Who is Medvedev?

By bne IntelliNews February 20, 2008

Ben Aris in Berlin -

When Vladimir Putin took over from Boris Yeltsin in 2000, few had any idea of what the bureaucrat from St Petersburg would do. Boris Yeltsin brought Putin down from the northern capital in 1996 to work in his administration, but he had kept a low profile and was largely unknown outside of Kremlin circles. His elevation to the presidency prompted an avalanche of articles with the title, "Who is Putin?"

It took more than six months before any sort of clarity emerged. Putin played his cards close to his chest like the former KGB colonel that he is.

Former finance minister Boris Fedorov met Putin shortly after he became president. "I spent an hour with him talking about the problems Russia faced. After I got out of the meeting I suddenly realised that I had told him everything - my ideas, my opinions, everything I was thinking - but he had told me absolutely nothing about what he was thinking," Fedorov told bne.

At first the press corps wrote Putin off as puppet of the oligarchs that ruled the Kremlin at the time. When Putin started throwing the supposed puppet masters into jail or driving them into exile, the press corps didn't bat an eyelid: the puppet had become a Stalinist monster, who was building a police state, crushing democracy underfoot as he went.

The radical tax reform that Putin introduced about the same time as oligarchs Vladimir Gusinsky and Boris Berezovsky came under attack - which centred on slashing income taxes to a flat rate of 13% - went largely unnoticed, but marked the start of a complete revamp of Russia's economy that was dubbed "the Gref Plan." It was hugely successful - Russia is now the third-richest country in the world in terms of bank reserves.

Fittingly, Putin himself brought up the "who" question again in his final St Valentine's day press conference. "I think that I have answered this question in deeds, if not in words, for the last eight years, by conscientiously fulfilling my duties as head of state."

Still, commentators read what they like into these deeds: Putin highlights his considerable economic achievements; critics focus instead his overweening power, the crushing of political opposition and the control the state has over the media. Both points of view are valid.

Putin's putative successor

As Dmitry Medvedev prepares to take up the reins of power after the March presidential election, which he is almost certain to win, he held a press conference and laid out his main ideas for the continuing efforts to reform Russia. Who is Medvedev? With this speech, he has largely answered the question.

First and foremost, he is Putin's man. He peppered his speech with phrases like, "as the president has correctly said..." In an unprecedented move for an industrialised nation, Putin intends to leave the post of president and take up the lesser job of prime minister, something that no other leader has done, says Chris Weafer, head of strategy at UralSib. Medvedev's presidency will be a double act that some have called the "dream team" for investment sentiment.

Medvedev comes to the job with a team of liberal-ish lawyers and academics who are currently waiting in the wings, drawn mostly from friends and associates from his St Petersburg days. The distinguishing feature of this group is that they do not belong to the so-called Siloviki hard-line Kremlin fraction that tightened its grip on the Kremlin in the latter part of Putin's rule.

4i x 7

On February 17, Medvedev travelled to an economic forum in the Siberian city of Krasnoyarsk and laid out the main goals for his presidency. There were no big surprises and the business community at least will be reassured to hear that the programme Medvedev is promising will tackle some long overdue reforms.

The programme can be summed up as the "four I's," says Renaissance Capital: institutions, infrastructure, innovation and investment. To this, Medvedev added seven specific tasks:

• Develop an independent judicial system

• Radically reduce red tape

• Decrease taxation

• Transform the ruble into the local reserve currency

• Modernize transport and energy infrastructure

• Form the basis of a national innovation system

• Realize a social development programme

"Given the format in which they were delivered, these priorities are not idle talk, but rather a declaration of the policy to be seriously approached for years to come. Even partially attained, they would significantly improve the sustainability of Russia's long-term growth," says UralSib's Weafer. "The Kremlin is now shifting its focus to a post-election strategy, one designed to diversify the Russian economy beyond the mere extraction and export of raw materials. This speech directly addressed that broad goal and, with the seriousness and detail in which it was presented, easily exceeded our expectations."

This programme represents an extension of Putin's policies, the logical next step for the reforms that are already well in hand. The economy has flourished under Putin, whose task was made much easier by the rapid rise in oil prices shortly after he took over. But the scope of Putin's reforms was limited to a few big-ticket items and tinkering with the rest.

For much of his time in office, Putin concentrated on two goals: getting the wheels of commerce turning again, largely by concentrating on pushing financial sector reform, and returning to state control the strategic assets "stolen" by the oligarchs in the 1990s so that the revenues go into the public purse rather than the individuals' pockets.

But Putin never addressed the broader issues of administrative and social sector reforms, without which Russia will never be able to mature into a "normal" country.

Minister of Economic Development and Trade German Gref did manage to push through some limited reforms to simplify the licensing of businesses, but registering and regulating business activity remains a stinking feeding trough for most local officials. Likewise, the deputy head of the presidential administration, Dmitry Kozak, authored and implemented limited reforms to the judicial system that, for example, ended judges employment for life, but stopped short of the wholesale revamp the system badly needs. Both these changes were the political equivalent of wrapping some duct tape around a leaking pipe; they stemmed the flow of water but didn't stop the leak. Putin had so much on his plate that he was ordering quick fixes before moving on to bigger problems. Gref went on to tackle banking reform and Kozak was sent to the Caucasus to deal with the Chechen mess.

Medvedev's presidency promises to turn the Kremlin's full attention to overdue judicial and administrative reforms. In his speech, he called for establishment of the supremacy of law, including a judiciary completely independent of the executive and legislative branches. Policies reflected in laws should be based on freedom "in all its manifestations - personal freedom, economic freedom, and finally freedom of expression." The first part clearly harks back to Putin's "dictatorship of the law," but the second sounds a note not heard out of the Kremlin before.

Judicial reform is only one side of the coin and Medvedev is promising to radically reduce administrative barriers to business, which strikes at the heart of endemic corruption as, "the most serious disease" in Russian society. Medvedev stated that respect for private property needs to become a key part of government policy, the violation of which has often been carried out by corrupt officials. Private property should be "seen as a value that has been created and earned by honest work."

Maybe the biggest departure from Putin's programme was Medvedev's call for an end to the practice of placing state officials on the boards of major corporations. Medvedev himself sat on the board of Gazprom and Russia is almost unique in Europe in that senior government officials double up as board members of nearly every significant business in the country. "I think there is no reason for the majority of state officials to sit on the boards of those firms," Medvedev said. "They should be replaced by truly independent directors, which the state would hire to implement its plans."

Maybe the most contentious reform that Medvedev is proposing is to lower taxes to stimulate innovation and investment - a proposal that Finance Minister Alexei Kudrin almost immediately condemned. "If the current taxes remain in force, then within the next five years we would be able to achieve a doubling or tripling in the construction of infrastructure. If we reduce taxes, this will not be possible," Kudrin said, Interfax reported. "Yes to tax reduction in the long term, but this must be done very carefully and step by step."

Medvedev argues that the state must collect only enough tax to cover its basic services to society. But, ironically, this reform will bring him into conflict with the liberals in the government for going too far, too fast.

But this programme is not going to be easy to implement. Nationalising oil companies is easy - you only need to throw one uppity oligarch in jail and it's all over. Closing the loopholes that allow the 1.2m strong state bureaucracy to help itself to bribes will be met with massive resistance and only a complete overhaul of the system will make these changes stick.

Medvedev has laid out an extremely ambitious programme, in many ways much more ambitious than Putin's goals. The question that should be asked of Medvedev if he takes up the office of president is not who he is, but what are his chances of pulling all these reforms off?

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Who is Medvedev?

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