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Putin May Shift Blame to 'Fall Guy' Medvedev for Vote Setback

File Photo of Dmitri Medvedev and Vladimir Putin with Heads Bowed Toward MicrophoneDec. 6 (Bloomberg) -- Russian Premier Vladimir Putin may shift the blame to President Dmitry Medvedev to insulate himself from his first election setback, said political scientists and economists from Moscow to London.

Medvedev, 46, led the campaign of Putin's United Russia party and is set to switch jobs with him next year. The party won 49.5 percent of the Dec. 4 vote for the State Duma, the lower house of parliament, preliminary results show. That compares with 64.3 percent four years ago and is the first time the party's support declined from one nationwide vote to the next since it was set up a decade ago.

Medvedev, 46, may inherit the day-to-day running of a government that expects the budget to open up a deficit of 1.5 percent of gross domestic product next year after ending 2011 in a surplus of about 0.5 percent. He will also have to contend with a more fractured parliament than during his presidency.

"It won't mean anything for Putin, all power will remain in his hands," Mikhail Kasyanov, a former prime minister under Putin who now opposes the government, said in a telephone interview. "The fact that United Russia under Medvedev got far fewer votes than it did four years ago when it was led by Putin may end up being quite convenient."

The Micex Index added 0.8 percent to 1,517.89 at yesterday's close in Moscow after falling as much as 0.4 percent earlier. Steelmakers OAO Severstal and OAO Novolipetsk Steel both climbed more than 2.5 percent. The dollar-measured RTS index rose 0.9 percent to 1,559.28. The ruble strengthened 0.1 percent to 30.9046 per dollar.

Appeal to Voters

Medvedev was promised the job of premier after he agreed in September to make way for Putin's return to the Kremlin. While Russia needs to tighten its finances to limit the fallout from the euro zone debt crisis, Putin, 59, who is focused on securing election as president in March, may pump more money toward appealing to voters, according to Royal Bank of Scotland Group Plc and Aberdeen Asset Management.

Putin would get 31 percent of the vote in a presidential election, compared with 7 percent for Medvedev and 8 percent for Communist leader Gennady Zyuganov, according to a Levada Center poll last month. A third said they were undecided. The Nov. 18- 21 poll interviewed 1,591 people and had a margin of error of 3.4 percentage points.

'Fall Guy'

Medvedev may become the "fall guy" for United Russia's election setback, allowing Putin to appoint former finance minister Alexei Kudrin as prime minister in his place, Tim Ash, head of emerging-markets research at RBS in London, said in an e-mailed research note yesterday.

The president sacked Kudrin in October after the finance minister, who is well-respected by investors, criticized him for increasing military expenditure, warning that spending was approaching a critical level if global economic conditions sour.

Medvedev lost political stature after surrendering his chance of a second term to Putin and paid the price in credibility, Lilit Gevorgyan, a London-based analyst at IHS Global Insight, said by e-mail yesterday.

"Putin is likely to hold his end of the deal and appoint Medvedev as his prime minister once he finalizes his return to the Kremlin," she said. "But Medvedev's term in the prime minister's office is unlikely to be long,"

After balancing this year's budget, Russia will probably run a 2012 deficit of 1.5 percent of gross domestic product, Putin said Nov. 16. The country, which posted budget surpluses between 2000 and 2008, faces deficits of as much as 3 percent through 2014 as oil prices fall, presidential aide Arkady Dvorkovich said in June.

'Tough Task'

"The government is going to have a tough task in Russia, as maintaining good debt ratios would require cuts in social spending and pensions over the medium-term, which is politically difficult," Charles Robertson, global chief economist at Renaissance Capital in London, said in an e-mail yesterday. "Any prime minister is going to need support from the president to push through the necessary reforms."

The cost of insuring Russian government debt against default over five years with credit default swaps has risen 85 basis points, or 0.85 percentage point, since June 30 to 227, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. That compared with an increase of 46 basis points to 156 for Brazil so far this half, the data show.

The ruble has dropped 9.7 percent against the dollar since the end of June, heading for the worst half-year since the six months through December 2008.

'Post-Election Hangover'

A surge in spending on state salaries and social benefits "could well create a large post-election hangover" by increasing the oil price required to balance the budget, said Ash at RBS.

Russia may need an average oil price of $126 a barrel to balance its budget next year, compared with an earlier forecast for $118, after a bigger-than-estimated increase in military salaries, Alfa Bank said last month. The price of Russia's main export, Urals crude oil, traded at about $110 a barrel yesterday.

The budget deficit will widen unless the country continues to benefit from "high oil and gas prices," European Bank for Reconstruction and Development President Thomas Mirow said in a Nov. 30 interview. The world's largest energy exporter relies on oil and gas revenue to fund 40 percent of its budget.

While Putin rewarded Medvedev's loyalty during his four- year term as president, the Russian leader would benefit from replacing him as prime minister with a "strong figure who could manage the government," Masha Lipman, an analyst at the Moscow Carnegie Center, said in a telephone interview yesterday.

"I can imagine him being pushed aside," Lipman said, listing possible replacement candidates as Sergei Naryshkin, head of the presidential administration, and First Deputy Prime Minister Igor Shuvalov.

Article ©2011 BLOOMBERG L.P. ALL RIGHTS RESERVED; article also appeared at www.businessweek.com/news/2011-12-07/putin-may-shift-blame-to-fall-guy-medvedev-for-vote-setback.html

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