Ex-finance chief: Russian budget is overextended

AP News
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Posted: Sep 27, 2011 2:56 PM
Ex-finance chief: Russian budget is overextended

The influential Russian finance minister who was ousted by President Dmitry Medvedev warned on Tuesday that the government budget is overextended because of increased spending on defense and social needs, putting the entire Russian economy at risk.

Alexei Kudrin was forced out Monday after a public spat with Medvedev over the finance minister's statement that he would refuse to serve in the government if Medvedev became prime minister.

Such public criticism is rare in Russia's tightly controlled political system, but Kudrin has seemed to enjoy a privileged position due to the respect he has earned in more than 11 years as finance minister and his close relationship with Prime Minister Vladimir Putin.

Putin and Medvedev announced over the weekend that they intended to swap jobs next year. Many suspect Kudrin had hoped to be named prime minister under Putin.

Kudrin has openly disagreed with Medvedev on government spending in the past. He also has criticized the Kremlin's control over the political process. In a speech in February, he said only free and fair elections would give the government the mandate necessary for painful economic reforms.

In his first comments since the ouster, Kudrin said his statement about not wanting to serve in a Medvedev government was "well thought out and well founded."

"For the past several months, despite my numerous objections, some of them made publicly, decisions were taken on budget policies that without doubt have increased risks for meeting the budget," he said in a statement. "And budget risks, connected first of all with excessive commitments in the defense sector and social sector, will inevitably affect the entire national economy."

Medvedev had decided to raise military spending by 1.3 percent of Russia's gross domestic product. The spending hike, however, was likely sanctioned by Putin.

Kudrin said he had discussed his desire to resign in February with Putin, who asked him to stay on because of the challenges of managing the budget during an election campaign. Russia holds parliamentary elections in December and a presidential election in March.

Putin appointed one of Kudrin's deputies, Anton Siluanov, to serve as acting finance minister, while one of Putin's deputies, Igor Shuvalov, will oversee financial and economic issues in the government. Kudrin had held both posts: finance minister and deputy prime minister.

Standard & Poor's said Kudrin's departure and the impending job switch between Medvedev and Putin would have no immediate impact on Russia's economic policies or its debt rating.

Investors and analysts, however, warned it would be hard to find a replacement who would be as effective in vehemently opposing populist spending, especially in an election year.

A darling of investors and post-Soviet Russia's longest-serving finance minister, Kudrin was widely credited with softening the blow of the 2008-2009 global downturn in Russia with his conservative fiscal policies. During Putin's presidency from 2000 to 2008, Kudrin set up a rainy day fund to stash away some of the revenue from Russia's oil exports. The idea angered many in the government who sought higher spending, but ultimately proved to be an invaluable cushion.

S&P said the recent days' events would be unlikely to result in a "significant departure from current economic and fiscal policies." The agency said it expects "Russian state capitalism and the close links between politics and business to remain unchanged."

The agency, however, voiced concern that a government reshuffle could make it difficult for Russia to "consolidate public finances" and boost long-term growth by "improving the business environment, competition, and the productive infrastructure."

Some analysts said the decision to sack him would reflect badly on Medvedev.

Vladimir Milov, former deputy energy minister and opposition figure, wrote in the Moskovskiye Novosti paper that "the firing of an efficient finance minister in a grave financial and economic situation and with the authorities' obvious inability to reverse it is an unexplainable decision."

Ovanes Oganisyan, vice president at the Moscow-based investment bank Renaissance Capital, said in a note to investors that "the bench is quite short" for Kudrin's long-term replacement.

He said the finance minister's position will be key in the new government "considering the fiscal challenges that Russia may be facing in upcoming years, including a weak economic growth environment and growing budget deficits."

Russia markets, buoyed by higher oil prices and surging stocks worldwide, seemingly paid no heed to Kudrin's resignation. The MICEX benchmark index was up 2.4 percent and the ruble gained 1.3 percent against the dollar.