Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Kozak's Ministry Handed Billions

The Regional Development Ministry will oversee the spending of billions of dollars from the Investment Fund, giving major clout to a once-obscure ministry.

Deputy Prime Minister Alexei Kudrin, meanwhile, said Tuesday that in his new role he would oversee the Economic Development and Trade Ministry, which had handled the fund as it soaked up surplus cash from high oil prices.

The developments provided a first glimpse of how the new Cabinet would operate in the months before State Duma elections in December and the presidential vote in March.

The Investment Fund was handed over to the Regional Development Ministry under a decree issued by President Vladimir Putin early Tuesday.

The ministry, now headed by close Putin ally Dmitry Kozak, will select and oversee all projects that receive money from the Investment Fund.

The fund, created in 2005, has been allocated 110.6 billion rubles, or $4.4 billion, this year, said Svetlana Suleimanova, spokeswoman for the Economic Development and Trade Ministry. It also has substantial leftover funds from the past year, she said, without elaborating.

So far, only a fraction of the fund's money has been approved for projects, and even less has been spent. The government has been very cautious about using the money, fearing misappropriations, but it can now rely on Kozak, said Erik DePoy, strategist at Alfa Bank.

"We'll be looking for acceleration in these investment projects, not only approval of various projects but actual disbursement of funds," he said.

The Regional Development Ministry is better suited to manage the Investment Fund because the fund's stated goal is to develop regional projects, said Yelena Matrosova, an economist at the BDO Yunikon consultancy.

Kozak's experience overseeing the regions in southern Russia as the presidential envoy to the area since 2004 makes him an expert in regional financial needs, she said.

Kozak confirmed on Channel One television that his ministry "will have more powers than it had before, first of all instruments of regional policy ... mechanisms that would ensure developments of all regions of the Russian Federation."

Kudrin, however, came out the clear winner in the shake-up, retaining his position as finance minister while being promoted to deputy prime minister. Economic Development and Trade Minister German Gref was replaced by Elvira Nabiullina, who served as his right hand in the early years of Putin's presidency.

"It's a big relief. Elevating Kudrin and bringing in someone similar to Gref leaves me, as an investor, in a better position than before," said Peter Halloran, founder of the Moscow-based Pharos Fund, which manages $200 million in assets.

Russia's two main stock markets showed no reaction to the new Cabinet, traders said, with the RTS dropping 1.6 percent and the MICEX retreating 1.9 percent over dipping oil prices and disappointing earnings by Sberbank.

UBS said in a note to investors that the composition of the Cabinet was perhaps the most reform-minded in the last five years. "The fact that Alexei Kudrin kept his post and was promoted is perhaps the most important signal," the investment bank said.

Roland Nash, head of research at Renaissance Capital, agreed that the new Cabinet was "more liberal than we've seen in the past," although the changes were minimal.

The changes "go some way" to satisfy hopes that the government's priority will shift from asserting control over strategic industries to investing in those industries and infrastructure, said Chris Weafer, chief equity strategist at UralSib.

Gref's departure, however, will be a great loss to investors because he was one of the most outspoken ministers and a great source of information on government plans, Weafer said.

Nabiullina's appointment appears to maintain the status quo at the ministry, and Russia's negotiations to join the World Trade Organization should not be affected, said DePoy, of Alfa Bank.

Despite its more liberal appearance, the Cabinet will follow its current economic course at least until the presidential election in March, he said.

Kudrin, speaking Monday night, promised to follow current economic policy. "For me, the appointment to the post of deputy prime minister ... signifies an increase in the responsibility for the results of such a policy," he said.

IMF Managing Director Rodrigo Rato, who met with Kudrin and Central Bank chief Sergei Ignatyev on Tuesday, said he was "encouraged" by the changes, Interfax reported.

"A strong reform agenda should build on the achievements of the last few years," Rato told reporters. He was in Moscow on a previously scheduled visit.

Staff Writer Catrina Stewart contributed to this report.