Jul 24, 2008

World - The Odd Couple ( Russia)

The world still wonders whether Dmitry Medvedev or Vladimir Putin is boss

WHEN the other G8 leaders met their new Russian counterpart in Japan this week, they may all have had a similar question on their minds: are we talking to the right man? Is Dmitry Medvedev, described by George Bush as a “smart guy”, a real president? Or is he merely Vladimir Putin’s puppet and stand-in? So far, the answer seems to be: neither.
At the summit, Mr Medvedev behaved modestly and stuck to the Kremlin line defined by Mr Putin. Talking to Gordon Brown, he seemed no more accommodating than Mr Putin might have been over the closure of British Council offices, the murder of Alexander Litvinenko in London or the messy dispute within the troubled TNK-BP joint venture. If Mr Medvedev has potential as an independent decision-maker, he hid it well.
This is not surprising, given that authority still lies with Mr Putin. As prime minister, he controls the main levers of power, the state coffers and television. He is more popular than Mr Medvedev. Kremlin insiders call Mr Putin “the boss”, referring to Mr Medvedev by his diminutive, Dima or Dama (Russian for dame).
Yet Mr Medvedev is more than Mr Putin’s obedient shadow. He is, after all, Mr Putin’s choice as potential successor. Whether the potential is realised depends on Mr Putin’s own moves. Most observers agree that today’s dual-power structure is part of a transition. The question is whether it is a transition to Mr Putin’s return to the Kremlin—or his retirement from power.
Mr Putin still has the chance of coming back as president. But he may not take it. It is equally possible that he will gradually move away, leaving Mr Medvedev in charge. Had he really wanted to stay in the Kremlin he could have remained president. There was little to stop him changing the constitution to allow himself a third term in office; after all, he had played fast and loose with it over many other issues.
Mr Putin also displays no apparent interest in his new job. He comes into the office little more than once a week and he often looks bored and irritated when shown on television dealing with mundane tasks. Those who have worked with Mr Putin in the past say that he would much rather enjoy a luxurious new lifestyle than concern himself with the price of milk.
So why has he not left? One explanation is that the security risks, for himself and his closest circle, are too high. He is safer in high office. The post of prime minister confers immunity on Mr Putin and offers protection to his friends.
The fortunes made by the new clan of Kremlin oligarchs have not been legitimised or swapped into liquid foreign assets. Russia’s largest oil company, Rosneft, which took over the assets of the Yukos oil company, is still open to lawsuits from Yukos’s shareholders. The Yukos case could come to the European Court of Human Rights this year. In London Roman Abramovich, a tycoon who prospered in the Putin era, faces a lawsuit over some business acquisitions. All this without Britain’s accusations of Russian state involvement in the poisoning of Mr Litvinenko.
There are also domestic pressures. Inflation is running above 15% and food prices are rising even faster. The macroeconomic stability that Mr Putin prided himself on is looking shaky. One reason why inflation is on the rise is that the government is pouring money into state corporations and public spending. But a deeper problem is that rising consumer and investment demand cannot be satisfied by an economy that is constrained by corruption, Soviet-era infrastructure and an inadequate and immobile workforce.
Rising prices are now ordinary Russians’ biggest concern, although they have not yet translated into protests. Fearing financial turmoil, people prefer to spend money than to save, particularly when real interest rates are negative, says Sergei Guriev, head of the New Economic School. The perception of stability linked to Mr Putin is proving fragile. A survey of the Russian middle class shows that half those polled do not find the situation stable, and most of those who do think it will not last. And despite growing real incomes, people feel their lives are not improving. The vast majority feel vulnerable to the arbitrary actions of corrupt state agencies.
Mr Putin and Mr Medvedev are well aware that the current system neither protects the property of the new oligarchs, nor provides a stable environment for growth. This may explain Mr Medvedev’s talk of the need to modernise Russia’s economic system and uphold the rule of law. The rhetoric does not mean Mr Medvedev is departing from Mr Putin’s line; all the signs are that they are in agreement.
Mr Medvedev’s elevation has prompted expectations of a thaw among the liberal wing of the elite, even if so far there is little to satisfy it. Politicians and think-tanks are writing democratic manifestos. For instance, a report commissioned by the Institute for Contemporary Development, patronised by Mr Medvedev, argues that no modernisation can be achieved without liberalising politics too.
Democracy, it says, is preferable not for ideological reasons, but because it is the only effective way of resolving conflicts among the elites and protecting their financial interests. Liberalisation must start from the top and be tightly managed by the Kremlin. “Medvedev has a difficult task: he is trying to match expectations but not to lose control over the process,” says Alexander Auzan, a professor of economics in Moscow. By staying in power as prime minister, argues Boris Makarenko of the Centre for Political Technologies, Mr Putin at least has a chance to revise the legacy of his rule. Stepping aside would be the best measure of his success.

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