Streetwise Professor

March 3, 2009

More on Strains in the Power Vertical

Filed under: Economics,Politics,Russia — The Professor @ 9:58 pm

The Guardian has an extended article on a subject currently being debated on another thread: Kremlin infighting:

Russia’s financial crisis is beginning to destabilise the delicate Kremlin power balance, with a struggle between rival clans eroding  Vladimir Putin‘s authority and aggravating his relationship with his protege, President Dmitry Medvedev.

There are growing signs that a powerful group of military and security officials grouped around Putin are locking horns with economic liberals headed by Medvedev as the two groups fight for control of rapidly evaporating state finances.

Medvedev marked the first anniversary of his election victory yesterday, but the triumphalism has long since dissipated.

Russia has been hit hard by the global crisis, with the stockmarket down almost 80% from its peak, and the rouble sliding fast. Russia’s top 10 billionaires alone lost an estimated $150bn last year.

The sudden evaporation of Russia’s newfound wealth has set the two Kremlin cliques on a collision course and put Putin – now prime minister – in an awkward position. As a former KGB agent he is heavily identified with the security group, known as the siloviki, but he also has strong personal loyalty to a small clique of liberals from his home town of St Petersburg.

Experts say Putin is losing status as he attempts to contain conflict between the factions. Cracks are appearing in his relationship with Medvedev.

“Putin used to act as an arbiter standing above the two main clans – the siloviki and the rational economists,” said Dmitry Oreshkin, a leading political analyst. “Now he’s been dragged down into the fight and he’s under fire from both sides. The siloviki say he’s a weakling incapable of imposing his will and showing the economists their place, while the economists in turn are consolidating around Medvedev.”

Medvedev, handpicked by Putin from among loyal acolytes as a successor, has begun to issue muffled criticism of his mentor, leading some to believe that he may be enjoying the trappings of power and be prepared to flex his political muscle.

At a recent meeting with economic officials Medvedev said responses to the financial crisis – set by Putin as head of government – were “unacceptably slow” and instead of action on promised reforms there had been only “talking and talking”.

Last month Igor Yurgens, director of the Institute of Contemporary Development, a new thinktank created by Medvedev, criticised Putin for restricting press freedom and stressed that “the most honest and independent opinions on Russia’s problems are coming from the liberal wing, rather than from the so-called statist patriots”.

“Medvedev has got the whiff of power in his nose and he likes it,” said Mikhail Delyagin, an analyst and former government adviser on economic policy. “He’s given tacit approval for his administration to engage in an information war with Putin’s apparatus.”

The man at the centre of the Kremlin power struggle is the finance minister, Alexei Kudrin, who has warned the siloviki and the private corporations in which they have strong interests that the state is limiting financial rescue packages for big business.

“The siloviki have been used to sharing out the spoils of the state,” said Delyagin. “They want to get rid of Kudrin because he holds the purse strings and he’s not giving them any cash.”

An $18m corruption investigation into the finance minister’s deputy was renewed three weeks ago in a thinly veiled attack on his boss by the siloviki. For Putin, the problem is that Kudrin – who yesterday admitted mistakes in handling the financial crisis – is one of his deputies and an old ally from his St Petersburg days. [Emphasis mine.]

In some respects, we are back in the old days, practicing Kremlinology.  We don’t know for certain what is going on under the carpets, as it were.  But there is no doubting that there are factions, and that the disputes between them are becoming increasingly public.  Objectively, the conditions are ripe for conflict; an opaque state, heavy with representation from the security services, with awesome power and little accountability, built on dividing the spoils from natural resource rents facing a stunning drop in those rents.  Cooperation in these rent sharing arrangements is most likely when time horizons are long, but such time horizons are sharply truncated when economic collapse is a realistic prospect.  This encourages conflict, and a devil-take-the-hindmost approach.  The very prospect for such conflict can, moreover, precipitate the collapse.  Put differently, there is a positive feedback mechanism in such systems that makes them acutely vulnerable to precipitous collapse.

Not that this should put cheer in anybody’s heart.  As Oreshkin says (in something I quoted in yesterday’s post), the likely outcome of such a development is “armed pluralism.” A very chilling euphemism, that.

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1 Comment »

  1. Will oil come to Russia’s rescue once again. Given the drop in inventories….

    http://www.marketwatch.com/news/story/oil-futures-soar-7-after/story.aspx?guid=%7B32BD6C9F-3DE3-496C-9EC3-B09F34CCAF5A%7D&dist=msr_2

    Comment by Surya` — March 4, 2009 @ 12:43 pm

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