Russia’s government to change following Putin inauguration

Russia’s government to change following Putin inauguration
Russian President Vladimir Putin will be inaugurated on May 7 and will reshuffle the government / bne IntelliNews
By Ben Aris in Berlin May 6, 2024

Russian President Vladimir Putin will be sworn in for his fifth term in office on May 7 and, according to the Russian constitution, the government must resign.

Analysts are expecting Putin to use the change to shake up the government and make new appointments to deal with both the ongoing militarisation of the Russian economy, but equally importantly, oversee the implementation of the National Projects programme that is supposed to improve the quality of life and placate the already docile Russian population.

Immediately after the inauguration, the government of Prime Minister Mikhail Mishustin has to resign, and the main question is whether the technocratic PM will be kept on to head the new government. Most analysts believe he will be, as Mishustin has proved to be a competent pair of hands. Previously, as head of tax service Mishustin revolutionised Russia’s finances by introducing a new advanced IT system that saw the tax take increase by 20% at a time when the tax burden only increased by 2% (a VAT hike in 2018).

As Prime Minister, Mishustin oversaw the impact of the coronavirus pandemic and then has been dealing with a running war economy. And as reported by bne IntelliNews, according to the CBR’s latest macroeconomic survey, the economy is humming along nicely and expected to put in another year of higher than expected growth of the order of 3.2% year on year.

Putin nominated Mishustin as prime minister on January 15, 2020 and at the time many believed he was another technocratic placeholder, but he has performed well and has built up both a strong track record and is relatively popular with the electorate. Mishustin himself, according to two The Bell interlocutors close to him, believes that he will retain his post, the publication said in an article assessing his four years in power.

The last prime minister, Dmitry Medvedev, who headed the government in 2012–2020, spent longer in office than the other placeholders appointed by Putin before him, Viktor Zubkov and Mikhail Fradkov. When Fradkov was appointed, investment bank Renaissance Capital released a research note entitled: “Fradkov who?”

In a recent speech to the Duma, Mishustin summed up his achievements, The Bell reports:

Mishustin listed several of his government’s achievements:

·       Steady economic growth to make Russia the fifth largest economy in the world in PPP terms; (chart)

·       Healthy budget with a modest and falling deficit;

·       Increases in pensions and social benefits payments;

·       Popular state-subsidised mortgages; and

·       All-time record low unemployment of 2.8%.

Since taking office, Mishustin has overseen a period of solid growth of over 3% a year, apart from the initial shock following the start of the war in 2022, and even then the 1.2% contraction was relatively mild.

While most of the attention has been garnered by the war in Ukraine, at home the main job of the government has been to continue to work on the National Projects 2.0 programme, an updated version of the original 12 National Projects that were launched in 2019.

These are a core part of Putin’s strategy to remain in power and placate the population by improving their quality of life. Earlier this year, Putin expanded the spending and goals dramatically and another big change expected after the new government is in place is a complete overhaul of the tax system and the introduction of progressive income taxes – the first major change to the tax code in Putin’s more than two decades in power. The extra money raised – probably several trillion rubles – will be ploughed back into mostly social spending and investment into improving civilian infrastructure.

Medvedev is largely seen to have failed to make the National Projects work, with his oversight system cumbersome and bureaucratic, but Mishustin is seen as a good administrator and able to deliver on the programme. Mishustin’s first pledge after his appointment was to speed up work on the projects, and he has developed another IT system, powered by AI, to oversee this programme too.

One of the first things he did was set up a headquarters in the iconic Stalin “wedding cake” building, the Hotel Ukraine on the banks of the Moskva, known as “the bunker”, and still holds regular meetings there to push the programme along.

Still, Putin has kept a tight rein on Mishustin and did not give him a free hand in choosing his Cabinet; Putin kept on all those who he felt were competent from the Medvedev administration including: Finance Minister Anton Siluanov; almost all the ministers with a security portfolio: Energy Minister Alexander Novak, Deputy Prime Minister Yuri Trutnev (in charge of the Arctic and the Far East) and Deputy Prime Minister Yuri Borisov (who oversaw the defence sector), The Bell reports, some of whom had their own direct access to Putin.

Mishustin rebranded, renamed and reorganised the National Projects according to themes. And the price tag has gone up from an original RUB25.7 trillion ($300bn) expenditure until 2030. Mishustin has kept a low profile during the war, having only been appointed by Putin to oversee supplying the military in September 2022.

Other changes 

Observers are waiting to see if there are any significant changes in government in the slated reshuffle. It seems almost certain that the highly competent economic team, headed by CBR governor Elvia Nabiullina and Russian Finance Minister Anton Siluanov, will keep their jobs, as they have both surprised by their very successful containment and mitigation of the shock of sanctions.

For the securities clan, the siloviki, Mishustin is too liberal, too compromised. Before moving into the public sector, Mishustin used to work for a western investment bank. The siloviki are pushing for Mishustin's replacement. For instance, the former director of the FSB, leader of the siloviki clan, Nikolai Patrushev, is advocating for his son, Agriculture Minister Dmitry Patrushev, to assume the prime minister's role. Other sources suggest Patrushev Jr. might rather become a deputy prime minister, which is still a promotion.

Another official who has been touted as a potential prime minister in recent weeks is Alexei Dyumin, the former bodyguard of Putin and currently the governor of the Tula region.

Dyumin has been something of a rising star and on the political radar for several years already as ripe for promotion. He served as the deputy defence minister and oversaw the annexation of Crimea in 2014. He also supervised the establishment of the Wagner Group in 2015. In 2016, he was appointed to lead an important industrial region not far from Moscow. He was even rumoured to be a potential successor to Putin.

However, he was recently knocked back. Last year he was promised that businessmen linked to him would assume control over the Rolf car dealership, formerly owned by Sergey Petrov turned liberal politician. The company was seized in 2022 by a direct decree from Putin. But the company was given to businessmen allied with Sergey Rubzhnoi, head of the presidential security service.

Dyumin is still poised for advancement. He met with Putin last week, on May 2. The question now is what role Putin will assign him. There were suggestions that Dyumin might contend for the position of defense minister.

Where there may be big changes is going to be in the administration of the vast array of sprawling regions that stretches across 11 time zones. There could also be changes in the ministries that oversee the key Russian sectors such as raw materials, agriculture, infrastructure and manufacturing, as Putin seeks to accelerate modernisation and autarky in the face of what are likely to be generation-long sanctions.