From Volume 6, Issue 40 of EIR Online, Published Oct. 2, 2007
Russia and the CIS News Digest

New Russian Government: Putin Follows Own Script

Sept. 25 (EIRNS)—Just hours after Moscow was swept by rumors of an imminent elevation of First Deputy Prime Minister Sergei Ivanov to the Russian premiership, Russian President Vladimir Putin surprised Moscow and the world on Sept. 12 by nominating Victor Zubkov to head the government. Zubkov was part of Putin's Leningrad/St. Petersburg base of operations, and is currently chairman of the Russian Federal Financial Monitoring Service. In a nationally televised conversation between outgoing Prime Minister Mikhail Fradkov and Putin, both men situated the change in government in the context of the December 2007 State Duma elections and March 2008 Presidential elections.

At age 65, Zubkov has behind him a 30-year career as a state farm director, and then a Leningrad Region official, followed by a job in the St. Petersburg Mayoralty office in 1992-93, when Putin was deputy mayor there. He has a degree in economics. After 1993, Zubkov worked in various tax inspectorate agencies, until heading up the Russian Federal Financial Monitoring Service in 2001.

On Sept. 24, Zubkov announced ministerial and institutional changes, putting in place the administrative team for the months until Russia's Parliamentary (December) and Presidential (March) elections. True to Putin's form, the changes announced did not match most of the experts' scenarios of what he was going to do.

Of the three ministers known as the "neo-liberal team" in the previous government, two are gone: Minister of Economic Development and Trade German Gref, and Health Minister Mikhail Zurabov. Also ousted is Vladimir Yakovlev, the formerly successful St. Petersburg regional leader, who had angered many regional leaders and pro-development specialists with his wishy-washy management of the Ministry for Regional Development. But, the third person famed as representing continuation with neo-liberal doctrines, Finance Minister Alexei Kudrin, not only keeps his post, but has regained the status of deputy prime minister. Of course, Putin may have especially not wanted to change finance ministers in the midst of the world financial crisis. By the same token, several Russian observers suggested that Gref was doomed not only by his obsessive prioritization of World Trade Organization membership for Russia, just when Putin was downplaying it, but also by his enthusiasm for introducing American real estate practices into Russia.

Rather than following the scenarios for a clean break in the direction of replacing the ousted ministers with unequivocally pro-state-intervention officials from elsewhere in the Russian system, both Gref and Zurabov have been succeeded by their deputies, or deputy ministers from closely related ministries, for the time being: Elvira Nabiullina is now Minister of Economic Development and Trade, while former Deputy Finance Minister Tatyana Golikova (wife of Minister of Industry and Energy Victor Khristenko) replaces Zurabov. Former Deputy Prime Minister and, most recently, Presidential Representative in the Southern Federal District Dmitri Kozak, a long-time ally of Putin, is taking over the Ministry for Regional Development.

The upper echelon of ministers remains as it was under the previous government of Fradkov, with the addition of Kudrin. Besides him, Sergei Naryshkin and Alexander Zhukov are deputy prime ministers, while there are two first deputy prime ministers: Dmitri Medvedev and Sergei Ivanov. Putin rejected the resignation of Defense Minister Anatoli Serdyukov, who had offered to step down because Zubkov is his father-in-law.

One more of the Putin-Zubkov government appointments is noteworthy in the context of the banking crisis. Putin today appointed Tatyana Paramonova, who until earlier this year was the long-serving deputy chairman of the Central bank, to the post of Presidential Representative on the National Banking Council. In recent years, Paramonova has been publicly active with the Center for Problem Analysis and State Governance Design, under the auspices of the National Glory Center, founded by her—and President Putin's—friend, Russian Railways CEO Vladimir Yakunin.

Far East Forum: Modernization Through Frontier Development

Sept. 19 (EIRNS)—The Second Far East International Economic Forum took place Sept. 18-19 in Khabarovsk, Russia. On the eve of the event, Khabarovsk Territory Governor Victor Ishayev addressed its Organizing Committee, confirming that the dimensions of the Federal Program to Develop the Far East and Trans-Baikal Regions, adopted by the government on Aug. 3 when Mikhail Fradkov was still prime minister, are still on the national agenda after the dismissal of Fradkov and his Cabinet. The essentials of that 566 billion-ruble ($22.3 billion) commitment, from now to 2013, were reported in EIR of Sept. 7. Addressing the Forum, Presidential Representative in the Far East Federal District Kamil Iskhakov cited that recently adopted program as the point of departure for hundreds of large-scale investment projects over the next six years.

Governor Ishayev was chairman of the Russian State Council in 2001, when it adopted a report that carried his name, calling for dirigistic financing and related measures to revive Russia's economy, with emphasis on the real sector. At the time, the Ishayev Report remained a dead letter, but the Khabarovsk Forum is the latest of a number of indications that at least some of its principles are being revived. (A translation of the Ishayev Report appeared in EIR of March 2, 2001. (LINK: http://

Talking about the commitment adopted on Aug. 3, Itar-TASS reported, Ishayev said Sept. 17: "The State has assumed the task of financing 80 percent of all the required spending." He said that this alone would give a strong impetus to economic development in the region, but "the total effect will be several-fold greater, because the total amount of investment that is attracted can be an order of magnitude greater."

Over 800 people attended the Khabarovsk event, including 130 foreign participants from China, South Korea, Japan, the U.S.A., and other nations. The meeting centered on new models of economic development, energy, the transport system of Russia's vast East, and regional integration in the Asia-Pacific Region as the basis for regional security. Among participants who have played a prominent role in discussion of the Bering Strait crossing project and other Russian megaprojects were Presidential Representative in the Far East Federal District Kamil Iskhakov, and Boris Lapidus, senior VP of Russian Railways.

Academician Mikhail Titarenko, director of the Far East Institute of the Russian Academy of Sciences, polemicized from the podium at Khabarovsk, about the national-security importance of the Far East. He quoted the 18th-Century scientist Mikhail Lomonosov's warning to Russian rulers, that without this region, Russia cannot exist.

Sochi Conference: Government-Business Cooperation on Infrastructure

Sept. 22 (EIRNS)—President Putin, together with Russian, Chinese, and other officials, convened for the Sixth International Investment Forum in Sochi on the Black Sea, to discuss government-business cooperation in infrastructure development. Putin told the conference that "infrastructure upgrading is a key factor of the economic development and improvement of citizens' welfare," reported Itar-TASS. He added that the government "creates the necessary conditions to itself invest in the country's economy and to attract private investors."

RosBusiness reported that Acting First Prime Minister Sergei Ivanov told the Forum that the Russian government will allocate about 365 billion rubles ($14 billion) to the energy sector. He said that the fuel balance will be shifting towards nuclear, hydroelectric, and coal generation, and that the policy would be to apply public-private cooperation to all infrastructure. Overall, the government will allocate 900 billion rubles (approximately $36 billion), 16% of total budget expenditures, to investment programs in 2008.

'Western' Credit Crunch Hitting Russia

Sept. 25 (EIRNS)—The "Western" credit crunch is striking the Russian banking sector, RosBusiness and Kommersant reported yesterday. Though Russian commercial banking is extremely underdeveloped, and thus its role in the national economy is relatively less than in Western countries, the banks do play an important role in real estate and other operations, especially in Moscow.

Russian banks have been preparing for a liquidity crisis since April, by trying to consolidate their own ruble reserves, but this "cushion" of reserves was only sufficient until Aug. 1, RosBusiness wrote. Since the Spring, banks have been pulling rubles from their accounts in correspondent banks and from their deposits in the Central Bank. But this cushion is gone, and now the Central Bank had to resort to direct REPO operations. In August, daily REPO borrowings by commercial banks from the Central Bank reached $10 billion.

Interbank interest rates have now dropped to 5-6%, from 13%, but bankers expect another wave of crisis next month. According to RosBusiness's sources, bank lending has been falling since April. Corporate deposits in commercial banks are also down. On Sept. 21, Russia's Standard Bank suspended lending for several weeks.

Kommersant reported that the biggest vulnerability is in the mortgage credit market. Russian banks are over-dependent on borrowing abroad. In recent months, for "Russian banks, and for industrial companies too, access to refinancing on world markets became more difficult, and [this] has become an important element in their financial policy in recent years," Kommersant quoted Dmitri Tarasov, director of strategic planning at the Savings Bank of Russia (Sberbank). The banks will now cut back long-term lending, such as mortgages.

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