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. Last Updated: 07/27/2016

Fradkov Names Zhukov as Deputy

ReutersFradkov, flanked by Speaker Boris Gryzlov, walking down a corridor of the State Duma during his consultations there Tuesday.
Prime minister nominee Mikhail Fradkov said Tuesday that he would pick highly respected liberal economist and veteran legislator Alexander Zhukov as his first deputy prime minister, in an announcement that was warmly welcomed by investors and most of the political elite.

But the selection of Zhukov as the country's economic tsar -- as one investment banker put it -- could be a sign that two key liberal reformers, acting Deputy Prime Minister and Finance Minister Alexei Kudrin and acting Economic Development and Trade Minister German Gref, are on their way out, some market watchers said.

Fradkov, a career bureaucrat with vast experience in foreign trade issues, announced his choice of Zhukov during a visit to the State Duma, where he conferred with faction leaders ahead of their vote on his candidacy Friday.

The chamber's pro-Kremlin majority is widely expected to confirm Fradkov as prime minister, and only the Communists said after the consultations that they would vote against him. Communist leader Gennady Zyuganov described Fradkov as "a trader, not a producer."

The moon-faced, soft-spoken prime minister nominee did not mince words in announcing Zhukov's candidacy, saying only that he saw Zhukov "in the post of my deputy -- the first one." He did not elaborate.

Analysts were quick to heap praise on Zhukov, who has served on the Duma's budget committee for 10 years and is its current chairman as a member of the pro-Kremlin United Russia faction.

"He is a very able liberal economist," said Al Breach, chief economist at Brunswick UBS investment bank.

James Fenkner, head of research at Troika Dialog, echoed him, saying, "It could have been much worse. ... We classify him as a liberal economist, and liberal economists tend to be loved by the market."

Zhukov, a 47-year-old graduate of Moscow State University, spent the 1970s and 1980s climbing the hierarchy of the Soviet government's economic machine. He enrolled into an executive training program at the Harvard Business School in 1991 and worked at an exports firm upon graduation. Zhukov was elected to the Duma in 1993 and has remained there since, helping draw up 10 federal budgets and push through a range of key finance and economic bills.

Fradkov also told Duma deputies Tuesday that there might be only one other deputy prime minister in the next Cabinet. The last Cabinet had six deputy prime ministers.

Fradkov also pledged to cut back the number of ministries and other government agencies, dividing them into several "blocks" such as finance, industry, social issues and science and technology.

The reorganized government will start with tax and administrative reforms, he said. The administrative reform, which was drafted by the previous Cabinet, aims to reduce the authorities' involvement in the economy. However, Fradkov made it clear Tuesday that the government will try to keep its leverage in the oil industry, noting that he stands for "well-thought-out, smart and powerful administration" in the lucrative sector.

The cautious bureaucrat, who flew into Sheremetyevo Airport from Brussels on Tuesday morning, a day after President Vladimir Putin shocked the country by plucking him out of the relatively obscure post of Russia's envoy to the EU, refused to discuss any other details about his plans for the next government.

Analysts said Fradkov's choice of Zhukov clearly came from recommendations from United Russia and no doubt the Kremlin. But it also indicated that Fradkov might be willing to leave the oversight of financial and economic policies in the next Cabinet to Zhukov.

"Zhukov is a policymaker and manager who would work well with and compliment Fradkov in macroeconomics," Breach said.

Given his background and well-known personal ambitions, Zhukov would hardly agree to share oversight of the financial block or the government's macroeconomic policy with anyone else. In May 1999, he flatly turned down an offer from then-Prime Minister Sergei Stepashin to become a deputy prime minister, insisting instead on a rank equal to then economic guru First Deputy Prime Minister Nikolai Aksyonenko.

The choice of Zhukov may bode ill for Kudrin and Gref, who have overseen financial and macroeconomic issues until now and have often bypassed dismissed Prime Minister Mikhail Kasyanov to report directly to Putin, analysts said. Zhukov may not accept such an arrangement.

"Zhukov is the new economic tsar, and Kudrin and Gref will have to accept that if they are to stay in the Cabinet," a prominent investment banker, speaking on condition of anonymity, told Reuters on Tuesday.

Christopher Granville, a strategist at United Financial Group, was even more direct in his assessment of Kudrin's future. "Kudrin is out of the Finance Ministry," Granville told Reuters. "Whether the president has another role for him remains to be seen."

Both Kudrin and Gref have largely kept mum about their future in the Cabinet after Putin fired Kasyanov's government last week. Gref praised Putin's choice of Fradkov in an interview with Interfax on Tuesday, but declined to comment on whether he hoped to stay on and, if so, in what capacity.

But Breach said it is too early to say whether Kudrin or Gref would leave, while Fenkner thought that the duo would probably stay on as part of the "technocrat government."

While praising the choice of Zhukov, the United Russia faction on Tuesday recommended that acting Agricultural Minister Alexei Gordeyev, acting Emergency Situations Minister Sergei Shoigu and acting Culture Minister Mikhail Shvydkoi keep their seats in the next Cabinet, First Deputy Duma Speaker Lyubov Sliska told Interfax late Tuesday.

Putin has hinted that acting Deputy Prime Minister Boris Alyoshin might also remain in the Cabinet. Putin has explicitly advised Fradkov to use the proposals for administrative reform that Alyoshin has been drafting. The plans provide for the number of ministries to be halved and the number of their functions to be cut by at least 1,000, from the current total of about 5,000.