Kudrin in the line of fire – Medvedev forces resignation – FT Tilt: Alexei Kudrin, Russia’s well-respected finance minister who was instrumental in instilling fiscal discipline in the country that defaulted just thirteen years ago, resigned on Monday evening in what could be a significant blow to the integrity of the country’s public finances and its creditworthiness.
Earlier in the day, president Dmitry Medvedev, in retaliation to comments made by Kudrin over the weekend that he would not serve in a Medvedev-led government when the president swaps jobs with prime minister Vladimir Putin in March, forcefully suggested the finance minister resign if he did share his boss’ views on the economic issues of the day.
Kudrin had told journalists in Washington at the International Monetary Fund and World Bank meetings that he would “definitely refuse” to work with Medvedev in the new cabinet as a result of differences of opinion on government spending. As a well-respected fiscal hawk, Kudrin opposed attempts from Medvedev to force through increased military spending.
In addition, Kudrin is also believed to have harboured hopes of becoming prime minister if Putin became president again, a job that is expected to be filled by Medvedev.
Late in the Moscow evening on Monday Kudrin confirmed he had resigned from the post he has held for almost 11 years.
Having worked in the Yeltsin administration during Russia’s 1998 sovereign default, when he came to the helm of the finance ministry in 2000 Kudrin instilled fiscal discipline lacking in the country. He is widely credited with maintaining spending restraint and ensuring Russia had sufficient reserves to ride through the financial crisis of 2008/2009.
Euromoney dubbed Kudrin the «Finance Minister of the Year» in 2010, and in what looks to have been a rather prescient commentary, said at the time:
Kudrin has been acknowledged a finance manager of the highest order, not only in the West, but also in Russia, the country that has always had a rather chilly attitude towards reformers
Jochen Wermuth, CIO of the $400m AUM Wermuth Asset Management and a former advisor to the finance ministry under Kudrin’s tenure, said the minister’s influence on Russia’s finances has been monumental. As he told FT Tilt:
Alexei Kudrin is a great professional who deserved the “finance minister of the year award” several times. [Kudrin] single-handedly turned Russia from a banana republic in terms of debt levels into one of the best credits in the world. Losing him would be a huge loss to Russia, its debt and equity markets.
With Kudrin out of the picture Russia might embark on a spending splurge and put reforms on the back burner, warned HSBC’s chief Russia economist Alexander Morozov. He said in a research note:
Fiscally, without such an influential person as Alexey Kudrin, the state budget would likely become distressed suffering from a series of incremental expenditure decisions. We see an appetite for more liberal and responsible economic policies to resurge only with a substantial decline in oil prices, as it has always been in Russia in the past.
Nomura analyst Tatiana Orlova even said a Kudrin exit could weigh on Russia’s credit rating (which has been kept supressed due to the question of whether Putin or Medvedev would stand for election next year). This is because Russia’s budget is no longer based on conservative oil price assumptions — the average Urals price required to balance the 2012 federal budget is $116 a barrel — and Kudrin is one of only a few people capable of keeping a handle on Russia’s budget, she said.
In short then, Kudrin is a big player – both in Russia and on the global scale. But he was not untouchable, as the manuevring demonstrated.
The finance minister had earlier said he would first consult Putin before making a decision. And even with the current PM seen as the senior partner in Russia’s ruling tandem (as the weekends’ announcement testified), Medvedev has shown before that he has the stomach for a fight and is not afraid to use the powers at his disposal.
In September last year Medvedev took what appeared to be the risky move of sacking Yuri Luzhkov, the powerful Moscow mayor. Whoever thought Medvedev had become a lame duck for his last six months in the Kremlin looks likely to be proved wrong.»