2. 2
Contents
Introduction 3
Changes Meant to Please Putin’s Target Audiences 3
Out of the Frame But Built Within the System 4
Who will Run The Cabinet 4
What It Really Means for Foreign Investors 5
Priorities for the Government 6
Changes in the Cabinet 8
Appointments in the Presidential Administration 10
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Written by Pavel Melnikov, pavel.melnikov@grayling.com
Edited by Vladimir Melnikov, vladimir.melnikov@grayling.com
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3. 3
Introduction
In May 2012 the new-old Russian President Vladimir Putin skipped the G8 Summit to form the
Cabinet and the Presidential Administration: a two tier mega-government with more checks and
balances and lines of informal supervision and control than ever before.
The Prime-Minister Dmitry Medvedev has been given a new toy: an Open Government –
extending the Cabinet into the Public Space by setting up various expert working groups. This
will keep Medvedev busy while his senior colleague defines the Russia’ strategy for the next six
years.
Changes Meant to Please Putin’s Target Audiences
Vladimir Putin and his team have tried to please various target groups while forming the new
Cabinet:
– The population at large is thought to be generally satisfied that 64% of the cabinet has
been renewed (18 out of 28) resulting with the long-awaited ‘face lifting’ of the
government (see Appendix 1).
Unpopular ministers moved from the government to the Presidential administration (see
Appendix 2). They will continue to shape the government’s strategy but behind the
scenes, hidden from the public eye.
– The protesters’ concerns related to the absence of social lifts were also thought to be
partly addressed by Putin. He invited a 29 year old politician Nikolai Nikiforov from
Tatarstan to head the Ministry of Telecommunication; the United Russia functionary
Vladimir Medinsky was given a chance to head the Ministry of Culture, while the most
striking appointment was made by having the Uralvagonzavod’s Igor Holmanskykh take
the post of the Presidential envoy in the Urals Federal District (given that the Presidential
Administration is now effectively part of the new Mega-Government).
– To the (ruling) elite the mega-government’s structure is positioned as a compromise for
various “clans” warring over control over financial flows. Putin applied a situational
management model whereby decisions are taken to ensure even more checks and
balances within the management system than ever before.
– Investors and western leaders are expected to be “pleased” as well since the liberals
led by First Deputy PM Igor Shuvalov (and Deputy PM Arkadiy Dvorkovich) still seem to
be in power while the government’s policy is ensured to be the same (e.g. re-
appointment of the Minister of Finance Siluanov and Andrey Belousov’s appointment as
Minister of Economic Development).
Putin confirmed his role as a strategist thinking through the barriers between the government
and presidential administration. This, for example, makes any change within the top of the
government (deputy prime ministers) having as little impact on the overall state strategy as
possible. Equally, the current “assistants” to Putin (Fursenko, Golikova et al) may easily move to
new roles / replaced by newcomers over time without distressing the overall management
system.
4. 4
The new mega-government (Putin’s administration and Medvedev’s government combined)
“melts” down the vertical with no clear decision centres except Putin himself. The only thing is
more or less clear: the ministers acting as professional executors of the policy largely defined in
the presidential administration.
Putin therefore maintains full control across every key economic and social sector while
mitigating his own risks having multi-layered decision makers take unpopular decisions to be
held potentially liable for any failures (who can easily be removed without distressing the system
as noted above).
Out of the Frame But Built Within the System
Rosatom CEO refused an offer to become Minister of Energy: Rosatom has global ambitions
which supersede the ministry’s tasks.
Equally, Rosneft, now headed by former Deputy PM Igor Sechin, has long been nurtured to
become a global major. Surgutneftegaz and Zarubezhneft are expected to merge with the oil
giant. Igor Sechin will also retain his influence over energy affairs in Russia and abroad, at least
when it comes to defining the overall state energy strategy / policies.
The rector of the Higher School of Economics Yaroslav Kuzminov, having refused to become
the minister of education, will nonetheless be active in the open government being set up by
Medvedev via new minister Mikhail Abyzov.
Who Will Run The Cabinet
Medvedev's new government is focused on maintaining policy continuity and includes one prime
minister, 7 deputy prime-ministers (one of them is the first), 20 ministries and 21 ministers, 34
federal services and 25 federal agencies.
Deputy PMs will have the following responsibilities1
:
– “Igor Shuvalov, who is the only first deputy prime minister, will take care of investment
and migration policy. He will also be overseeing the financial sector which was formerly
supervised by Arkadiy Dvorkovich.
– Dmitry Kozak will continue to oversee sports, preparations for the 2014 Sochi Olympic
Games, regional policy, construction, housing and utilities.
– Dmitry Rogozin will retain supervision of the defense industry, the nuclear and space
sectors, military-technical cooperation, civil defense, and emergency situations.
– Alexander Khloponin will keep his focus on the North Caucasus.
– Arkady Dvorkovich will be formally responsible for the real sector of the economy,
including civilian sectors of industry, energy, transportation, communications, agriculture,
1
As confirmed officially via RIA Novosti on May 24, 2012
5. 5
forestry and fishing. Informally, he will try and influence the decision making process in
the financial sector overseen by Shuvalov which may cause some clashes of interests
(between – ironically - Medvedev’s and Shuvalov’s/Putin’s camps)
– Vladislav Surkov will take on justice, courts, prosecutors, media, and statistics agencies.
He is also head of the governmental staff.
– Olga Golodets will take charge of science and the social sector, including national
projects, demographic policy, healthcare, social development, education and tourism”.
At the ministerial level some new ministers like Alexander Novak (former deputy finance
minister appointed as Minister of Energy), will be doing a comprehensive audit of the ministry in
the same manner Golikova did to the former Ministry of Health and Social Development and
Anatoly Serduykov to the Ministry of Defense. Obviously Minister of Education Dmitry Livanov
has also been tasked to conduct an audit and report to Putin with a new strategy.
It is of note that Egor Gaidar’s (well-know Russian liberal) think tanks will less engaged in
forming new industry strategies which means a less focus will be made on Adam Smith’s
invisible hand of the market, and the state influence will imminently grow across every economic
sector.
Only five ministers of the previous government retained their posts (Sergei Lavrov – foreign
affairs, Anatoly Serdyukov - defense, Alexandr Konovalov - justice, Anton Siluanov - finance,
Vitaly Mutko - sport).
The Ministry of Health and Social Development has been divided into Ministry of Health, headed
by Veronika Skvortsova, and Ministry of Labor and Social Safety, headed by Maksim Topilin.
Appointment of Vladimir Kolokoltsev as Head the Interior Ministry sent a clear message that the
police will get more professional.
Career bureaucrat Anton Siluanov has been re-appointed finance minister. This will be viewed
with cautious optimism by the market as Siluanov is a committed fiscal hawk.
A professional economist Andrei Belousov has become economy minister. This is a positive
development from any perspective.
The composition of the new cabinet also suggests that it is likely to focus on budget stability vs.
structural reforms / pro-market agenda.
What It Really Means for Foreign Investors
Relations with the foreign investors will continue to be pragmatic. The Foreign Investment
Advisory Council will continue to play a vital role (see our last year think piece Re-Thinking
Foreign Investment in Russia).
The Government will develop new expert councils (e.g. the Council on Financial Stability)
instead of real actions,. Various industry associations have already begun consultations with the
new Minister of Open Government Abyzov to form such dedicated expert platforms.
6. 6
International companies operating in the Russian market will now have to increase number of
doors to go into with formation of the mega-government. Also during the transitional period
some clashes of interest are inevitable (e.g. aforementioned Dvorkovich/Medvedev vs.
Shuvalov/Putin potential conflict of interests over the financial market development).
However, the Ministry of Economic Development / Ministry of Finance - Shuvalov vertical will
work straightforwardly for foreign companies seeking to resolve their acute / big issues (see
Re-Thinking Foreign Investment in Russia). Moreover, officials from the mega-government will
be more open and accessible in general: appointment of Maksim Akimov, former deputy
Governor of Kaluga Region, famous for his transparent relations with foreign investors, as
deputy head of the Government’s Secretariat only proves the point.
Stanislav Voskresencky, deputy minister of economy, responsible for investment and major
economic events is likely to move to Nabiullina’s office in the Presidential Administration which
will also open the door for foreign companies seeking consultation from this part of the mega-
government.
As for the industry-specific issues, the accessibility of Veronika Skvortsova in the Health
Ministry, for example, has already been tested by many foreign pharma and medical devices
companies. Any other minister one can think of has either got younger or/and more open for the
rational dialogue with the market players.
Existing relations with Golikova, Nabiullina, Levitin, Fursenko et al in the Presidential
Administration will help foreign companies maintain the dialogue, although now it needs to be a
trialogue / qudrialogue with:
1. The Presidential Administration
2. The Ministry in question
3. Shuvalov’s vertical
4. Open government’s specific expert council
In any event financial market players may rest assured no sharp movements in policy /
regulation will be made, since Putin understands the importance of stability / continuity in the
times of financial turmoil and Russia’s vulnerable position.
Priorities for the Mega-Government
Some of the challenges the new (Mega-)Government faces (source: the Federal Service of
State Statistics):
– Median salary in Russia is around 5,238 EUR per year. This means that 50% of
population or 71.4 million Russian citizens earn less than 400 EUR per month. 350 EUR
pcm is the average pension
– More than 26% - around 37 million citizens - are under poverty line earning less than
150 EUR per month.
– Only 7.3% of population have middle income (620-1,230 EUR per month), 1.1% are
considered wealthy (1,230-1,850 EUR) and only 0.7% of population are rich, meaning
their income is higher 1,875 EUR.
7. 7
– The ratio between the income of the wealthiest 10% and the 10% with the lowest income
has reached 14.8 times.
– The Russian ruble has weakened by 10% in dollar terms and 5% in Euro terms and
prices on food, gas, transport have increased by 7-15% over the last two months. This
will imminently result in wages losing their purchasing.
The unprecedented outflow of capital ($42 billion in net capital outflow between January and
April, which is equivalent to half of the $84.2 billion recorded in the whole of 2011) signals
another major issue: increased probability of the economic crisis and loss of investors’ trust for
structural reforms in Russia.
At the first government meeting, Medvedev listed seven short-term tasks for the government in
the next six months to implement Putin's roadmap outlined in the first presidential decrees:
1. Push forward basic socio-economic development programs;
2. Submit budget plans for the next three years;
3. Raise wages in defined social sectors;
4. Improve the investment climate;
5. Reform public services;
6. Run the privatization program; and
7. Set up the Open Government.
The mega-government will also focus on:
– Corruption. No new strategy is announced yet.
– Underdeveloped IT and transport infrastructure. The state plans extensive privatization
program to address this issue among other activities.
– Budget constraints (at both the federal and regional levels). This could be addressed by
improving the taxation system
– Social reforms – pension, healthcare, education, housing and communal services.
Solutions are still being determined
– Poor investment climate – no clear action plan yet
– Public justice and personal security – no clear action plan yet
The achieved public consensus may keep Putin in his position as long as economic crisis does
not trigger political instability.
However, if the new mega-government speeds up some long-awaited economic and social
reforms the system will be able to survive for years ahead.
8. 8
Appendix 1
Changes in the Cabinet
Structural Changes
New Ministry for Far East Development was created. It is headed by Viktor Ishaev, Presidential
Envoy in the Far East district.
Mikhail Abysov heads the Open Government Contacts Ministry. The “open government” idea,
proposed by newly-appointed Prime Minister Dmitry Medvedev, is assigned to bridge the gap
between policymakers and common people.
The Federal Agency for construction and housing services and utilities under the Ministry of
Regional development was established.
8 posts of deputy ministers of federal districts are introduced in the Ministry of Regional
Development. The Ministry of Sport, Tourism and Youth Policy was transformed into the
Ministry of Sport; functions in the sphere of youth policy were given to the Ministry of Education
and Science, in tourism – to the Ministry of Culture. Federal Agencies for Youth Issues and for
Tourism report to them as well.
The Federal Fisheries Agency is under the authority of the Ministry of Agriculture.
The Federal Service for Intellectual Property is under the Ministry of Economic Development,
The Federal Agency for Forestry is under the Ministry of Natural Resources.
The Federal Agency for Financial Monitoring is under the direct authority of the President,
The Russian Statistic Service, the Federal Migration Service, the Federal Service on
Surveillance for Consumer rights protection and human well-being, the Federal Service for
Defense Contracts are under the government.
Additionally, the government was taskedto set up government’s commission for coordination of
the open government activities, which will be headed by Minister Mikhail Abyzov.
Composition of the New Government
Prime Minister – Dmitry Medvedev
First Deputy Prime Minister – Igor Shuvalov
Deputy Prime Minister – Vladislav Surkov
Deputy Prime Minister – Dmitry Kozak
Deputy Prime Minister – Dmitry Rogozin
Deputy Prime Minister – Arkady Dvorkovich
9. 9
Deputy Prime Minister – Olga Golodets (Golodets will oversee social issues.)
Deputy Prime Minister and Presidential Plenipotentiary Envoy to the North Caucasus Federal
District – Alexander Khloponin
Finance Minister – Anton Siluanov
Energy Minister – Alexander Novak. (Novak was previously deputy finance minister.)
Economic Development Minister – Andrei Belousov
Labor and Social Protection Minister – Maxim Topilin
Transport Minister – Maxim Sokolov
Sports Minister – Vitaly Mutko
Agriculture Minister – Nikolai Fedorov
Communications and Mass Communications Minister – Nikolai Nikiforov
Regional Development Minister – Oleg Govorun
Minister in charge of Russia’s Far East Development and Presidential Plenipotentiary Envoy to
the Far Eastern Federal District – Viktor Ishayev.
Industry and Trade Minister – Denis Manturov
Natural Resources and Environment Minister – Sergei Donskoy
Education and Science Minister – Dmitry Livanov
Minister of Culture – Vladimir Medinsky
Minister of Healthcare – Veronika Skvortsova
Justice Minister – Alexander Konovalov
Defense Minister – Anatoly Serdyukov
Foreign Minister – Sergei Lavrov
Minister of Civil Defence, Emergency Situations and Disaster Relief – Vladimir Puchkov
Interior Minister – Vladimir Kolokoltsev
Minister for Relations with the Open Government – Mikhail Abyzov
10. 10
Appendix 2
Appointments in the Presidential Administration
Posts Name Areas of responsibility
Chief of Staff of the
Presidential Executive Office
Ivanov Sergei Chief
First Deputy Chief of Staff of
the Presidential Executive
Office
Volodin Vyacheslav HR and domestic policy
First Deputy Chief of Staff of
the Presidential Executive
Office
Gromov Alexei Media relations
Deputy Chiefs of Staff of the
Presidential Executive Office
Vaino Anton Curator of Presidential Aides
Peskov Dmitry Media relations
Aides to the President
Brychyova Larisa
Head of the State Legal
Administration
Chuychenko Konstantin
Head of the Control
Administration
Fursenko Andrei
Science and grants for
researchers
Golikova Tatyana
Social and economic
development of the South
Ossetia and Abkhazia
Nabiullina Elvira Economic issues
Shkolov Yevgeny Human resources
Shchegolev Igor IT
Trutnev Yury State Council
Ushakov Yuri Foreign policy
Presidential Press Secretary Peskov Dmitry Media relations
11. 11
Chief of the Presidential
Protocol
Ostrovenko Vladimir Presidential Protocol
Advisers to the President
Abramov Alexander Sport
Bedritsky Alexander Climate change
Fedotov Mikhail Human rights and civil society
Grigorov Sergei Technical control
Levitin Igor Transport
Tolstoy Vladimir Culture
Ushakov Sergei APEC Summit
Yakovlev Veniamin Legal issues
Presidential Plenipotentiaries
at the Bodies of Power
Kotenkov Alexander The Federation Council
Krotov Mikhail Constitutional Court
Minkh Garry The State Duma
Presidential Commissioner for
Children's Rights
Astakhov Pavel Children's Rights
Presidential Plenipotentiary
Envoys to the Federal
Districts
Babich Mikhail The Volga Federal District
Beglov Alexander The Central Federal District
Ishayev Viktor The Far East Federal District
Khloponin Alexander
The North Caucasus Federal
District
Kholmanskikh Igor The Urals Federal District
Tolokonsky Victor The Northern Federal District
Ustinov Vladimir The Southern Federal District
Vinnichenko Nikolai
The Northwest Federal
District
