Putin Sacks Cabinet
from Control Risks Group [$$$ required]

President Vladimir Putin on 24 February issued a decree dismissing the entire cabinet and appointing deputy prime minister Viktor Khristenko as acting prime minister to replace Mikhail Kasyanov.

Putin's announcement came without any warning and has taken analysts by surprise. Control Risks has for several months predicted that Putin would replace Kasyanov in order to signal a renewed impetus for reform as he enters his second term as president. Nevertheless, the timing of the announcement – just under three weeks before presidential elections – is unexpected. Kasyanov's dismissal signals the final capitulation of the so-called ‘Family' clan of politicians and businessmen who enjoyed great influence in the Kremlin under former president Boris Yeltsin. The dismissal will not have any implications for the security of Western companies' personnel or assets. However, it may signal greater state management of, and intervention in, business in the future.

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Putin is empowered by the constitution to dismiss the entire cabinet, and Yeltsin did so on a number of occasions as a prelude to replacing a handful of ministers. The ministers (with the exception of Kasyanov) will continue their work until a new government is formed, and many of them are likely to be reappointed. Kasyanov appears certain to be permanently replaced as prime minister. However, Control Risks believes that Khristenko, who has been a deputy prime minister since 1998, will not be Kasyanov's permanent replacement.

Rumours of Kasyanov's impending dismissal have been circulating since soon after his appointment in early 2000. Kasyanov earned a reputation for competent economic management, but was also given the nickname ‘Misha 2%' because of his alleged involvement in corruption. Speculation that Kasyanov would be dismissed intensified after the removal in October 2003 of presidential administration chief Aleksandr Voloshin, who was seen as a patron for Family-connected businessmen and politicians. Both Voloshin and Kasyanov had been outspoken opponents of the authorities' crackdown on the Yukos oil company. Putin is also likely to have become frustrated by Kasyanov's failure to push through reforms to the state administration, which he has identified as a priority for his second term.

The dismissal of the cabinet highlights the shifting power of factions within the Kremlin. With the Family effectively removed from power, two factions remain: the St Petersburg liberals and the ‘siloviki'. The latter faction consists of current and former members of the armed forces and security services who envisage a stronger role for the state in the economy. Rather than risk causing an imbalance of power in favour of the ‘siloviki', Putin is likely to appoint as prime minister a representative of the St Petersburg liberal faction who has some economic expertise. Possible candidates include finance minister Aleksei Kudrin and first deputy head of the presidential administration Dmitry Kozak.

posted by prof_booty | 12:26 PM