Politics & Markets
Russia's new Premier -- KTO 3TO? (Issue: 7)
 Mr. Viktor Zubkov |
Those who know Russia marvel the mystery that comes with it. Shrouded in the post revolutionary political history which carried charms and villainy of pre-revolutionary literature in equal proportions, Russia rings secrecy, unpredictability and sometimes uncertainty. Russia also springs surprises such as military manoeuvres, deep-sea flag hoistings and impromptu investigations of errant corporate officials. In a long list of surprises, the appointment of Mr. Viktor Zubkov as the Prime Minister certainly ranks high!
There is nothing wrong with Mr. Zubkov per se. Those who follow Russian politics including yours truly expected Mr. Mikhail Fradkov, PM since march 2004 until his unexpected resignation prior to Mr. Zubkov's appointment or Mr. Sergei Ivanov, Mr. Putin's old KGB colleague and former defence minister or Mr. Dmitry Medvedev the first deputy prime minister who heads special projects for Mr Putin to be the front-runners to the premiership. No one expected Mr. Zubkov to be the premier!
Mr. Zubkov was the head of Russia's Federal Financial Monitoring Service, which was formed to battle financial crimes particularly money laundering. He has no serious military background except for an 18-month term in the Soviet Army. Mr. Zubkov was a collective farm manager before his gradual elevation to various posts. He was however a Communist party heavy-weight and had held several high profile positions in the party. Importantly, he was a deputy Chairman of St. Petersburg's External Relations Committee headed by Mr. Putin from 1991 to 1993. During that period it appears Mr. Zubkov has made a lasting impression on Mr. Putin.
Mr. Zubkov's appointment has prompted several theories. The theory that gains greater credibility is that Mr. Zubkov's appointment would help Mr. Putin maintain an invisible hand in Russia's governance. Another theory is that Mr. Zubkov is merely a caretaker allowing Mr. Putin to return in 2012. Some also argue that Mr. Putin will subsequently bring one of the front runners Mr. Zubkov, Mr. Ivanov or Mr. Medvedev later on. Mr. Putin on his part has always made his intentions to participate in Russia's affairs after he leaves office known.
Once we recover from the surprise element, a different picture emerges from Mr. Zubkov's appointment. He has been the mainstay of Mr. Putin's battle with Russia's rapidly swelling oligarchs, whose ascend dates its origins to Mr. Yeltzin's brouhaha era. With nationalistic sentiments gaining eloquence in modern Russia, Mr. Zubkov is likely to continue his battle with Russia's businesses both local and foreign. His stand against money laundering confirms that Mr. Zubkov could be a tough customer to contend with. It appears that Mr. Zubkov has little love for businessmen local or foreign.
It may prove to be useful to revisit Mr. Zubkov's stand in 2004 when Russia faced a second banking crisis (the first one in August 1998). Mr. Zubkov was then the head of Russia's Federal Financial Monitoring Service (FFMS). The Central Bank of Russia recalled the license from Sodbiznesbank over allegations of money laundering and links to terrorism. Mr. Zubkov then added that the FFMS has a list of another ten banks whose licences may also be revoked over similar charges, thus precipitating a panic wave across the entire banking system. Bank's attempts to hedge themselves led to a reduction in inter-bank limits thus prompting a dearth of inter-bank credits. Facing a catastrophic banking sector failure, Mr. Zubkov declared that the FFMS does not have a blacklist of banks. Assurances by the Central Bank to refinance commercial banks should the inter-bank loan market falter ultimately restored sanity.
That episode however epitomises Mr. Zubkov's desire to clamp down on businesses should they prove to be out of line. It also indicates his less than sympathetic view towards businesses and his animosity towards oligarchs. Mr. Zubkov it appears prefers the state to monitor, intervene and if necessary control the system. Mr. Zubkov clearly has not forgotten the Socialistic doctrine of the former Soviet era.
St. Basil's Cathedral, Red Square Russia This columnist disagrees that Mr. Zubkov's appointment indicates Mr. Putin's aspiration to have a lame duck head of state. While Mr. Putin's governance may have questionable practices and appointments, his patriotism and the desire to lead Russia to be a super power is beyond doubt. A nation aspiring to be a super power is unlikely to be helped by a weak head and Mr. Putin is unlikely to compromise on that score.
If Mr. Putin indeed wished a loyal candidate there is no lack of such creatures either. He could have appointed St. Petersburg Governor Valentina Matvienko. Fiercely loyal to Mr. Putin, Ms. Matvienko could have even be a caretaker president who would allow Mr. Putin to pull all the strings. Mr. Putin also had a business-savvy candidate in Mr. Vladimir Yakunin, head of the state-run Russian Railways company. Other impressive potential candidates include Sergei Chemezov, head of the Russian arms export company Rosoboroneksport and Putin's envoy to the North Caucasus, Dmitry Kozak. All of them are die-hard Putin fans.
Mr. Putin indeed may be seeking a third term after the next president, which the Russian constitution permits. However, he is unlikely to appoint someone who is a lame duck president. Going by Mr. Zubkov's track record, the objective appears to be to ensure a more controlled business sector which would toe the line of the government and the party. Mr. Putin has always accepted the inevitability of market economics. Mr. Zubkov will however ensure that market economics in Russia are accountable to the state.
Evidence of the desire to redefine market economics in Russia has been apparent over the last few years. The acquisition of Sakhalin II and Kovykta, Yukos episode, court case against Russneft over inflated payments to reduce tax bills, Energy Reform Laws by the Duma etc, provide irrefutable evidence of Russia's desire to stamp its authority over business activities. In fact, Mr. Fradkov during his tenure as the premier once defended Russia's growing role in the economy as an "active industrial policy which would prevent the total collapse of the Russian economy by haphazardly following western examples". In that sense, the strict bureaucrat Mr. Zubkov at the helm comes as no surprise.
Ambitions to have reins over the economy and businesses in the national interest are noble thoughts. Such ambitions however usually lead to a climate that encourages excessive government interventions. The result is nervous investors with short-term views and aspirations. If Russia intends to diversify the economy to reduce its reliance on petroleum resources a dented investment case is unlikely to be helpful.
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