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Opinion

Russia suffers from Kudrin loss

Medvedev and Putin’s next finance minister has a lot to live up to.

It could hardly have happened at a worse time. After a week when Russia’s benchmark oil price fell by 10%, finance minister Alexei Kudrin was forced out by a president, Dmitry Medvedev, who just two days before had agreed to step aside for his prime minister, Vladimir Putin, as the ruling party’s presidential candidate.

With the oil price sliding to $105 a barrel, the rouble had already lost 13% against the dollar between August and the time of Kudrin’s departure in late September, sparking interventions in the currency market by the central bank. Ironically, the drop in oil prices and the downward pressure on the rouble are precisely the eventualities that were always going to vindicate Kudrin’s desire to save more of Russia’s oil windfall earnings, rather than spending more on defence, as Medvedev wanted.

Partly thanks to Kudrin, Russia enters an era of weakened global growth prospects with public debt at just 10% of GDP and sovereign wealth savings of $120 billion. However, Kudrin has not been able to resist all the pre-election pressures, and the oil price at which Russia’s governmental budget breaks even has risen from $45 in 2008 to $115 today.

After the announcement that Putin would run for president, Kudrin said he would find it difficult to serve under Medvedev as prime minister. It might not have just been about policy differences. Rumour has it Kudrin had his eye on the prime minister’s job.

"Alexei Leonidovich, if you do not agree with the policy of the president, then you have one option and you know what it is – to resign." That was Medvedev’s response, at a meeting with Kudrin, broadcast live on state television no less.

"I do indeed have differences with you," replied Kudrin. The sentence sums up just how much investors will miss Kudrin after his 10 years as finance minister. It is also the kind of messy resolution that Putin, Kudrin’s traditional ally, hates. But it was perhaps not coincidental that it happened this way.

As the oil price falls, Russia falls with it. Stage-managed politicking comes apart. Panic sets in: as it had begun to do in the banking sector by late September, when liquidity was already under pressure, forcing the central bank to extend repo facilities and the finance ministry to place more deposits in local banks.

With Kudrin’s departure, Russia might now have an administration less respected for its fiscal conservatism: and in a dangerous global environment too. With Putin’s return to the presidency, the country might also have a government even less committed to economic liberalization. Putin suggested otherwise at the ruling party’s congress last month. But economic modernization and privatization are policies even less associated with Putin than Medvedev.



see also:

Finance minister of the year 2010: Kudrin’s cautious approach pays off for Russia

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