The stock market and the ruble briefly tumbled on news that President Vladimir
Putin had sacked Mikhail Kasyanov as prime minister amid fears that the
unexpected move could signal a return to the government upheavals of the
Itar-Tass / AP
Putin signing the order dismissing Prime Minister Kasyanov on Tuesday.
But investor jitters soon steadied on hopes this was merely a demonstrative
pre-election show of strength by a president keen to shed one of the last
major holdovers in his government from the Boris Yeltsin era and an official
viewed by many as being too close to big business.
Stocks recovered from an initial drop of 3 percent to 5 percent, and
the RTS index closed 1.41 percent down at 647.61. The ruble fell 4 kopeks
in afternoon trading.
Most market watchers and business people had predicted Putin would fire
Kasyanov after his widely expected reelection on March 14. So the dismissal
ahead of time, they said, just caught them unawares. The appointment of
Deputy Prime Minister Viktor Khristenko, who is largely seen as a liberal
technocrat, as acting prime minister until Putin forwards a new candidate
also steadied nerves.
"For a moment, it felt like a return to the past when there was
a new prime minister every month," said James Fenkner, head of research
at Troika Dialog. "It was a knee jerk reaction. But then people began
to think about it and realized it was not so bad."
Other foreign investors applauded Kasyanov's dismissal as a vote winner
that would help distance Putin from an official associated with the chaotic
wealth grab of the Yeltsin era and one who could be blamed for the government
slowdown on some reforms. Kasyanov also had earned Kremlin ire by openly
breaking ranks with Putin in criticizing the legal onslaught against Yukos,
a battle seen by many as key in establishing greater state control over
"Essentially Putin has realized how popular it is to clean up the
excesses of the Yeltsin past," said William Browder, director of
Hermitage Capital Management, which manages some $1 billion in investments
in the Russian stock market. "If anything, [Kasyanov] was standing
in the way of Putin's reform program.
"He was compromised by his role in the Yukos affair, and that made
him deadwood for Putin," he said.
Observers have criticized Kasyanov's government for stalling on key
structural reforms needed to reduce the country's dependence on raw materials,
accusing it of being unwilling to make moves that could undermine powerful
vested interests. One such long-stalled reform under Kasyanov is administrative
reform to cut back the country's bloated bureaucracy.
In an interview published in Noviye Izvestia on Tuesday, presidential
economic adviser Andrei Illarionov lashed out at "Kasyanov and Co."
for not doing enough to speed up growth and relaxing on a cushion of high
But despite the removal of a prime minister seen to be slow to act against
big business, some wariness remained among investors over why the shakeup
had come so suddenly and over the person who Putin could eventually present
as his preferred candidate to head the next Cabinet. Khristenko could
just be an interim figure, they said.
"This still leaves some uncertainty over who the candidate is going
to be. The market would take it badly if Putin appointed [Defense Minister
Sergei] Ivanov. The big question for the market is still the reform agenda
after the election," Fenkner said.
Ivanov, a close confidante of Putin from St. Petersburg, has been widely
viewed as a possible prime minister, along with liberal reformer Alexei
Kudrin, the finance minister and a deputy prime minister. Ivanov waded
into economic policy in an interview with Kommersant toward the end of
last year in which he called for state control over strategic sectors
of the economy, including oil.
Kasyanov, however, was seen as one of the key protectors of big business
A former finance minister in Yeltsin's government, Kasyanov first came
to the fore as a skilled debt negotiator. His behind-the-scenes debt dealings
in the mid-1990s earned him friends in high places and the nickname "Misha
2 percent" amid accusations he parlayed insider information on the
debt market into his own financial gain. A crusading Yabloko deputy, Viktor
Gitin, who had spent years gathering a library of information on Kasyanov's
alleged misdoings in debt deals, ended up in jail on fraud charges shortly
before Putin appointed Kasyanov his prime minister. Gitin was soon freed,
but his archive of documents was confiscated and never returned.
Kasyanov also was seen to openly lobby for the interests of Sibneft
owner and Boris Berezovsky protege Roman Abramovich. One of his first
deeds on becoming acting prime minister was to persuade the Ukrainian
government to privatize its Nikolayev alumina plant, which then became
a key part of Abramovich's Russian Aluminum empire.
More recently, he spoke out sharply against the legal attack on Yukos,
which has led to the jailing of its founder Mikhail Khodorkovsky on charges
of large-scale fraud and tax evasion. Many see that battle as Putin's
response to the oil baron's political and economic ambitions and as key
in trimming the powers of the oligarchs who once freewheeled through the
In July, after the arrest of Khodorkovsky ally Platon Lebedev and even
though Putin had openly called for the Cabinet to keep silent on the affair,
Kasyanov said the case was ruining the investment climate. Many analysts
took those remarks as a sign that Kasyanov was taking the side of the
oligarchs in a battle pitting big business against conservative Kremlin
hawks known as the siloviki, who aim to take greater control over the
Since then Kasyanov has kept a lower profile amid widespread speculation
Putin would fire him in his second term. In a rare departure from recent
kowtowing to the Kremlin, big business representatives warned Tuesday
that Kasyanov's dismissal could strengthen the hand of the state.
"The main thing now is not ... to fall under the temptation of
introducing greater state regulation and interference from the state in
the economy under the guise of greater social responsibility," said
Igor Jurgens, the executive secretary of the big business lobby group,
the Russian Union of Industrialists and Entrepreneurs, or RSPP.
"The main thing is that there are no steps backward and steps to
organize the prevalence of the state over business, which can be seen
in the statements of some state officials," he said, Interfax reported.
RSPP chairman Arkady Volsky said the sacking would have a direct impact
on the dealings of the lobby group.
In a sign he considered Khristenko to be a close protege of Kasyanov,
Volsky said Kasyanov could not be considered out of the job just yet.
"If there's another appointment in a week, then it would be possible
to say that Kasyanov has been removed," he said, Interfax reported.
Yukos co-founder Leonid Nevzlin, who is now in exile in Israel but wanted
in Russia on fraud charges, lauded Kasyanov for his stance in opposing
the attack on Yukos.
"I was always and still am thankful for his unwavering position
on the Yukos affair, which he always saw from the point of view of the
loss it was bringing to the economy and to the politics of the country,"
he was quoted by Interfax as saying.
Analysts said Kasyanov probably knew his days were numbered in government
and could have been using the last few weeks of his time as prime minister
to put a spoke in the wheels of government moves to take greater control
over big business. That could have provoked Putin's sudden decision, they
"Kasyanov knew he was heading for political retirement," said
Roland Nash, head of research at Renaissance Capital. "He was probably
spending the last two weeks doing the most active lobbying for his post-PM
future. It could have been his last bid in government to protect the interests
of big business."
Kasyanov's spokeswoman Tatyana Razbash, however, denied he had been
engaging in any such activity.
Others, however, pointed to a decision by Kasyanov just last week to
postpone a key Cabinet meeting that had been scheduled to discuss a planned
tax hike on the oil sector, among other tax reforms, as a sign he was
openly acting on behalf of big business.
Alexander Shokhin, a former deputy prime minister and current chairman
of Renaissance Capital's supervisory board, said Kasyanov's inaction on
the Cabinet meeting could have been the final straw.
"The prime minister should have shouldered the responsibility in
making a decision [on the tax reform]," Shokhin said, Interfax reported.
"However he postponed the discussion of this question until after
the elections, having clearly decided not to take any risks.
"I think this could have determined the decision of the president
to a large extent," he said.
Other observers feared that Putin's abrupt shakeup was a sign he was
losing control. "Why does Putin have to do this now when it would
be more natural to do so after the elections?" said Anders Áslund,
an economist at the Carnegie Endowment for International Peace. "It
looks like the situation is moving out of control for Putin. This is self-destruction."
Boris Berezovsky, the businessman and fierce Putin critic, echoed that.
"The country's leadership is acting nervously and impulsively,"
he said by telephone from London, where he has political asylum.
"And just hear the explanation [for Kasyanov's removal]. It is
laughable. Is there really nothing Putin's administration can say about
what has been done and where the country is going to have to get a new
Cabinet?" he said.
Staff Writer Valeria Korchagina contributed to this report.
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