Kudrin’s Oblique ‘Return’: A Sign of the Kremlin’s Retreat From Liberal Reforms

Following Vladimir Putin’s reelection to a fourth term as president, Russian authorities officially announced the final composition of the “new” government last Friday, May 18. And several days earlier, former finance minister (2000–2011) Alexei Kudrin was promoted chief of the parliamentary budgetary watchdog Accounts Chamber of the Russian Federation (see EDM, May 17). The announcement came as a surprise: even though numerous rumors circulated about some “high position” reserved for Kudrin, the expectation was that it would be within the Cabinet (Moskovsky Komsomolets, May 7). Less than a month before the announcement, Kudrin met with Prime Minister Dmitry Medvedev to discuss reforms of the public sector in general and of the government in particular (RBC, April 25). That meeting also seemed to signal his imminent return, but ultimately this proved not to be the case.

Several reasons may account for this. First, Kudrin has developed the reputation of a difficult partner to work with. On the day he was pro­moted to the Accounts Chamber, he wrote a Facebook post outlining his “conditions” for accepting the position (Facebook.com/alexseikudrin, May 14). Second, Medvedev firmly opposed Kudrin’s return to the government (The Bell, May 14), and Putin was not willing to press his prime minister too hard on that point. Third, by sending Kudrin to the Accounts Chamber, the president achieved two goals. On the one hand, he ended all widely circulating speculation about upcoming “reforms programs” the liberal former finance minister may have been writing for him. Indeed, this fact seems to confirm earlier speculation that Kudrin’s appointment to manage the Center for Strategic Develop­ment think tank, in 2016, probably did not portend any serious economic or political changes coming to Russia; rather, it reflected the authorities’ desire to seek shrewder strategies for keeping the current system intact (see EDM, May 6, 2016). On the other hand, by putting Kudrin at the head of the Accounts Chamber, Putin highlighted growing concerns over systemic corruption and the misuse of funds, which together have become the main obstacle to reaching the Kremlin’s economic goals. Arguably, Kudrin is valuable to Putin not for being a “liberal” politician or an effective reformer, but as a professional accoun­tant able to untangle public finances. In chairing the Accounts Chamber, Kudrin has the power to control the allocati­on of budget funds—and with the oil price nearing $80 per barrel, it has become much more important in Russia to secure how those funds are spent, not earned.

Therefore, some analysts immediately argued that Kudrin was awarded a position from which he would effectively be able to “control Mr. Medvedev himself” (Vzglyad, May 11), but this may be an overstatement. During recent months, the Kremlin dramatically intensified its “fight against corruption”; each week, further news broke about high-ranking officials arrested and vast amount of money confiscated. Illustratively, last week, a regional bureaucrat from Russia’s Environmental, Industrial and Nuclear Supervi­sion Service (Rostechnadzor) was jailed in St. Petersburg as well as stripped of 1.7 billion rubles ($27.5 million) in cash and luxury items that he kept at home and in deposit boxes at several banks (Fontanka.ru, May 15). And days before her re­signation as chairperson of the Accounts Chamber, Tatyana Golikova, relea­sed a report claiming that 1.87 trillion rubles ($30 billion) of budget funds were misused last year, a sum equaling close to 6 percent of all public expenditures in the country (RBC, May 16). So were Kudrin inclined to start a country-wide war on corruption, he would now be well positioned to do so. However, corrupt officials in Russia are generally not prosecuted because they steal state funds but rather because they have fallen out of favor with their masters. And Kudrin does not appear to be influential eno­ugh to persuade the country’s supreme leader on who should be punished. Therefore, the Accounts Chamber under Kudrin is likely to become much more visible, but not necessarily more effective.

Another related issue is also worth considering more closely. In the recent government reshuffle, all the so-called “liberals” were ousted, and so Kudrin became viewed as the pro-market reformists’ last hope for domestic economic change. The fact that he was not appointed to a position with responsibility for new reforms, thus, compellingly suggests that Putin is not looking for any liberal advice. Some of those associated with previous liberal reform drives still occupy significant positions in state-controlled corporations—but they are no longer empowered to make any meaningful decisions on this matter. This, then, may be the most important take-away from Kudrin’s appointment—and at the same time, the most sig­nificant message President Putin may have wanted to send to the public.

Last year, speaking at the St. Petersburg Economic Forum, Kudrin unveiled his reform plan, which consisted of restructuring the Russian bureaucracy, privatizing state-controlled corporations, increasing investment in “human capital” through additional spending on education and health care, as well as some other measures aimed at increasing the efficiency of the Russian economy (BBC—Russian service, June 1, 2017). The only policy point seemingly missing from this plan was an increase to the retirement age, which would boost the size of the labor pool, allowing the economy to grow with­out having to rely on any truly innovative strategies. Recently, officials announced that the new government will soon begin discussions on this very issue (Newsru.com, May 17, 2018); and several sources claimed an increase to the retirement age will be enacted by the State Duma (lower chamber of the Russian parliament) as soon as July (Rambler.ru, May 17). If true, then Kudrin’s complex proposals to entirely restructure the Russian economy will almost certainly be stillborn. After all, the leadership in Moscow will acquire a powerful instrument to cut social spending amidst high oil prices—thus, providing strong incentives to secure these newfound financial surpluses.

It is difficult to infer Alexei Kudrin’s likely present-day stances on current political developments or economic strategy; for a long time, he advocated liberal free-market policies, but as the Russian leadership became more conservative and étatist, he preferred not to openly resist the “new normal.” His new appointment suggests this strategy ultimately proved beneficial to the former finance minister. But it remains to be seen whether it will be beneficial for Russia as well.