Medvedev Seen Clinging to Job as Putin Frets About Economy

(Bloomberg – bloomberg.com – Henry Meyer and Ilya Arkhipov – February 6, 2013)

Prime Minister Dmitry Medvedev is clinging to his job as President Vladimir Putin grows increasingly frustrated with his protege’s inability to boost growth, three current and former Kremlin advisers said.

Putin criticized Medvedev’s government last week for failing to adapt to a “post-crisis” economic model. That followed what Izvestia, a newspaper owned by Putin ally Yury Kovalchuk, said Jan. 15 was a leaked Kremlin scorecard giving most ministers either average or “underperforming” marks. Medvedev said the scores were “plucked out of thin air.”

Medvedev, 47, is in a “very precarious position,” Sergei Markov, a political adviser to Putin’s staff and vice rector of the Plekhanov Russian University of Economics, said in an interview in Moscow. “He has a promise from Putin about his role as prime minister, but there are some very powerful forces that see him as a threat.”

Putin, 60, was forced by the constitution to cede the presidency after his second-straight term ended in 2008. Medvedev, the prime minister at the time, became president and appointed Putin his premier. The two swapped jobs again last May after elections that sparked the biggest protests of Putin’s political career.

Medvedev in a Jan. 23 interview with Bloomberg Television ruled out running against his mentor in the next presidential election. That contrasts with a statement two months earlier, when Medvedev said he struggled to give up the Kremlin and left open the possibility of seeking the presidency in the future.

‘One Person’

Putin’s spokesman, Dmitry Peskov, declined to comment on the likelihood of Medvedev’s dismissal and characterized the state of the economy as “good.”

“Only one person knows the answer to this, the president,” Medvedev’s spokeswoman, Natalya Timakova, said by phone, adding that Putin has given a “positive appraisal of the government’s work.”

Medvedev used his trip to the World Economic Forum in Davos, Switzerland, last month to lay out his vision of Russia to global investors and launch an “unprecedented” media blitz to counter critics at home, said Igor Yurgens, a Kremlin adviser during Medvedev’s presidency who is now a member of Putin’s human-rights watchdog. Recent coverage of Medvedev on Russian television, which is tightly controlled by the Kremlin, seems designed to minimize his importance, Yurgens said.

Kudrin Awaits

If Putin does decide to dismiss the government, one possible candidate to replace Medvedev is former Finance Minister Alexei Kudrin, said Yurgens, who works with Kudrin at the Civic Initiative Committee in Moscow.

Kudrin, who was fired in September 2011 by then-President Medvedev after a decade in the post, would be a credible voice on the economy and may also help shore up investor confidence, said Tim Ash, head of emerging-market research at Standard Bank Group Ltd. in London. Kudrin, a Putin ally, said as far back as December 2011 that he was interested in becoming premier.

“Markets would love that,” Ash said by e-mail. Kudrin “is seen as an experienced reformer and I don’t think people believe Medvedev has much political capital left.”

Russian stocks are the cheapest of 21 emerging markets tracked by Bloomberg. The Micex Index trades at 5.7 times estimated earnings, about half the ratio for the MSCI Emerging Markets Index.

‘Huge Pressure’

In a Bloomberg Television interview in Davos, Medvedev defended the posthumous trial of Sergei Magnitsky, a lawyer for Hermitage Capital Management Ltd. who died in prison in 2009 after alleging a $230 million tax fraud by officials. That’s a u-turn by Medvedev, who as president condemned Magnitsky’s death, and is a sign of “huge pressure” on him, Yurgens said.

Russia’s handling of the Magnitsky case has sparked international criticism, including from the U.S., which passed legislation in Magnitsky’s name that punishes Russian officials deemed guilty of complicity in his death.

Medvedev’s reversal on Magnitsky is an attempt to assuage hardliners who are growing increasingly opposed to the premier, Yurgens said.

Last year’s growth of 3.4 percent was the lowest since Putin came to power in 1999 except for 2009, when Russia’s economy contracted along with most of the world.

Russia’s central bank isn’t under pressure from the government over interest rates, First Deputy Chairman Alexei Ulyukayev said today. Last week Putin complained that high borrowing costs were choking credit flows needed to stoke the economy.

‘Powerful Coalition’

The slowdown is playing into the hands of Medvedev’s opponents, some of whom are frustrated by his ability to deliver on promises to cut the state’s role in the economy and liberalize the political system, said Gleb Pavlovsky, a former Kremlin adviser who heads the Moscow-based Effective Policy Foundation.

“Although the main attack is not being waged by Putin but by allies of his, these forces are uniting into a powerful coalition,” Pavlovsky said. “Medvedev’s position as prime minister is weakening.”

Maybe so, but that doesn’t necessarily mean that his days are numbered because Putin may want a scapegoat if the economy takes a steeper turn, said Mikhail Vinogradov, head of the St. Petersburg Politics Foundation research group.

Fearing Change

“All outcomes are possible — from Medvedev’s dismissal to him serving out the full term until 2018,” Vinogradov said by phone. “The fear by the authorities of any changes may mean they don’t replace the government for the time being.”

Some of Medvedev’s deputies are nevertheless starting to gravitate away from him.

On Feb. 1, Deputy Prime Minister Dmitry Kozak said Russia would decide shortly whether to reinstate daylight savings time. Medvedev, as president in 2011, abolished the practice of moving clocks back an hour each winter, in part to benefit farming. Putin and most of the country, according to polls, criticized the move, which delayed sunrise to mid-morning.

That was another “unpleasant” signal for Medvedev, Alexei Mukhin, head of the Center for Political Information, said by phone from Moscow.

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