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MOSCOW BLOG: Mercury rising
BusinessNewEurope - bne.eu - 4.12.12 - JRL 2012-68

Metre-deep piles of slush are lying about the streets of Moscow as the weather is having a gender crisis: it can't decide if it wants to remain winter or finally given into nature and become spring. Politics are similarly confused is a thaw coming or a crop-killing frost? I don't remember things being so confusing since Vladimir Putin took over in 2000. File Photo of Kremlin and Moscow Environs Aerial View
file photo

Superficially, everything is going extremely well. The economy is practically booming (although there is no feel-good factor), so much so that VTB Capital's chief economist Alexey Moiseev warned at the end of March that the economy could be overheating.

All the indicators have jumped. Savings and Ural blend oil prices are at 20-year highs, and the current account surplus also hit a record $45bn in the first quarter. This has all fed through into rapidly accelerating consumption and retail sales. Even the protest movement has died down, leaving a low-key weekly gathering on Pushkin Square and the occasional gaggle of demonstrators on Red Square. But tap the barometer and the mercury is falling fast: a political storm is on its way to Moscow.

Inaugural pains

Rumours are flying ahead of the inauguration of president-elect Vladimir Putin at the start of May. It seems pretty clear that big changes are in the works.

President Dmitry Medvedev's appointment as prime minister is a done deal for the time being anyway. But in his last weeks as president, Medvedev probably pushed through more laws than at anytime during his entire four-year term. The direct election of governors has been re-introduced, various new graft measures passed and several more governors sacked. The interesting question is whether he is rebelling and shoving through changes before he leaves office that will undermine Putin's authority because that's what several of these measures will do or whether he is playing liberal cop to Putin's authoritarian cop in concert with the president-to-be. It's hard to tell. Russia has reverted to its Churchillian bulldog fight under the carpet.

However, several things are becoming clear. First, there are going to be sweeping personnel changes. One current rumour is that former Rosneft boss and Siloviki-in-chief (the Kremlin securities forces fraction) Igor Sechin has lost out in a clash with oil trader par excellence and uber-oligarch Gennady Timchenko. Sechin is out, say the little birds, and if true, then a big blow has been struck for the liberal camp. Energy Minister Sergei Shmatko is also expected to go. Together, all this suggests sweeping changes could be ahead for the energy sector.

On the other side of the fence, the liberals have ratcheted up their rhetoric and seem to be gaining traction. Minister of Economic Development Elvira Nabiullina issued a stark warning at the start of April that things have to change drastically or Russia faces stagnation. In a positive sign, Nabiullina is expected to be promoted to deputy prime minister in the reshuffle and young Turk, Arkady Dvorkovich, the presidential economic advisor, could replace her. To the liberals, it is patently clear that Russia needs a new economic model, but they are going to have a hard time convincing the Siloviki who are looking at the oil price and don't see a problem.