Russian Economic Reform

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Putin’s shocking “tank-maker” promotion!

Published on May 20 2012
Posted by: jeff

President Putin’s appointment of Igor Kholmanskikh, the head of a military tank assembly line, directly to the position of presidential plenipotentiary (representative) in the Urals district (one of 8 in Russia) is a small disaster for Russia at the PR level and a waste of an opportunity to pursue economic reform.

The role of plenipotentiary was introduced by the Putin in 2000 to help enforce presidential directions (including law enforcement) in the regions, but with the abolition of elected governors in 2004 there became less need for the plenipotentiaries. Nevertheless, they continued to exist, and the positions to some degree became, according to some officials, little more than places of “honorable retirement” for formerly influential officials. Each of the 8 plenipotentiary Federal Districts encompasses a number of the 83 Russian regions (oblasts, krais, republics, federal cities).

Forty two year-old Kholmanskikh’s only qualification for the job is that during a televised pre-election live broadcast by Putin he called in and said, amongst other things, that if the police “can’t handle” anti-Putin protesters “then me and the boys are ready to come out and defend stability”. Although Kholmanskikh then added that this would be done within the “boundaries of the law”, the message was very clear. Putin was pleased with this expression of support – which would have been representative of the feelings of a large section of the population – and Kholmanskikh began travelling as part of Putin’s election campaign. After winning the election, Putin said to him via a video-link: “You showed who the Russian people are, who the Russian working man is. You showed that you are a head taller than any good-for-nothings or loudmouths.”

As Putin offered Kholmanskikh the plenipotentiary position, he said it was an opportunity to directly influence the work of regional authorities and law enforcement bodies. “I think that for you, a man who has spent his whole life at the plant, who knows the ordinary people’s lives, it will be right to take this post. You will be able to protect the people’s interests.”

In my view, Putin would have been very wise to have forgotten about Kholmanskikh, or at least attempted to put distance between them. Instead he has done the reverse. This appointment sends a very bad message to potential investors in Russia – both domestic and foreign – and will be seen as a sign of Putin’s inability to adjust himself and his ideas to the changing nature of Russian society and the economy. 

The other aspect to the appointment is that it strongly suggests that the opportunity to use the positions of plenipotentiary to assist economic reform and restructuring has been passed-up.

As I reported on this site last October, a working group led by vice-premier Dmitry Kosak, was in the process of preparing a report to then President Medvedev on “decentralization of power” – an idea which Medvedev had strongly pushed.

At that time the one exception to the “honorable retirement” description was the plenipotentiary to the more recently created North Caucasus Federal District, Alexander Khloponin, who also had the status of a vice-premier. Unlike most of the other plenipotentiaries, Khloponin was picked because of his business experience in an effort the boost the economy in this volatile part of Russia. He thus – according to officials – “co-ordinates financial flows from the center” as well as handling political issues.

So, it was not a surprise that the Kosak working group was considering changing the role of the plenipotentiaries to an economic one as part of a new government department under the prime minister. While, on the face of it, such a proposal would seem to run counter to a “decentralization” agenda it would make sense for a number of reasons.

Firstly, 83 regions in their slightly varied legal forms and huge differences in population (about one third have a population of less than 1 million) is a ridiculously large number of entities to have a directly relationship with the central government in Moscow. It can only be unwieldy and highly inefficient.

Secondly, many regions are very poor and will never be viable entities with any significant degree of economic self-sufficiency. Standard & Poor has noted that ten of the 83 regions provide 50% of Russian GDP

Thirdly, Vladimir Mau from the Russian Academy of National Economy, who is one of the coordinators of the Strategy2020 project, has made the sensible observation that “internal migration” could assist national economic growth in the face of a declining population and labor force: “It is therefore necessary to review and possibly redirect the flow of labor within the country, with strong incentives for labor to move to places of economic growth.” Any incentive program along these lines would be totally chaotic without some mechanism to deal with most of the smaller regions in groups – and 8 economically empowered (and economically competent) plenipotentiaries could possible perform this role quite well.

Kholmanskikh would be completely out of his depth as any sort of economic representative, so I think that we can rule out any developments in this direction. This leaves a version of the “honorable retirement” (or more precisely a reward for service rendered) or a return to the pre-2004 role because of the gradual return of direct (if highly controlled) elections of regional governors. I think that the last is most likely.

Medvedev would not have been consulted about this appointment (although there is no constitutional reason why he should have been) and it will be a development that he will not welcome. Medvedev has reportedly had difficulty attracting people to serve in his cabinet (to be unveiled this week) because of his perceived weakness. People wanting to be part of the Russian government have reportedly been showing a preference to work in the Kremlin directly under Putin because they know that this is where decisions will ultimately be made.

The Kholmanskikh appointment will only strengthen the idea that loyalty to Putin is the only sensible way to participate in government.

However you look at it, the appointment of Kholmanskikh is not good news for Russia.