Problems in Russian economy alter Putin's inner circle  

Problems in Russian economy alter Putin's inner circle
Vladimir Putin and Arkady Rotenberg (right)

Sergey Ivanov and Gennady Timchenko have lost their former influence among Vladimir Putin’s friends. At the same time, the Prime Minister Dmitry Medvedev, the businessman Arkady Rotenberg, the State Duma Speaker Vyacheslav Volodin and the Defense Minister Sergey Shoigu are still well placed. This was stated in the report by Minchenko Consulting.

According to experts, the economic problems have led to increased competition within the government elite. This is reflected in the growing influence of Putin's inner circle — the so-called political bureau of the new formation — and the redistribution of resources to their needs through moving into unfamiliar sectors of economy and regional policy (manifested in the active replacement of governors, including forcefully).

In addition, the crisis has revealed problems of efficient management amid the need for cost cutting, which forced a number of heads of state-owned companies to resign. Still, all of these are simply the result of failure to restructure the country's economy after oil prices dropped and Western sanctions were implemented. According to the report, the formation of a new model of economic management as a strategic task has been delayed. The ruling elite seeks for simpler solutions to the problem of sanctions, like tactical maneuvering in the international arena — in particular, participation in the Syrian conflict.

Ближний круг Путина

Putin’s inner circle

However, it is noted that the president has already started to promote the new age managers into the government top tier. It is them who will have to deal with the current economic problems. Experts divide them into two groups:

1) The children of the ruling elite. They include the Chairman of the Board at Inter RAO Boris Kovalchuk (son of Putin's friend, also a businessman Yuri Kovalchuk), the Chairman of the Board at Russian Agricultural Bank Dmitry Patrushev (son of the Secretary of the Russian Security Council Nikolay Patrushev), the Chairman of FGC UES Andrey Murov (son of the former director of the Federal Security Service Yevgeny Murov), etc.

2) The young technocrats who owe their careers to Putin personally. They include the Minister of Industry and Trade Denis Manturov, Energy Minister Alexander Novak, Deputy Head of the Presidential Administration Anton Vaino, the new head of Russian Railways Oleg Belozerov, etc.

The First Deputy Prime Minister Igor Shuvalov, the Head of Sberbank German Gref and the Deputy Prime Minister Arkady Dvorkovich, all of whom offer substantive agenda, can also take the leading roles in the new body of strategic planning and control (which resembles Gosplan from the Soviet Union).

Researchers believe that in the mid-run, after Putin's re-election, economic problems will again come to the fore. The country leaders will then seek those members of the secret high council, who can gather a team of solid professionals with strong management qualities and public interaction skills.

Dmitry Medvedev, despite the criticism of the Government, retains the post of its Chairman. The authors of the report believe that this is due to only one reason - his closeness to Putin, the fact that the president himself has repeatedly stressed. Despite the fact that Medvedev has lost almost all of his staff reserves among the security forces and the regional authorities, he nevertheless has increased his role in finance and in the party. In these new conditions, Medvedev no longer pretends to be a liberal and stands as one of the leaders of the ruling party. Moreover, he starts to initiate an independent foreign policy, as demonstrated by his interaction with fellow premiers of Belarus and Kazakhstan. However, the refusal of the United States to accept the delegation on the Syrian issue, headed by Medvedev, proves that the West has changed its stance and no longer sees Medvedev as a desirable partner.


The Defense Minister Sergey Shoigu has retained his highly positive image throughout the whole of last year after acquiring it as the Emergency Situations Minister and even improved it thanks to the actions of the Russian army in Crimea and then in Syria, which in general was met with support from the Russian citizens. Shoigu has no conflicts with anyone directly inside the so-called new politburo. However, he can prove himself only as an effective leader in extreme situations. Such situations bring too much imbalance into the system, which is disadvantageous to all other participants of Putin's inner circle. The Syrian conflict is one of such examples of systemic risks affecting not separate sectors, but the entire system of decision-making in modern Russia. Future developments may affect positively or negatively both the role of the Russian military involved there, and Shoigu himself. Still, in the future, the political weight of Shoigu as the leader of the active generals of the Crimean and Syrian fronts may well increase. Such personalities may soon become public figures.


The former First Deputy Head of Presidential Administration and now the State Duma Deputy Speaker Vyacheslav Volodin has also strengthened his position. It is believed that, after leaving the administration, he has been able to leave his people there. But the main thing is that he coped with the task of reformatting the party space. According to experts, it has become more open and competitive, which made it possible to achieve a better balance of the system even in cases when regional leaders have to switch. Due to this, the name of the winner in the last elections would not be important for the regions, since that person would have to thank the new system in any case. Besides, Volodin himself has increased his influence on the regional elites.


The Moscow Mayor Sergey Sobyanin is busy exclusively with economic issues of the Russian capital and makes sure not to interfere with the decision on larger issues. According to the report, he continues to lose influence over his native Tyumen Region. In particular, he has not taken any steps to implement the project of uniting the region and its autonomous area into a single entity. At the same time, the current Governor of the Tyumen Region Vladimir Yakushev has taken a course towards greater independence. However, the abolition of the direct election of the heads of Khanty-Mantsiysk and Yamalo-Nenets Autonomous Regions preserves Sobyanin’s influence in the key oil and gas producing area of Russia, albeit showing his weakness as a political manager of the new formation. Sobyanin’s policy of healthcare optimization and the action of the Moscow Department of Transportation add to the list of cons. Thus, Sobyanin is on the verge of losing his full membership in the new politburo and is currently balancing on the edge only due to his ability to contact the country’s leaders directly.


The resignation of one of the heavyweights - the Head of Russian Railways Vladimir Yakunin – has struck fear in the heads of all state corporations. Now each of them has to prove their effectiveness with greater zeal. In particular, the CEO of Rostech Sergey Chemezov has not yet been able to fully exploit the potential of growing influence amid increased attention to the military-industrial complex and additional funding of defense. Moreover, he has failed to unite the aircraft and shipbuilding corporations into a single structure. However, Chemezov has engaged in pharmaceuticals, announcing the creation of a holding with dozens of companies.


In 2015, the Head of Rosneft Igor Sechin has also lost his grip, compared to the previous year. The researchers concluded that he had failed to defend the position of the informal leader of the entire energy sector. A certain cooling in relations between Putin and Sechin has been substantiated by the fact that Rosenft was systematically refused financial support from the state. Sechin also failed to gain more power via foreign resources. The much-discussed energy projects with Chinese companies are progressing very slowly. However, it should be noted that Putin has supported the deal on the purchase of Bashneft by Rosneft. Many believe that this was more of a power struggle, than a commercial one.


Another close friend of Putin's, Arkady Rotenberg has significantly boosted his position. He benefited from the refusal of other Putin’s friend, Timchenko, to build a bridge to the Crimean peninsula. The project was immediately taken by Rotenberg. It has also reinforced his image as an efficient businessman working despite targeted sanctions from the West. Rotenberg’s influence was proved after Sheremetyevo Airport had been placed under his management, and his group's position had strengthened on the market of alcoholic beverages. In addition, Arkady Rotenberg has a claim to the part of the secondary education system, where he seeks to establish another commercial structure similar to the Ministry of Education on the basis of the Prosveschenie publishing house. The new structure would deal with material support of schools.


Another representative of the inner circle Yuri Kovalchuk has kept the level of his former influence. His finances have been growing stronger due to success of SOGAZ insurance company in the market, as well as through the sale of a 75% stake in STS TV channel to Alisher Usmanov. However, the results of the reform at the Russian Academy of Science, supervised by the Kovalchuk brothers, come as ambiguous. Still, an easy victory of Kovalchuk’s protégé Alexander Drozdenko in the election of the Leningrad Region Governor in 2015, can be considered a major pro.


A number of observers think that Gennady Timchenko has simply grown tired of the big game. In 2015, he lost much compared to all other close businessmen. His lack of success in the Russian-Chinese talks contributed the most to that. Still, at the beginning of 2016, he got the post of the Chairman of the Russian-Chinese Business Council. His old connections in Europe have been ruptured. The sanctions against him were sufficiently effective, and the scope of his business did not allow him to shift to other markets. Thus, the compensation for Timchenko could not completely balance his losses.


Sergey Ivanov's position in the 2014-2015 results has been assessed as positive. The report mentions that his influence has significantly increased since the beginning of the Russian operation in Syria. Trained intelligence officer Ivanov take to this complex geopolitical game as duck to water. The anti-corruption agenda in domestic policy (profile arrests of mayors and governors) has strengthened his position as supervisor of security forces. However, in August 2016, Putin dismissed Ivanov from the post of the Head of the Presidential Administration, replacing him with Anton Vaino. The latter also replaced Ivanov at the Economic Council under the President. As a reminder, the council was created to prepare proposals on the main directions of socio-economic policy of Russia and to define strategies for its implementation.


The study also assumes that Putin's inner circle may soon increase its membership. In particular, the power unit may be represented by the Head of the Federal Security Service (FSB) Alexander Bortnikov, whose structure of late demonstrates unprecedented activity. The FSB acts in tandem with the Investigative Committee, which is the main player in the high profile anti-corruption cases. Amid deteriorating international situation, the role of the Security Council and its Secretary Nikolay Patrushev will also be growing. The leader of the technical unit is thу First Deputy Prime Minister Igor Shuvalov, who can take advantage of his staffing victory - the merging of the Federal Antimonopoly Service and the Federal Customs Service. As for the regions, we have the Deputy Prime Minister Yuri Trutnev, who had significantly facilitated the scandalous arrest of the Sakhalin Region Governor Khoroshavin and is engaged in the Far East direction, one of the most important ones for Putin. Among economists, German Gref is the most notable person, who offers a meaningful alternative agenda.


The Politburo 2.0 report and Syrian gambit



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