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The Indispensable Minister: Does the Ouster of Russia's Former Finance Minister Spell Doom for the Country's Economic Future?

Alexei KudrinNeither internationally-acclaimed financial prudence nor a proven ability to steer Russia away from recurrent financial crises and derivative disasters helped Alexei Kudrin to keep his job as Russia's Finance Minister on Monday. Many Russian politicians have long said they would not be unhappy to see the fiscal hawk, who made a career in part by pruning excessive pre-election spending, disappear from the political arena.

"A single strategically-thinking Dmitry Medvedev is dearer to us than a hundred Kudrins," the ruling United Russia party's First Deputy Secretary of the Presidium Andrei Isayev said on Tuesday. Even the International Monetary Fund (IMF), one of his champions, reacted mildly to Kudrin's dismissal, saying on Monday that it would adhere to its commitments with Russian authorities despite Moscow's decision to fire him. The Kremlin could not have hoped for a more congenial reaction.

Yet beneath this veneer of complacency and apparent indifference to Kudrin's departure, many economists said they are worried. While the saying that no one is irreplaceable is certainly true of government ministers, Kudrin is one of the few top officials who will be difficult to replace in today's Russia, said Alexander Morozov, HSBC's chief economist for Russia and the CIS. "Kudrin is not your run-of-the-mill federal minister," Morozov said. "He has a lot of political clout and a pristine reputation both in and outside Russia. This suggests to me that his exit poses considerable risk to maintaining fiscal sanity in the near future."

Yevgeny Yasin, a former economy minister under President Boris Yeltsin, said neither the then-President Vladimir Putin nor his successor, President Dmitry Medvedev, would have been able to weather the global financial crisis without Kudrin's steady hand. "He has always won my respect for his dogged obstinacy, his lack of political posturing or desire to win popularity and his ability to make responsible financial decisions in the face of adversity," Yasin said. "Kudrin should be credited with most of the financial successes achieved by Russia in recent years, if only because we are now able to proudly raise our heads once more as a nation."

Kudrin, who was ousted by president Medvedev for insubordination on Monday, is a longtime ally of Vladimir Putin, who will run for president in the March elections and probably appoint Medvedev as prime minister. Kudrin's bold refusal to serve in a future Medvedev cabinet has led to speculation that he may have anticipated an offer to head the government if Putin does indeed to run for president again. As finance minister, Kudrin had earned the respect of investors by running a string of fiscal surpluses in the boom years of Putin's first two presidential terms.
Foreign investors consider him to be an important proponent of privatization and other reforms, as well as a hedge against financial chaos, The New York Times wrote. Clemens Grafe, a Moscow-based economist at Goldman Sachs, said Tuesday that Kudrin's ouster would have negative consequences for the country's bonds and the ruble, "especially given the global risks still present."

Meanwhile, potential successors for Kudrin's former job are already being suggested. They include former First Deputy Finance Minister and now the Health and Social Development Minister, 45-year-old Tatyana Golikova, 63-year-old Central Bank Head Sergei Ignatyev, former Finance Minister Mikhail Zadornov, who is 48, 61-year-old Deputy Finance Minister Sergei Shatalov and Medvedev's key Economic Aide, 39-year-old Arkady Dvorkovich. Dvorkovich said in his Twitter posting on Monday that the developments [Kudrin's resignation and its acceptance] were "no cause for joy."

VTB Group chief Andrei Kostin, another financier rumored as a likely replacement, told Bloomberg late on Monday that Kudrin may regain policy influence as chairman of the Central Bank in a Vladimir Putin administration. "It's quite a possibility, I believe," Kostin told Bloomberg in an interview in New York. The appointment would "not at all" be a demotion, Kostin said. "The Central Bank governor is a person independent from anybody." While analysts said Kudrin would be a good fit as a central banker, they expressed concern about the dearth of professionals that would micro-manage Russia's finances with the same rigor and tenacity as the former finance minister.

"There are so many professionals who understand budgetary economics, but the problem as always is that unlike Kudrin, those professionals would have neither the credentials nor the clout to defend the budget from an array of government agencies who want a piece of the national cake," HSBC's Morozov said. "There has always been ­ and will always be ­ huge pressure from key federal ministries and parastatals to influence budgetary spending. Many other candidates would find it difficult to stand their ground under mounting pressure from politicians."

If Putin ushered in an era of political stability, Kudrin was clearly the guarantor of financial stability, said Mikhail Vinogradov, who heads the St. Petersburg-based Political Foundation. "Kudrin is the architect of Russia's macroeconomic stability," Vinogradov said. "Government agencies have been developing an ever increasing appetite for the 'budget pie' and the finance minister served as a good buffer." More important is Kudrin's other quality ­ sincerity ­ which is in deficit in government circles, Vinogradov said.

Kudrin's more than ten years in office testify to his ability to resist pressure from other ministries to tailor budgetary parameters to their ministerial needs, Morozov said. Consequently, with his departure, the medium-term budget parameters for 2012 to 2014 are expected to worsen because of an expected increase in spending and the resultant budget deficit," he said. "At the same time, the fiscal formula created by Kudrin has a margin of strength and safety that prevented Russia from ever experiencing a budgetary crisis despite the worsening global financial situation."

Meanwhile, it is business as usual in Kudrin's former office, his colleagues told PRIME news agency on Tuesday. The former finance minister had been expected to go on vacation on Monday on arrival from Washington, where he announced his decision not to join a future Russian government. With his personal effects, papers and files already packed up for him, his formal colleagues were as laconic as lackadaisical: "We keep on working at our normal pace."

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