Russia: Putin heads back to the Kremlin

By Stefan Wagstyl

The question that has obsessed Moscow for so long has been answered: Vladimir Putin is to replace Dmitry Medvedev as president next spring, returning to the post he gave up four years ago.

The plan was revealed on Saturday at the annual conference of the ruling United Russia party where Medvedev pledged to support Putin in elections next March. The announcement will end the uncertainty that has swirled around the succession and help stabilise the Russian political elite at a time of domestic and global economic turmoil.

In the short-term the news should be good for Russia’s financial markets, not least in perhaps slowing the capital flight that’s plagued the country at times of political instability during the last two decades.

Charles Robertson, of Renaissance Capital, said in a note: “With less political uncertainty, the authorities may hope that capital flight eases, and that some may return capital in coming months to take advantage of cheaper asset prices.”

But in the long-term, much will depend whether the new Putin presidency will stick to the existing resources-based economic strategy or, finally, take the more difficult path of economic diversification.

While the current approach has allowed Russia to benefit from soaring global prices for oil and metals, and greatly enriched a narrow elite, it has failed to modernise the country and spread the gains of growth to its poorer regions.

Whatever choices he makes, Putin won’t able to dodge his historic responsiblity for these years of Russia’s turbulent history. As Charles Clover writes in the FT, “Putin, who remains Russia’s strongest political figure despite stepping aside for four years, will now in all likelihood have two consecutive 6 year terms, giving him a total of quarter century in power from the time he took over the Kremlin in 2000.”

The announcement of the job switch surprises few in Moscow where Putin was the favourite to return to the presidency. However, the two men had remained coy on the subject, spinning out the intrigue for the previous three and a half years, as Clover writes.

Medvedev will now almost certainly replace Putin as prime minister. The switch is bound to bring some friction and jostling for jobs in the lower ranks – but nothing that the president-elect cannot handle.

Chris Weafer, chief strategist at Troika Dialog, the Moscow bank, said in an email that the news was no great surprise. “I do not expect any market reaction to the news – investors are more concerned about global events and the weakening oil price.”

Weafer forecasts that the current oil-based economic model won’t work and “is simply not an option” so Putin will “establish a very pro-business and pro-reform cabinet.”

It’s a view that contains more than a touch of wishful thinking. Repeated attempts by economic modernisers in Putin’s entourage have fallen foul of the power of the energy/minerals lobbies who, put simply, prefer to keep a grip on their very large slice of the economic pie – than take risks liberalising the economy and giving others a chance to approach the dining table.

As Sergei Mitrokhin, leader of the liberal Yabloko party, said (quoted by Clover): “Modernisation in the contemporary world is first and foremost about the renewal of power. The latest permutation of the ‘tandem’ has nothing to do with modernisation.”