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Damage Control: Top Russian Officials Are Scrambling to Minimize the Economic Fallout of the Finance Minister's Ouster

Alexei KudrinThe Russian White House switched to damage-control mode this week, in a bid to prevent any negative consequences to the economy stemming from the forced departure of the country's well-respected Finance Minister Alexei Kudrin. Russian Prime Minister Vladimir Putin appointed one of the outgoing minister's little-known deputies, Anton Siluanov, as acting finance minister. Siluanov is a low-profile choice, experts say, who is unlikely to have the kind of professional outbursts that had become something of a trademark for the outspoken Kudrin. The Central Bank also waded in on Tuesday to calm nerves, weeks after the national currency registered a downward slide amid volatility in financial markets.

While announcing his choice, Putin, who is all but certain to return to the Kremlin next year, advised his ministers to show restraint ahead of the parliamentary elections in December, as well as the presidential elections in March. "I ask you all to perform your duties until the moment when the new government is formed, to show discipline and responsibility," Putin said in televised comments, the first since the announcement that he will run for president next year.

The prime minister also appointed his First Deputy Igor Shuvalov to take over Kudrin's duties as deputy prime minister, which includes overseeing public finance, taxation and the treasury. President Dmitry Medvedev dismissed Kudrin on Monday for insubordination and for publicly airing comments that the ruling tandem would prefer to keep under wraps. Putin appeared ready to go the extra mile on Tuesday to explain that president Medvedev had indeed approved of his choices. "He is a good specialist," Putin said of Siluanov. "His candidacy was obviously agreed with Dmitry Anatolyevich Medvedev. This is our joint decision."

Forty-four year old Shuvalov, who will split Kudrin's job with Siluanov, is an old hand in financial circles. He was the head of the government's anti-crisis commission at the height of the 2008 to 2009 financial crisis, managing the state bailout of struggling enterprises. In October of last year he assumed the added role of the federal investment ombudsman for foreign investors. Shuvalov is expected to take on the overall responsibility for running the Finance Ministry while day-to-day operations will fall to Siluanov, who until now oversaw the budgets of Russia's 83 regions.

The decision to pick Siluanov, who lacks the international clout of his predecessor, could be linked to President Dmitry Medvedev's drive to decentralize the country's fiscal system, giving more financial autonomy to the regions, Reuters reported on Tuesday. Kudrin had consolidated enormous power at the Finance Ministry, with the State Treasury and Federal Tax Service reporting to the minister, the agency said. He also sat on the National Banking Council, a body which oversees the Central Bank's operations.

Central Bank Chairman Sergei Ignatyev showered praise on Kudrin on Tuesday, describing him as "a very strong finance minister who did much that was needed for our country." "In the nine and a half years I have worked here, the cooperation between the Central Bank and the Finance Ministry was always close," Ignatyev said. The Central Bank chairman also sought to reassure investors alarmed by Kudrin's dismissal, predicting a rebound for the ruble. The Central Bank sold more than $6 billion of currency since the start of the month, hitting a peak of $2.37 billion Monday as it tried to shore up the slumping currency.

Russia's ruble-denominated MICEX stock index gained 2.5 percent on Tuesday, the second day of gains since Kudrin's exit. The benchmark RTS index rose 4.2 percent to 1,369. The ruble strengthened to 31.69 to the dollar on the MICEX exchange on Tuesday, compared with 32.42 late Monday, the Wall Street Journal reported. Ignatyev blamed the ruble's long decline on capital flight due to global market turmoil. "If the current level of oil prices holds, the probability of the ruble strengthening in the coming weeks is much higher than of it weakening," Ignatyev said, adding that he keeps his own savings in Russian currency.

However, such a positive spin did not prevent the International Monetary Fund (IMF) from calling on Russia on Tuesday to refrain from heavy government spending, which it said could threaten Russia's economic stability if global conditions worsen. The international organization echoed Kudrin's concerns that over-extending military spending could throw the country fiscally off-balance and create a gaping hole in the budget.

President Medvedev dismissed such concerns on Tuesday, while vehemently defending plans to increase the country's military spending. "However deplorable this is for the budget, we will always have high spending to maintain defense and security," Medvedev said while addressing a panel of officers in the Ural Mountains. Russia "would not exist if we were weak and if our armed forces had fallen apart." Medvedev, who was watching military exercises, said in televised remarks that an efficient army is Russia's "mission toward its citizens and neighbors alike." The president also said Russia needs to spend more on its army than "a banana republic" because it is "a Security Council member with nuclear weapons."


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