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. Last Updated: 07/27/2016

Kadannikov: The New Face of Russian Reform

The rise of Viktor Kadannikov, the automobile executive named Thursday to replace Anatoly Chubais as first deputy prime minister in charge of economic policy, is both a rags-to-riches story and a case study of an ex-Soviet manager with a professed commitment to market reform.

In interviews which appeared just prior to and immediately after his appointment, Kadannikov presented himself as a supporter of Russia's economic reforms who believes that they must be "constantly compared with life and corrected," as he told Interfax.

Admirers view him as a forward-looking enterprise manager. Vladimir Mau, deputy director of the Institute for the Economy in Transition, called the appointment "positive" but added that much will depend on the composition of Kadannikov's team.

Critics see him as a typical Soviet-style factory director who, as Segodnya columnist Mikhail Leontyev wrote Wednesday, lobbied for "super-high" tariffs on imported automobiles in order to boost the fortunes of his increasingly unpopular and antiquated Ladas and Nivas.

Kadannikov, 54, came from humble origins: "I was born in a hut, lived in a communal flat with my grandmother, grew up as an orphan and was poor all the time," he said in an interview given to Obshchaya Gazeta before his selection as deputy prime minister and published Thursday.

In July 1994, Kadannikov was rated 11th on a list of Russia's 20 richest people, compiled by the Vox Populi public opinion service.

Kadannikov devoted nearly three decades to the Russian auto industry. In 1957, at age 16, he began working at the Gorky (now Nizhny Novgorod) auto factory, first as an apprentice locksmith. He rose to foreman and then became deputy head of one of the factory's units. In 1965, he graduated from Gorky Polytechnic Institute's night school, where had trained as an engineer-mechanic.

From 1967 to 1986, Kadannikov held various positions at VAZ -- the Volzhsky automobile factory -- in Tolyatti, eventually rising to the post of assistant general director. In the early 1970s, he headed a Soviet technical delegation in Turin, Italy. In 1986, he became the first deputy general director of the AvtoVAZ production association, heading its scientific-technical center. In December of that year, he was appointed AvtoVAZ's general director.

Kadannikov was once before poised to enter high politics: In December 1992, while chairman of the government's Industrial Council and a people's deputy in the Russian parliament, he was one of five nominees to the post of prime minister.

One of those five, Yegor Gaidar, then acting prime minister and the architect of Russia's reform program, was under strong pressure from hardliners in the parliament to step down, and wanted Kadannikov to succeed him. Prime Minister Viktor Chernomyrdin, Kadannikov's new boss, was the ultimate winner in that contest.

"In 1992, Gaidar strongly wanted Kadannikov to be his successor in the position of prime minister," Mau of Gaidar's Institute for the Economy in Transition said in an interview. "The parliament did not vote for Kadannikov, mostly because he said he was absolutely convinced that Gaidar would be the best person."

Yet Gaidar's reaction Thursday to Kadannikov's appointment was something less than a ringing endorsement.

"I know Kadannikov from 1992 as a progressive and strong director, who helped the reformists' government and I am grateful to him for this support," Gaidar said in a statement. "However, during the last three years I didn't have the chance to discuss economic questions with Mr. Kadannikov and it is difficult for me to say what he is going to do."

Since his brush with the political crowning heights in 1992, Kadannikov has gone on to become chairman of the board of the All-Russian Automobile Alliance, an investment fund closely linked with AvtoVAZ, and chairman of a financial-industrial group uniting AvtoVAZ and the KamAZ truck-making company.

Last year he joined Our Home Is Russia, Chernomyrdin's political party, and became a member of its council.

Not surprisingly, Thursday's appointment was applauded by one of Kadannikov's former colleagues.

"We are very glad that Kadannikov is becoming the first deputy prime minister," said Boris Krupenkov, deputy head of the economic department of VAZ. "He is a highly professional specialist. It will be difficult to find a replacement for him at VAZ. But we understand that professional people are also needed in the government."

To judge from his comments to Obshchaya Gazeta, Kadannikov seems to be a forward-looking ex-Soviet director in the mold of Chernomyrdin, his new boss.

"The transition to the market economy and privatization is the only possible way of reorganizing the economy," he said. "I was at plants in Italy, Germany, graduated from management in the United States in 1976 -- how can I be against reforms?" he added.

"Privatization was necessary in order to make the reforms irreversible," he said, although he raised doubts about "some peculiarities of the present course" and said the sell-off process was "more political than economic."

Kadannikov also praised Anatoly Chubais, the man he succeeds as Russia's economics head.

"I know Chubais personally; he was at our plant while he was head of the privatization commission," he said in the newspaper interview. "He is highly professional in the sphere of the economy and finance ... I know for sure his resignation is a big loss for the government."

Many supporters of economic reform, however, worried that Kadannikov's appointment will mean a shift toward greater protectionism, and perhaps a return to subsidies for state enterprises. An anonymous government analyst, quoted in Izvestia's Friday edition, said the appointment will mean "inflationary budget financing with all the ensuing results."

Another analyst placed the auto executive in the same camp as presidential bodyguard Alexander Korzhakov and First Deputy Prime Minister Oleg Soskovets, both widely perceived as the main opponents of market reform within the government.

"The Korzhakov-Soskovets-Kadannikov axis has been set up and we can expect that Soskovets' views will prevail in the government," said Alexei Zuichenko of the daily newspaper Segodnya, in an interview with Reuters.

On Wednesday, Soskovets spoke out against the Western market model, saying it was inappropriate for Russia. On Thursday, however, Soskovets said there was "no alternative" to a reform policy stressing tight money and low inflation.

Kadannikov leaves behind an enterprise that many say is in dire financial straits.

AvtoVAZ, one of Russia's 10 largest industrial firms, had to sell part of its currency reserves this month to pay "advances" on November wages, Reuters reported Thursday.

While AvtoVAZ's output was higher last year than in 1994, Kommersant Daily reported Tuesday that down payments made to the company for automobiles last year dropped from 357 billion rubles ($76 million) in June to 1.6 billion rubles in December.

AvtoVAZ has flirted with and then turned away from potential foreign partners, including Italy's Fiat, America's GM and South Korea's Daewoo. Many critics say, as Izvestia economic editor Mikhail Berger wrote last July, that the AvtoVAZ management feared that foreign investors would not "put up with managers who senselessly throw away the firm's money."

Kadannikov attributed the firm's shaky finances to various companies that he said owe AvtoVAZ 5.4 trillion rubles. In the newspaper interview he said the debt-collection problems can lead to a razborka -- the slang word referring to a "settling of accounts" between criminal groups. To deal with such situations, he said, the factory has its own special-forces group armed with automatic weapons.

On Wednesday, Segodnya columnist Leontyev criticized Kadannikov's management capabilities, claiming that AvtoVAZbank, which was created jointly with KamAZ, was practically bankrupt.

Leontyev hinted at greater sins, writing that "everything he touches in the process of his management activity becomes dynamically enriched ... with the exception of his own enterprise." In his interview with Obshchaya Gazeta, Kadannikov, who said he holds 0.16 percent of VAZ' s shares, denied rumors that he receives $100 from every car produced in Tolyatti -- a yield of 2,600 cars a day.

Press reports that each car that rolls off the assembly line is controlled by the mafia, he said, are "somewhat exaggerated," adding: "Tolyatti in this sense is not exceptional."

Izvestia reported late last year that AvtoVAZ was one of Russia's top firms in terms of tax arrears.