Kremlin Embarks on Personnel Intervention at Central Bank

Elvira Nabiullina file photo

MOSCOW. March 13 (Interfax) – One of the most suspenseful appointment decisions of the past year has come to an unexpected expected conclusion. On one hand, Kremlin adviser Elvira Nabiullina only recently emerged as a potential candidate to replace Sergei Ignatyev as chairman of the Central Bank of Russia (CBR). On the other, after President Vladimir Putin said that he had a surprise candidate whom everyone would like, the field of potential nominees for the post narrowed considerably.

It would be strange to call the appointment of Central Bank first deputy chairman Alexei Ulyukayev or former Finance Minister Mikhail Zadornov a surprise, while some other candidates, particularly Kremlin adviser Sergei Glazyev, who has spooked the market with his unusual views, did not fit into the second part of Putin’s formula.

Ignatyev, who has headed the CBR since March 2002, is serving out his third and final term, which ends June 27. The president is supposed to submit his nomination for the post to the State Duma three months before this date, so there was another ten days until the deadline.

However, Putin decided not to wait until the last minute. On Tuesday he met with Nabiullina and Ignatyev and announced that he would nominate his adviser for the post of CBR chairman.

The president said Nabiullina has considerable experience in finance and economics, as she was economic development minister for a long time and now heads a corresponding department in the Kremlin administration.

Putin also thanked Ignatyev for his work as head of the Central Bank. “The financial system of our country has changed and strengthened substantially during your tenure,” the president said, addressing Ignatyev.

Nabiullina thanked the president for his confidence in her. “And if the State Duma agrees to my candidacy, I would like to ask that Sergei Mikhailovich [Ignatyev] would stay on to work in the Central Bank system as an adviser,” Nabiullina said.

Battle of two elements

Nabiullina has traditionally been considered a member of the liberal bloc in the government. However, in monetary policy the conventional differentiation between liberals and “siloviki” does not apply. Here the key issue is one of priority: containing inflation or stimulating investment and economic growth.

The Economic Development Ministry, which Nabiullina headed until May 2012, is constantly at loggerheads with the CBR, which has put the objective of slowing inflation first. However, unlike here successor at the ministry Andrei Belousov, Nabiullina has not made categorical statements on this issue in public.

“I hope that the functions will determine the ideology. If you’re responsible for inflation, then you first of all think about how to fight it. And you understand that with high inflation investment won’t help you, and you won’t get it. And it’s better to rely on the banking system than on government investment,” economist Yevgeny Yasin, an academic director at the Higher School of Economics who taught Nabiullina, told Interfax. “I’m confident that there will be continuity” in the CBR’s policy following Nabiullina’s appointment, he added.

Under Nabiullina, the CBR will maintain its independence and its main goals, as set out earlier in its monetary policy, former Finance Minister and Deputy Prime Minister Alexei Kudrin said.

“I think this is a good candidate. I’m confident that she’ll do a good job. I believe that she is one of the most deserving for this post,” Kudrin told Interfax.

“The Central Bank under her will remain independent, despite the fact that the possibility of appointing a government representative to the Central Bank’s board of directors is now being discussed,” Kudrin said.

He also expects that as chairman of the CBR Nabiullina will “abide by the principles that the Central Bank had earlier and which were agreed with the Economic Development Ministry.”

“The goals that the Central Bank sets within the context of monetary policy were cleared with her earlier, as the guidelines for the monetary policy of the Central Bank were agreed with both the Economic Development Ministry and with the Finance Ministry, so I don’t see any contradictions,” Kudrin said.

Changes in the CBR’s work will more likely concern the area of oversight, he believes. “Since I believe that monetary policy is consistent with today’s challenges, I think we’ll be waiting more for a breakthrough in the quality of oversight on financial markets and the establishment of the Central Bank’s role as a mega-regulator,” Kudrin said, adding that Nabiullina has experience working on the creation of new institutions, procedures and regulations.

“Naturally, she will rely on the Central Bank’s professionals. I believe that the Central Bank’s staff right now is very professional,” Kudrin said.

He said the most important qualities of the proposed candidate to head the CBR are “integrity, honesty and adherence to principles.”

“This is very important in order for the financial sector to become more transparent. Of course she will need the help of others, primarily law enforcement agencies, in order to defend the principles of openness and transparency in the financial sector. But I think that she’ll manage. She knows how to work systemically,” Kudrin said.

He also stressed that when she headed the Economic Development Ministry, Nabiullina delved into the details of all financial laws, including those drafted by the Finance Ministry. “All of the country’s financial laws, even those prepared by the Finance Ministry, came out with her obligatory endorsement. She always had a grasp, knows well all legislation, the whole regulatory field in this area. In addition, it was the Economic Development Ministry under her leadership that developed the program for the international financial center,” Kudrin said.

“This appointment is good news for investors, it demonstrates the stability of Russia’s macroeconomic policy,” Russian Direct Investment Fund (RDIF) CEO Kirill Dmitriev said.

“She is a person with a spotless reputation, does not go to extremes, is focused on balanced growth. Balanced is the key word here,” Dmitriev said, adding that Nabiullina played an important role in a number of RDIF’s biggest projects.

Monetary policy at the CBR is currently overseen by Central Bank first deputy chairman Alexei Ulyukayev, who was until recently thought to be one of the main candidates to replace Ignatyev. Interfax sources close to Ulyukayev believe there is a pretty good chance that he will leave the Central Bank now that he will not get the post.

Ignatyev, like Nabiullina, had a macroeconomic, not a banking background prior to his appointment as CBR chairman in 2002. Nonetheless, he has been the longest serving Central Bank chief in Russia’s post-Soviet history.

Another thing Nabiullina and Ignatyev have in common is that they tend to shun publicity. Despite their high offices, both of them have given few interviews and rarely appear at events attended by the press.

Most of the key members of Ignatyev’s team have been at the CBR for many years. Two of his four deputy chairmen, Alexei Simanovsky and Vladislav Kontorovich, have not held these positions for long, but they joined the CBR in 1986 and 2002, respectively. Georgy Luntovsky has been working at the CBR since 1999 and has held the post of first deputy chairman since 2005, while Ulyukayev joined the CBR in 2004.

Biography

Nabiullina, 49, hails from Ufa, Bashkortostan. In 1989, she graduated from Moscow State University, where she was qualified as an economist.

In 1992-94, Nabiullina was a consultant for the directorate of the Russian Union of Industrialists and Entrepreneurs (RUIE). In 1994, she was an adviser at the RUIE Expert Council.

In 1994-97, Nabiullina worked as a senior official at the Economics Ministry. In 1997-98, she was deputy economics minister.

In 1998-99, Nabiullina was deputy chief executive of Promtorgbank. In 1999, she became head of the Eurasian Rating Service. In 1999-2000, Nabiullina was vice president of the Strategic Projects Center foundation. From June 2000 to June 2003, she was first deputy economic development and trade minister, being in charge of macroeconomics, among other things overseeing the drafting of a medium-term economic development program.

In summer 2003, Nabiullina became president of the Strategic Projects Center. In 2007, she became head of the Expert Council at the Council for Priority National Projects and Demographic Policy.

Nabiullina was Economic Development Minister from September 2007 to May 2012, and became an adviser to Putin following the change of government last year.

Nabiullina will become Russia’s seventh Central Bank chairman, including to interim chairmen, and the second woman to head the CBR after Tatyana Paramonova, who was interim chairman in 1994-1995.

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