Kudrin's Influence Poses A Riddle

The elevation of new First Deputy Prime Minister Igor Shuvalov to oversee large swaths of economic policy has left political pundits scrambling to work out whether Finance Minister Alexei Kudrin will retain his longtime influence over the country's fiscal policy.

Kudrin, now one of seven deputy prime ministers in Prime Minister Vladimir Putin's new, top-heavy Cabinet, has been the government's chief fiscal hawk, calling for cuts to government spending, which he argues is one of the main contributors to the country's spiraling inflation.

But there are fears that he may be increasingly sidelined in the new government, where Shuvalov, former Kremlin chief economic aide and an ally of newly inaugurated President Dmitry Medvedev, has been given responsibility for areas of policy that impinge on Kudrin's domain.

"Shuvalov is a very ambitious guy who considers himself the next prime minister," said Stanislav Belkovsky, a United Russia member and political analyst who heads the National Strategy Institute. "He should be considered an up-and-coming star … [who] will fight against Kudrin as a … competitor."

"Kudrin will fight for his role, for his position, but I think he is on the downtrend. As Shuvalov strengthens his position [over] time, Kudrin's power will be weaker," Belkovsky said.

Others are less sure.

"I don't think he has lost anything. Whether he has gained anything, I don't know," said Alexander Lebedev, the billionaire owner of the National Reserve Corporation and a former State Duma deputy. He added that the deputy prime ministers would have more than enough problems on their hands without worrying about overlapping functions.

He said Shuvalov's success in the national projects, in which he played a major role, was disputable and that Kudrin's competence, on the other hand, was "very well-defined."

Shuvalov, considered a liberal-leaning economist, is said to fall into the pro-growth camp in the government, which believes that the country can ill afford to brake its economic expansion in an uncertain global economic climate. Oil prices have risen to unprecedented highs at more than $126 per barrel, enabling Russia to capitalize on its oil-fueled economy.

But that is not necessarily a source of conflict.

"The [economists'] job is to provide the plan for future growth and expansion, Kudrin's job is to provide the reality check," said Chris Weafer, chief strategist at UralSib. "They are not opposing roles."

Kudrin will retain most of his responsibilities, which fall directly under the auspices of the Finance Ministry, but lose control over international trade negotiations, a role that now falls to Shuvalov.

Widely credited with the prudent management of the country's oil windfalls over the past eight years, Kudrin has emerged as one of the most respected figures in government, both domestically and abroad. It is a reputation that has been further enhanced by the perception that he does not belong to any single political faction.

There are tough battles ahead. Kudrin has fought against proposals to cut value-added tax, and has also spearheaded a plan to safeguard Russia's oil wealth for future generations, in the shape of contributing to pensions and other proposals. How he fares in these matters, analysts said, could be a key indicator as to Kudrin's continuing influence.

His job has been made tougher by fast-rising inflation, which threatens to eat into the government's popularity if it is not seen to be taking effective measures to combat it.

Yevgeny Volk, head of the Washington-based Heritage Foundation's Moscow office, said he feared that Medvedev would shun responsibility if the government failed to bring inflation under control.

"I believe some kind of scapegoat will be sought. The question is who," he said.

"This could become a source of tension between Medvedev, and even Putin, personally because Putin certainly bears a great deal of responsibility, but Kudrin will also be among those who could be [blamed]."

One of Putin's closest allies, Kudrin worked alongside him in the St. Petersburg Mayor's Office in the early 1990s. Brought into the Kremlin by Putin in 2000, Kudrin — together with then-Economic Development and Trade Minister German Gref — consistently argued the case for liberal economic reforms within the Cabinet.

Over the past eight years, Putin has come to rely increasingly on Kudrin, who has stoically resisted efforts from various lobby groups to boost spending. Under his watch, the government has accumulated an oil fund of $160 billion, insulating the country from additional inflationary pressures and providing a rainy-day cushion in the event of a dramatic fiscal shortfall.

It is this friendship and mutual respect that could shore up support for Kudrin in the short-term, some say, thanks to Putin's move to the administrative side of government.

"Kudrin is now closer to where the decisions are made, which is the prime ministerial office," said Clemens Grafe, chief economist for UBS in Moscow.

In a rare reward for a job well done, Kudrin was elevated to the post of Deputy Prime Minister in last year's Cabinet reshuffle following the surprise appointment of Viktor Zubkov, reputed to be a patron of Kudrin's, as prime minister.

But it was a maneuver that analysts said threatened the competing Kremlin power bases, particularly that of Rosneft chairman Igor Sechin, then-Kremlin first deputy chief of staff. Two months later, Kudrin's deputy, Sergei Storchak, was arrested on charges of attempted embezzlement, a move widely viewed as an attack on Kudrin to counter his increasing influence.

Kudrin has publicly defended Storchak, who remains in detention, and the investigation appears to have stalled after the official in charge was reassigned.

Analysts said Kudrin could now find it harder to fend off Sechin, who has emerged from the shadows to take on a frontline role in government, for budgetary resources, as the government moves into a new, big-spending phase.

"Sechin will have an important say in distribution of financial resources. There could be tension between him and Kudrin," Volk said.

But others argue that Sechin has been weakened in the Kremlin reshuffle, losing two of his key allies in the departure of former Justice Minister Vladimir Ustinov and former Federal Security Service director Nikolai Patrushev.