Bloomberg News

Putin Seeks Russian Presidency, Eyes Job Swap With Medvedev

September 25, 2011

(Updates with finance minister’s comments in fifth, sixth paragraphs.)

Sept. 25 (Bloomberg) -- Russian Prime Minister Vladimir Putin announced he will run again for the presidency next year, setting up the possibility of becoming the country’s longest- serving leader since Josef Stalin.

President Dmitry Medvedev, 46, ended years of speculation yesterday over whether he would seek a second term by backing Putin’s presidential bid and said he may take over as prime minister. This would swap their roles almost four years after the then-president picked the younger man, a former corporate lawyer from his hometown of St. Petersburg, as his successor upon completing the maximum two consecutive terms allowed by the constitution.

“I want to express my gratitude for your positive response to the proposal that I run for president of Russia, this is a great honor,” Putin, 58, told a congress of his ruling United Russia party in Moscow, receiving a standing ovation as supporters waved white-blue-and-red Russian flags.

Uncertainty over which of Russia’s top two politicians would be a candidate has spurred $31.2 billion in capital flight in the first half of the year. Investors had said they would prefer another Medvedev term to allow him to pursue his policies to reduce the state’s role in the economy and attract foreign investment to ease Russia’s reliance on energy exports.

Public Criticism

In an unprecedented public criticism of Medvedev, Russian Finance Minister Alexei Kudrin, who steered the world’s biggest energy exporter to amass a $200 billion rainy-day fund over political opposition, said late yesterday in Washington that he won’t serve in a Cabinet led by Medvedev because of disagreements over military spending.

Kudrin, 50, presided over budget surpluses between 2000 and 2008 and helped cut state debt to less than 10 percent of gross domestic product after the country’s 1998 default. Medvedev’s push for a 2.1 trillion-ruble ($65 billion) increase in defense spending through 2014 creates “additional risks for both the budget and the economy as a whole,” Kudrin, who was viewed by analysts as a potential prime minister, said.

The announcement of Putin’s return comes as concern over a possible slowdown in the global economy and Europe’s sovereign- debt crisis roils Russia’s markets, sending the Micex stock index to the lowest closing level since July 2010 and driving the ruble into its longest losing streak against the central bank’s target dollar-euro basket since January 2009.

‘Dominant Rider’

“This affirms what everyone knew, that Putin was always the dominant rider in the ‘tandem,’ and perhaps Medvedev was only keeping Putin’s seat warm all along,” Tim Ash, the London- based head of emerging-market strategy at Royal Bank of Scotland Group Plc. said by e-mail, referring to a power-sharing arrangement between the two men.

Russia’s 30-stock Micex index lost 6.7 percent last week, the worst weekly drop since February 2009, as the price of Russia’s main export, Urals crude oil, dropped 10 percent to $105.56 a barrel. The ruble lost 3.8 percent against the basket to its weakest closing position since September 2009.

The Russian premier’s decision to return to the top job reflects his concern about the declining popularity of United Russia and the risks to Russia’s economy from the difficult global-market environment, Ash said.

‘Clarity for Investors’

The only positive aspect of the news of Putin’s return was “that it brings more clarity for investors,” said Sergey Dergachev, who helps manage $8.5 billion in emerging-market debt at Union Investment in Frankfurt.

“But the negatives outweigh in my view, as even though everybody knew that Putin de facto led the country during Medvedev’s presidential term, Medvedev was associated with more liberalism and more investor-friendly rhetoric,” he said. “Whether Putin will follow these issues is to be seen.”

Medvedev, who was asked by Putin to lead United Russia into December parliamentary elections, said he was prepared to carry out “practical work” as head of the Russian government should the party perform well in the Dec. 4 legislative vote.

Thousands of people crowded into a sports arena at the Luzhniki complex, where Putin earlier this year showed off his ice-skating skills, for the congress. Putin and Medvedev made their entrance together and then stood to attention for the singing of the Russian national anthem.

Effective Team

Putin was president from 2000 to 2008 and could potentially rule for another two six-year terms, meaning he would have held the country’s top job for longer than Leonid Brezhnev, who led the former Soviet Union for 18 years.

Putin said he was confident of United Russia’s success and that Medvedev would, with popular support, “form a new, effective, young team, and head the government of the Russian Federation to continue work on modernizing all aspects of our life.”

The government won’t walk away from the course it has taken while being “more efficient, more honest, more open and sometimes tougher” to achieve its goals, Medvedev said.

A former Soviet-era intelligence officer, Putin remained at the center of power even after relinquishing the presidency in 2008 and leads Medvedev in opinion polls.

In May, Putin formed the All-Russia People’s Front, a nationwide coalition of supporters, as backing for United Russia dwindled. The party’s popularity has slipped to about 40 percent after it won almost two-thirds of the vote in 2007.

Record Recession

The world’s largest energy exporter saw its economy contract 7.8 percent in 2009, its worst recession on record, as oil prices plunged from a record high following the global credit crunch. The Economy Ministry has revised down its growth forecast for this year, saying gross domestic product will expand 4.1 percent, compared with a previous estimate of 4.2 percent.

Putin has been accused by Western governments of curtailing post-Soviet democratic freedoms by consolidating power and making it impossible for smaller opposition parties to enter parliament during his tenure as president.

Mikhail Khodorkovsky, Russia’s richest man when he was arrested on the tarmac of a Siberian airport in October 2003, says he’s been persecuted by Putin because he financed opposition parties. The former chief executive officer of Yukos Oil Co. was convicted of fraud and tax evasion in 2005 and oil embezzlement in December 2010, pushing his sentence to 13 years. Putin denies any involvement in the case.

‘Usurping’ Power

“This is a complete usurping of power,” Mikhail Kasyanov, a prime minister under Putin until he was fired in 2004 and now an opposition figure, said by phone. “It leaves no hope for change.”

Putin’s return to the presidency is also a sign that he doesn’t trust Medvedev to respect their power-sharing arrangement should he get another six years in the Kremlin, said Dmitry Oreshkin, an independent Moscow-based political analyst. The presidential term in Russia has been extended from four to six years starting from 2012.

The current president will have a completely “subordinate” role as prime minister, said Oreshkin.

Medvedev made fighting graft, improving the rule of law and reversing Putin’s policy of increased state ownership of assets the cornerstones of his presidency.

He clashed with the prime minister this year over foreign policy after he declined to use Russia’s veto to block a United Nations resolution that authorized strikes by the U.S. and its allies in Libya that led to Muammar Qaddafi’s ouster. Medvedev supporters had urged him to run regardless of Putin’s wishes.

“This is a signal that Putin expects economic and social problems in the country and he can’t rely on relations of trust within the tandem,” Oreshkin said. “Putin has decided that with six years to get through, I’ll have to deal with it myself.”

--With assistance from Jack Jordan, Denis Maternovsky and Lyubov Pronina in Moscow and Scott Rose in Washington. Editors: Alan Crosby, Paul Abelsky, James Krauss

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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