Investors Breathe a Sigh of Relief

APVladimir Putin and Dmitry Medvedev attending a Kremlin meeting Monday.
President Vladimir Putin's endorsement of Dmitry Medvedev as his preferred successor sent markets soaring to new records Monday, as investors welcomed the move as a victory for the Kremlin's liberal-leaning faction.

The RTS powered past the 2,300 mark to a record 2,330.45 points, a 1.95 percent rise on the day, while the MICEX gained 1.68 percent to 1,945.53 points, also a record.

Medvedev, a lawyer from St. Petersburg, has courted the West as first deputy prime minister with statements endorsing a relatively liberal economic view, standing in stark contrast to the more hard-line members of Putin's inner circle.

"Medvedev is clearly a loyal man, he is clearly on the liberal side, he is clearly Westernized ... and is very open to foreign investment," said Hans-J?rg Rudloff, chairman of Barclays Capital and a board member of state-controlled Rosneft. "So, very refreshing. ... I think [Putin] deserves credit."

Yet above all, investors and analysts said, a Medvedev presidency would be defined by ultimate deference to Putin, who has hinted that he will stay on in a position of power, possibly as prime minister.

"In the Kremlin, he's considered Putin's adopted son and will effectively receive power through monarchical inheritance," said Olga Kryshtanovskaya, a sociologist who tracks Kremlin politics and the security services, or siloviki.

"His main strength is his weakness," she said.

Others said they believed that the choice of Medvedev quelled speculation that Putin would install a lame-duck president while pulling the strings behind the scenes.

"This is going to be a real president and a real presidency," said Alan Rousso, chief political adviser to the European Bank for Reconstruction and Development.

"When Putin took office, the Yeltsin presidency was in disarray. ... It was fundamentally discredited as a political force. This gave Putin an opportunity to put his own stamp on Russian politics. Medvedev will have less political space to do that," Rousso said. "Putin will still be there to help maintain some sort of balance."





























Reactions
Ivailo Vesselinov, Russia economist at Dresdner Kleinwort in London:
"It's not surprising to see the market rally. The main point is that this does remove one of the question marks about the future. Medvedev is well-known -- he has a lot of experience with markets and with foreign investors.
Yevgeny Badovsky of Institute of Social Systems:
"[T]he choice in favor of Medvedev shows that the president opted to send a signal to the outside world that Russia is not planning to conduct tough confrontational policies."
Chechen President Ramzan Kadyrov:
"I am personally familiar with Dmitry Medvedev and consider him to be a man of his word."
Yulia Tseplyayeva, economist at Merrill Lynch in Moscow:
"Gazprom as a state within a state will obviously become stronger. For foreign investors, Medvedev's candidacy is most preferred. He has a more liberal reputation than Ivanov."
Senior Yabloko official Alexei Melnikov:
"Medvedev is not a president we will accept. The Russian people -- not the Kremlin -- should choose the president."
Russian Ambassador to Ukraine and former Prime Minister Viktor Chernomyrdin:
"President Putin, who is now the leader of Russian politics, will always be nearby. This is also very important."
Lawyer Pavel Astakhov, leader of the For Putin movement:
"We will support the presidential candidate named today, without a doubt, because our goal is above all to guarantee the continuation of Vladimir Putin's course."
Damir Gizatulin, deputy head of Russia's Council of Muftis:
"This is one of the most deserving people -- educated, young, cultured, in good physical shape."
Compiled from wire reports



Casting aside concerns over the country's weak democracy, investors said Medvedev's loyalty to Putin would ensure a stable path, building upon eight years of oil-fueled economic growth.

If Medvedev is put forward as United Russia's candidate at its congress Monday, he will be the clear favorite in the elections, given the strength of public support for Putin. The party framed the Dec. 2 State Duma vote as a referendum on Putin's role as "national leader."

"Macroeconomic policy will remain the same, and that's what matters for investors," said one World Bank economist, speaking on condition of anonymity because he was not authorized to comment on politics.

Liberal officials such as Finance Minister Alexei Kudrin and Economic Development and Trade Minister Elvira Nabiullina could retain their posts under Medvedev, the economist said.

Although it is unclear what role Putin will take up after the March 2 presidential vote, it is likely that he will take key Kremlin officials with him wherever he goes, thus weakening the presidential administration and boosting the role of the Cabinet, a boon for business, the economist said.

"I do hope he won't become a complete puppet," he added, referring to Medvedev.

Observers have long been awaiting Putin's endorsement of a candidate who would juggle the competing interests inside the Kremlin. Medvedev, who chairs the board of state-controlled Gazprom, has often been pitted against the siloviki, informally led by Putin's powerful deputy chief of staff Igor Sechin, chairman of Rosneft's board.

As Gazprom chairman, Medvedev has overseen the firm's bruising pricing disputes with Ukraine, its bumpy relations with Europe over supplies and mutual access, and a furious asset grab that has marked the Kremlin's policy of winning back control of major foreign-led projects.

Yet analysts were loath to see Medvedev's anointment as a victory for Gazprom, while acknowledging that recent public battles involving Sechin were likely linked to the struggle over Putin's successor.

Gazprom and Kremlin spokespeople declined to comment on whether Medvedev would leave his post as Gazprom chairman.

"Both Gazprom and Rosneft are state-owned, so it doesn't really matter who the personalities are -- the state will continue to favor both companies going forward," said Alexander Burgansky, an analyst at Renaissance Capital. "In his new position, we expect he would continue to defend Gazprom's interests."

The arrest last month of Deputy Finance Minister Sergei Storchak was widely seen as a blow against Kudrin, who is considered to be on good terms with Medvedev's liberal-leaning camp in the Kremlin. And the publication of an interview in Kommersant, the business daily owned by Gazprom board member Alisher Usmanov, of a fund manager claiming that Sechin's clan had given him the go-ahead to conduct a "velvet reprivatization" of state assets, was also seen as evidence of infighting.

"As the men of the siloviki look to the [future], they're trying to secure positions for themselves, in terms either of assets or positions," said Chris Weafer, chief strategist at UralSib, linking the events to Medvedev's candidacy.

A major, ongoing reshuffle of top Rosneft management was seen by some analysts as an attempt by Sechin to push out company president Sergei Bogdanchikov, as a way of clearing a position for himself. An energy industry source said Medvedev's experience at Gazprom was key. "From an industry perspective, he's a safe pair of hands," the source said, characterizing Medvedev as "liberal and reasonable."

"The risk was that you'd get someone completely unknown, whom you wouldn't know how to deal with," the source said.

The head of the country's biggest business lobby also welcomed Medvedev's endorsement by Putin.

"In the context of the discussions recently begun about strengthening the state's role in the economy, the candidacy of Dmitry Medvedev is optimal for putting an end to talk of a 'velvet reprivatization,'" said Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, Interfax reported.

"This is one of the people in President Vladimir Putin's entourage who supports creating favorable conditions for business," he said.

Yet Medvedev has faced harsh criticism from analysts and everyday Russians alike for his handling of the government's four national projects, which seek to boost the country's agriculture, education, health care and housing sectors, with many complaining of a failure to see results.

Industry leaders said the backing of Medvedev was a clear demonstration of Putin's efforts to balance the more conservative and liberal forces in government.

"We welcome that balance, and I think it demonstrates once again that Putin is underestimated in how much work he has always been doing to try to balance out the conservative forces with liberal elements," Rudloff said.

Jochen Wermuth, founder of the Greater Europe Funds, which manages around $1 billion in assets, praised Medvedev's "spotless reputation."

"He is a very forward-looking man who understands the need for both private property and individual freedoms as the key drivers for long-term economic growth," Wermuth said in a statement.

But analysts noted that all was not yet decided, leaving room for a political upset. "The transition of power cannot be assumed to go entirely smoothly as the various political and business groups in and around the Kremlin jostle for position and the new balance of power beds down," Fitch Ratings said in a statement.

"It's not over yet," Weafer said.