News from the front lines of Russia’s clan wars always seem to feature similar trends – inconsistent and sometimes contradicting information, use of the news media as warning bell, overlapping elements of oil, state-owned businesses, and specific points of fiscal policy as the key battlegrounds. The latest news being reported by the FT is no different, as Vladimir Yakunin, a Putinite politico-executive and head of Russian Railways, has opened up yet another line of attack against Finance Minister Alexei Kudrin by demanding that the country immediately institute capital exchange controls to ensure that state funds being used to prop up the ruble aren’t immediately taken out of the country (it is, in a manner of speaking, the most blunt instrument used to fight capital flight, but usually only succeeds in creating lucrative black markets).
The comments from Yakunin reveal that the clan wars have taken on a new dispute – the strategy with which the government will fight inflation, which include various options featuring various degrees of political and economic costs (for example, a controlled slide to a free float would probably be best for the economy in the long run but could end up toppling a government). The FT reports:
Mr Yakunin’s criticism was echoed by a broadside from Yuri Luzhkov,Moscow’s conservative mayor, criticising the liberal camp’s”monetarist” policies in Kommersant, the Russian daily.
Heattacked Mr Kudrin for putting Russia’s oil revenue into funds insteadof spending it on infrastructure. “This money did not help develop oureconomy,” Mr Luzhkov said. “We had zero investment in infrastructureprojects, zero or very little. These are the reasons explaining ourcrisis.”
Mr Kudrin is being blamed for a step-by-stepdevaluation that became a lucrative one-way bet for foreign exchangetraders at banks and businesses.
Kudrin himself is no stranger to the clan wars, and many readers of this blog will recall the never-ending saga of his #2 man, Sergei Storchak, being thrown into jail on a flimsy case alleging fraud. Although the finance minister has shown a survivalist mentality, fending off serious attempts to remove him by Igor Sechin and others, this new barage of cases, investigations, and accusations clearly shows that the campaign is heating up as a response to the global financial crisis.
Quite frankly, it makes sense. The enduring “success” of political power of this government is heavily dependent on an elaborate system of patronage which has seen a considerable number of loyal government officials be rewarded with positions at state-owned companies to become millionaires in addition to rock solid political career. But now the pie is getting smaller, and we can expect everyone to fight a little harder to hold onto their slice.
This new involvement of Yakunin to pressure Kudrin, especially over something as damaging as exchange controls (just ask Venezuela how that’s working out for them), is something that is much too new to comment intelligently upon, but rather is a new drama that we should all begin watching very closely.