year-to-date – and the very strong rally on the bond market on March 25, both suggest international investors, at least, believe the way is up from here. The Kremlin's annual economic summit in St Petersburg in June would be another obvious date for making the change. Certainly, the need to make a start on the reforms is pressing.

However, this whole argument could simply be wishful thinking. The alternative is that Putin has spent so long in power (15 years and counting) that he has fallen into the doddery old dictator trap, where he has surrounded himself by yes-men and is out of touch with reality, preferring the status quo over radical change. In this case there will be no announcement either today or in the summer, and Russia will slide slowly into irrelevance, propped up only by oil, and we will have to wait until 2024 when he leaves and there comes the next opportunity to make a big change.

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