Russian government gets a new programme and people

Russian government gets a new programme and people
Russian prime minister Dmtri Medvedev will oversee president Vladimir Putin's six-year reform plan / KREMLIN.RU
By Ben Aris in Berlin May 20, 2018

Vladimir Putin is confirmed as Russian president again and Dmitry Medvedev has been reappointed as prime minister. The Russian government has already rolled up its sleeves and is getting down to the work of setting the programme for the next six years. On May 18 Medvedev released the full list of 10 vice ministers and 21 ministers.

And Putin’s last term (in theory) will in many ways be the most important. Russia’s petro-driven economic model was already clearly broken in 2013 when GDP growth dropped to zero at a time when oil prices were still over $100 per barrel. However, the geopolitical showdown over first the fate of Ukraine and then the tussle in Syria meant that Putin postponed more prosperity as he redirected every spare penny into modernising Russia’s army. That process is not finished, but now Putin has has achieved his immediate goals of reasserting Russia’s influence on the international stage military spending has already been cut by 20% and in his “guns and butter” state of the nation speech on March 1 Putin laid out an extremely ambitious reform programme.

Despite the aggressive “guns” bit of the speech, the focus is actually back on the “butter” part. Falling incomes and deteriorating living standards have lead to more vocal protests, many (but not all) of which have been organised by anti-corruption blogger and opposition activist Alexei Navalny. In his last term Putin badly needs to come up with some more “feel good” factor if he is to secure his own legacy – and avoid being jailed by his successor if things go badly. Putin’s legacy is on the table and he has adopted "Russia is for people" as the slogan of his fourth presidential term.

The main tenets of the plan have been worked out by former finance minister and co-head of the presidential council Alexei Kudrin, and are liked by liberal commentators as addressing some of the basic problems like low productivity and the lack of investment into Russia’s human capital. Kudrin is widely expected to rejoin the government — probably as a special advisor to Putin, or his deputy head of staff — but he was not included in the first round of appointments to the cabinet made by Medvedev following his reappointment on March 8.

Immediately after his inauguration Putin signed a so-called May Decree to replace the original set of May decrees he put in place after taking office in May 2012. The decrees are the blueprint for his next term and cover demography, health and education, development of the urban environment, ecology, roads, digital economy and the social sphere.

Medvedev has been entrusted with implementing the 2024 presidential development strategy. And it is expensive. Putin’s new economic policy will require some RUB25 trillion ($400bn) in spending and RUB8 trillion in additional funding. The government has not specified where the money will come from and how it will be spent. The Russian Audit Chamber previously warned that the new decree could cost about RUB8 trillion to implement, while government sources told the press in April it could be closer to RUB10 trillion.

“While the amount of money needed for implementing Putin's new May decree looks impressive, the truth is it is a relatively small amount and may not be enough to ensure Russia's progress into the top-5 economic club. But, we still need more details before making any final conclusions over the future of the new agenda,” says BCS Global Markets chief economist Vladimir Tikhomirov. "On a yearly basis, the new programme will cost RUB4 trillion or roughly 25-27% of annual federal budget expenditures. The additional funds required for the new policy will total c. RUB1.3 trillion a year or some 7%-8% of gross spending."

More clarity is expected once the full cabinet is appointed, due to happen at the end of May. 

Just where the money will come from to pay for this investment remains an open question. Kudrin thinks that the whole programme can be paid out of existing budget revenues if there is some juggling of taxes — the so-called tax manoeuvre. No decisions on this have been made, but options on the table include increasing VAT, and removing many items from the privileged VAT lower rates list. There has also been talk of increasing income tax rates or introducing a progressive tax rate.

However, the one cost saving measure that seems sure to happen is the increase of retirement ages from the Soviet era levels of 60 years for men and 55 years for women.

The decree sets a number of goals:

1. Become a top-5 world economy with annual GDP growth above the global average

2. Halve the poverty rate

3. Increase the share of innovative enterprises to 50% in the economy

4. Improve productivity and the competitiveness of Russian firms' exports

5. Increase average life expectancy to 78 years by 2024 and 80 years by 2030

6. Increase natural population growth to meet demographic needs

7. Increase real incomes

8. Improve housing conditions by mandating a minimum of 120mn square meters of construction of new housing space annually

9. Increase labour productivity growth in key sectors to at least 5% a year

10. Increase annual non-resource export turnover to $250bn

Investing into people: in addition to combating cardiovascular and oncological diseases, Putin proposes a focus on prevention through the promotion of healthy lifestyles, new medical technologies, the widespread availability of primary health care, including increasing the number of doctors.

Improving health and life expectancy will to some extent make up for the fall in the workforce caused by the catastrophically short life expectancy in the 90s.

Another way of boosting the workforce is to bring in more women; all children under the age of three must by 2021 have the opportunity to go to the kindergarten, freeing their mothers for work.

And labour will be used more efficiently as a system of retraining adults to give them more relevant skills will be established. This one is a Kudrin idea; he believes that investing into Russia’s human capital is the shortest route to improving productivity. His think tank came up with a long list of recommendations including: a system of patronage for preschool children, early identification of talents, modernisation of the vocational education system, teacher training and doubling the number of foreigners teaching in Russian universities. The task is now to bring Russia into the top ten in the world in terms of the quality of general education.

Investing into infrastructure: making workers work harder, longer and better is an economic multiplier. Investing into infrastructure has the same effect.

Putin identified a long list of infrastructure projects that include: improving regional roads and airports, expanding the West - East and North – South transport corridors.

At the same time the government is going to encourage more home ownership by reducing the mortgage rate to less than 8% for people with an average income. The housing commission has already been told to increase the amount of new residential space to 120mn square metres per year from under 80mn built in 2017.

These initiates and others will be formalised in 12 national projects, which should be formalised by October 1, 2018.

The new cabinet is said to be “Kudrin’s cabinet without Kudrin” and is made of competent technocrats who have proven track records at their tasks.

As part of the new programme the cabinet has already been reshuffled to an extent.

Who’s out

Igor Shuvalov: he was removed from his job as first deputy prime minister in a widely anticipated move. Marred by corruption allegations, Shuvalov has been a government fixer who is close to big business.

Dmitry Rogozin: he was removed from overseeing Russia’s defence and space industries, which have not been run well.

Arkady Dvorkovich: he was removed as deputy prime minister overseeing industry. A western educated liberal, Dvorkovich was marred by close connections to big business.

Sergei Prikhodko: he was removed as a leading foreign policy adviser to Putin following being embroiled in a US election-fixing scandal that also involved oligarch Oleg Deripaska and a Belarusian hooker.

Who’s in

Ten vice-premiers and twenty-one ministers have been appointed to Medvedev’s new government following Putin’s re-election in March.

First Deputy Prime Minister and Minister of Finance Anton Siluanov. The highly competent Siluanov got a promotion and will be responsible for financial and economic issues. He will supervise not only the Ministry of Finance, but also the Ministry of Economic Development. In the past, Siluanov was the minister of finance. He belongs to the liberal and competent camp.

Deputy Prime Minister Tatyana Golikova. A big promotion for the former head of the Audit Chamber. She will supervise social policy, including the issue of pension reform. She is seen as belonging to the liberal and competent camp.

Vice-Premier Dmitry Kozak. His sphere of responsibility is the fuel and energy complex and industry (except for defence enterprises). In the past, as vice prime minister he was responsible for preparing Sochi for the Olympics, developing regions and housing and communal services. He is seen as a neutral and effective technocrat, who is a long-standing Putin ally.

Deputy Prime Minister Alexei Gordeyev. Will engage in agriculture. In 1999-2009 he served as minister of agriculture. After that he was governor of the Voronezh region. Since December 2017, he has held the post of plenipotentiary representative of the president in the Central Federal District.

Vice Prime Minister Vitaly Mutko. Will be responsible for the construction sector and the development of regions. In the past, he served as minister of sports and was in charge during the whole doping scandal.

Vice Prime Minister Yuri Borisov. Will become the curator of the military-industrial complex. Previously, as deputy minister of defence, he oversaw procurement of weapons.

Deputy Prime Minister Maxim Akimov. Will be responsible for transport, communications and digitalisation of the economy. He left the post of deputy head of the government apparatus.

Deputy Prime Minister Olga Golodets. Responsibility for culture and sport. Previously served in the government as vice prime minister overseeing social policy.

Vice Prime Minister and plenipotentiary representative of the president in the Far Eastern Federal District Yuri Trutnev. The only vice-premier from the previous cabinet to retain the same rank and job.

Vice Prime Minister and head of the government staff Konstantin Chuichenko. Will supervise the legislative work of the government and personnel issues. Since 2008, he was an assistant to the president — head of the control department of the presidential administration. A classmate of Medvedev.

Federal Minister of Economic Development Maxim Oreshkin. Retained the post.

Minister of Energy Alexander Novak. Retained the post.

Minister of Transport Eugene Dietrich. Previously, he was the first deputy minister of transport.

Minister of Industry and Trade Denis Manturov. Retained the post.

Minister of Agriculture Dmitry Patrushev. Previously, he was chairman of the board of Rosselkhozbank.

Minister of Natural Resources and Ecology Dmitry Kobylkin. Previously, he was governor of the Yamal-Nenets Autonomous District.

Minister of Digital Development, Communication and Mass Communications Konstantin Noskov. Previously, he was head of the Analytical Centre under the Government of the Russian Federation.

Minister of Construction and Housing and Communal Services Vladimir Yakushev. Previously, he was governor of the Tyumen region.

Minister of Labour and Social Protection Maxim Topilin. Retained the post.

Minister of Health Veronica Skvortsova. Retained the post.

Minister of Education Olga Vasilyeva. In the past, she was the government’s minister of education and science.

Minister of Higher Education and Science Mikhail Kotyukov. Previously, he held the post of head of the Federal Agency of Scientific Organisations.

Minister of Culture Vladimir Medinsky. Retained the post.

Minister of Sports Pavel Kolobkov. Retained the post.

Minister of Internal Affairs Vladimir Kolokoltsev. Retained the post.

Foreign Secretary Sergey Lavrov. Retained the post.

Minister of Defence Sergey Shoigu. Retained the post.

Minister for Emergency Situations Evgeny Zinichev. Previously, he served as deputy director of the Federal Security Service.

Minister of Justice Alexander Konovalov. Retained the post.

Minister for the Development of the Far East Alexander Kozlov. Previously, he was governor of the Amur region.

Minister for North Caucasus Affairs Sergei Chebotarev. Previously, he held the post of deputy head of the presidential department for interregional and cultural relations with foreign countries, which oversees relations with Armenia, Georgia, Azerbaijan, Abkhazia and South Ossetia