President Putin built up his authority by promoting mates of his from KGB to senior posts in the government and economy. Now president Medvedev is doing the same, but instead of promoting spooks, he’s promoting people from a legal and business background, like him.
In his first cabinet reshuffle, announced today, Medvedev began to promote members of his inner circle, including fellow St Petersburg law graduate Alexander Konovalov, who was made minister of justice; and Igor Shuvalov, one of the few senior politicians who has private sector experience, who was made deputy prime minister.
This promotion of lawyers and business people is good news for investors. Andrew Somers, head of the American Chamber of Commerce in Moscow, says: “Who’d have thought we’d be happy about a government full of lawyers, but in Russia, it’s good news.”
Medvedev has already taken the first cautious steps to define his political identity outside of Putin’s shadow. His speeches and interviews have stressed his legal background, and emphasized the need for widespread legal reform in Russia. He says Russia is still plagued by “legal nihilism” where the law only favours “whoever’s teeth are sharper”.
He has outlined a fairly daunting programme of legal and administrative reform – cutting red-tape to help small businesses, increasing the independence of the courts, slashing the number of civil servants, reducing the number of bureaucrats running state corporations, and protecting property rights from corporate raiders, whether state-owned or private.
This sort of liberal talk has encouraged foreign investors, analysts, and western politicians. But how seriously can we take it?
Nikolai Petrov, senior fellow at the Carnegie Centre for International Peace in Moscow, points out: “Medvedev was side-by-side with Putin for the last 15 years. He was there throughout the Yukos saga. He suggested the use of force during the Orange Revolution in Ukraine. So those expecting a more liberal government policy will be disappointed.”
But other experts say Medvedev may be serious about his reform plans. Andrey Makarychev, professor of history of Nizhny Novgorod Linguistic University, says: “Western countries should take his plans seriously. He is very well-versed in law, and he understands the legal root of issues like administrative reform, which Putin has failed to tackle.”
But do Medvedev and his lawyer chums have the cojones to push their plans through? Legal and administrative reform will make enemies, especially if Medvedev starts laying off large sections of the civil service, firing bureaucrats from state corporations, and even (gasp) punishing politicians for corruption.
The early signs are that he may not shy away from a fight. He has had first-hand experience of the rough and tumble of Russian business, when he was lawyer for Ilim Pulp, a St Petersburg paper company, which Oleg Deripaska, a famously aggressive Russian tycoon, tried to take over in 2001. Medvedev helped to defend the company from the hostile takeover, guiding it to victory through the courts.
Deripaska, who is now the richest man in Russia, has since brushed off suggestions that this conflict could sour his relations with the Kremlin. He told foreign journalists “In our country, you need a leader”, and that leader was Putin. The comment was surprisingly dismissive of the new president.
But Medvedev looks set to assert his authority against his old rival. Stanislav Belkovsky, head of the National Strategy Institute, says: “Medvedev sees Deripaska as dangerous for the power system. He will be forced to restrict his power in some way, though the conflict is unlikely to be out in the open, because Deripaska is a member of Yeltsin’s family, and therefore protected.”
Sources suggest that Medvedev worked behind the scenes to stop Deripaska in a recent aggressive move against foreign investors. Deripaska is a majority shareholder in Ingosstrakh, the country’s second biggest insurer. Italian insurance firm Generali and Czech billionaire Petr Kellner are minority investors. Last October, Ingosstrakh called an emergency shareholder meeting, at which it issued new equity entirely bought by Deripaska. The move diluted the foreign investors’ stake down from 38.5% to less than 10%, losing them around $500 million.
Ingosstrakh claims it invited the foreign shareholders to the meeting, though they deny this. Deripaska then tried to play the patriot card, saying only Russians should be allowed on the board of Russian insurers. The dispute went to court, and to the surprise of Generali and Petr Kellner, the Moscow court ruled in their favour in April. “Maybe Medvedev is really serious about improving the rule of law”, a source close to the foreign investors says.
There are other positive signs. In the cabinet reshuffle this week, Medvedev finally fired Leonid Reiman, the former minister of telecoms, who has been at the centre of a long-running money-laundering case in Zurich, where the courts ruled he illegally privatized a St Petersburg telecom company, and made himself a billionaire shareholder in MegaFon, the country’s third largest mobile phone company. He denies the charges. The case was a particularly egregious example of high level corruption, and while Reiman has not been prosecuted in Russia, at least now he is no longer in government.
But the new president has a momentous task if he’s serious about cleaning up Russia’s legal system. Belkovsky says: “Don’t expect rapid changes. The judicial system is totally rotten. 99.9% of judges are corrupt. Corruption is the essence of the Russian bureaucracy. I don’t see a mechanism you can use to reform the system.”
Roland Nash, head of research at Renaissance Capital, agrees: “It’s an extraordinarily difficult task. The only instrument you have to make reforms is the very thing you need to reform.” But at least the young president is trying. As Putin said, in his last words as president: “Let’s support him”.
