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In actual reality, number two in the present Government is the ordinary Vice Prime Minister - I Sechin. His sphere of competence encompasses the fuel and energy complex (FEC), which is now the main source of budget revenue and not only budget, at that. In fact, Sechin is formally playing within the Government the same role which, according to many, he was performing informally while redistributing property within the FEC. Besides, he succeeded in effectuating a number of important appointments. The disloyal Minister of Communications L. Reiman2, who had been an independent big player, gave way to the loyal I. Shchiogolev; and the independent - although collaborating in recent years director of the FSB N. Patrushev was replaced by the long-standing protg of I. Sechin A. Bortnikov. As for Patrushev, he was appointed Secretary of the RF Security Council, which within the presently existing system is equal to political retirement. Another of Sechins opponents, V.

Cherkesov, was dismissed from the post of the Gosnarkokontrols director; he received the consolation position of the head of the armaments agency. The post vacated by him, which is of great importance (in fact, it can be called FSB 2, because it was used in practical terms to control the main FSB), was received by V. Ivanov, who for a certain period of time had been, if not very close to Sechin, definitely not his enemy. V. Ustinov, who had left the post of Minister of Justice, received in its place the most prestigious, in fact, of all the posts of the Presidents plenipotentiary representatives - that in the Southern Federal Okrug. That okrug is rather familiar to him; besides, one should not overestimate the significance of a Minister of Justice (whose main asset the Federal Service for the Enforcement of Punishments has been headed for a decade and a half by the irreplaceable Yu. Kalinin).

The entire power block has also been preserved intact (with the exception of the FSBs head):

Minister of Defense A. Serdiukov (who is friendly toward I. Sechin), Minister of Interior Affairs R.

Nurgaliev (who is friendly toward N. Patrushev), and heads of the Ministries of Foreign Affairs and the Ministry for Emergency Situations S. Lavrov and S. Shoigu.

Within the Government their posts were kept by Minister of Health Care and Social Development T. Golikova; Minister for Industry and Trade V. Khristenko (although the small-sized Ministry for Power Engineering was spun off from his department, and as its head was appointed S. Shmatko, who had made his career in nuclear power engineering); and also by Minister for Natural Resources Yu.

Trutnev, Minister of Education A. Fursenko, Minister of Agriculture A. Gordeev, Minister for Regional Development D. Kozak, and Minister of Transport I. Levitin. Each of these officials is a rather A formal coordination with the related department of the Governments apparatus is necessary almost in any sphere.

He was relegated to the consolation post of a RF Presidents adviser.

powerful figure exercising control over substantial financial flows. Nearly all of them (except T.

Golikova and I. Levitin) possess such an asset as their long-standing acquaintance with Putin. Minister for Economic Development E. Nabiullina has also remained in the government, although trade was detached from her department (and handed over to Khristenko).

The appointees of Medvedev himself number several persons, no more Minister of Justice A. Konovalov, Minister of Culture A. Avdeed, and perhaps Minister for Sports, Tourism and Youth Policy V. Mutko3.

A similar situation can be observed within the Presidential Administration. The latest in time but not the least in importance was the appointment of V. Surkov, Putins principal political operator in recent years. Moreover, formally this was promotion for Surkov from the post of an ordinary deputy to that of First Deputy Director. The posts of deputy directors were also given to Putins formes press secretary A. Gromov (media service, protocol) and to the former head of the Main Control Administration A. Beglov (cadres, documentation turnover). The head of the department for internal policy remained V. Surkovs appointee O. Govorun. There are, in fact, no Medvedevs people among the Administrations senior executives,4 and their former posts have been preserved even by those who last year were actively campaigning against the nomination of Medvedev as the successor. Nevertheless, certain persons close to him were indeed appointed: K. Chiuichenko as head of the Control Administration, M. Trinoga as the Presidents advisor, and N. Timakova as press secretary.

Thus, at present it can be stated that D. Medvedev was unable or simply did not want - to obtain a more or less serious quota in the government or in his own Administration, let alone to enforce a departure from his predecessors personnel policy. It is noteworthy that eight years ago, after Putins appointment, the situation had been somewhat different: Putin at once appointed several new deputy chairpersons of the Presidential Administrations Head, considerably renewed the government, in particular by appointing his own director of the FSB and by dismissing from the post of First Vice Prime Minister the formerly powerful N. Alekseenko. Especially unpleasant for Medvedev is the situation with regard to the Presidential Administration, which could have become a natural center for crystallizing both new persons and new ideas of the successor. However, so far this circumstance has appeared to be far from tragic: under Putin considerable sections of the Government (down to the level of deputy minister) and of the management of state-owned companies were gradually rotated during his first year and a half in office, while some among the old elite became his friends (for example, A. Voloshin, V. Surkov, and V. Ustinov, just to name a few). It can even be said that time is currently working for Medvedev. It is another matter that the reserve of this time has a limit until it draws closer to the year 2012, with its prospects of Putins return to power.

During the first month of D. Medvedev as President he voiced quite a few policy declarations. Thus, he promised to immediately initiate judicial reform. At a meeting concerning the judicial system he said that the existing situation cannot continue any longer: the practice of unlawful decisions made in response to phone calls or for money must be eliminated. The problems plaguing Russias legal system are indeed well-known, as well as their origins (the use of courts of justice by authorities in order to exercise their political and commercial control) and their technologies (opportunities to dismiss virtually any judge by a troika [a body of three superior officials], as well as for abolishing any court decision, including those made by courts of jury, by a superior court). Within this system the ability to control the superior courts, where the majority had been nominated for appointment by Putin, means the control over the entire judicial system. At that time, a demonstrative case was initiated against Chairperson of the Federal Arbitration Court of Moscow Okrug L. Maikova. The charge against her was the well-known fact of her having improved, rather long ago, her housing conditions, which is now being interpreted as immoral. It is interesting that Maikova, who is said to be insufficiently obedient to Head of the Supreme Arbitration Court A. Ivanov (the new Presidents protg), refused to retire at her own will. Thus, in the next few months we are going to learn both the essence of D. Medvedevs proposals concerning judicial reform, as well as whose orders will be listened to by the existing judicial system through whose corporate structures Maikova will have to pass.

Medvedev is the head of a VIP-club of Zeniths fans, while Mutko is its former head. Also, Mutko is well known to Putin, as well as to many other heaviweight St. Petersburghers.

With certain reservations, A. Berlov may be regarded as such at least, he is not an ally of Naryshkin and Surkov.

Besides, the month of May suddenly witnessed an exacerbation of conflict between the shareholders of TNK-BP (where one half is owned by VR and the other half by the Russian shareholders M.

Fridman, V. Vekselberg, G. Khan, and others). The Russian shareholders are demanding that TNKBPs President R. Dudley, who represents foreign shareholders, should be dismissed, while no legally correct possibility for enforcing such a decision can be found. The Russian law enforcement agencies so far have declared the initiation of a criminal case against the company for its failure to pay taxes in a rather substantial amount of 22 billion rubles, where the accused are as yet unclear. Simultaneously, Vice Prime Minister I. Sechin had a demonstrative meeting with G. Khan. Thus, it is possible that the continuation of Russias big stick policy will prove to be a test for the new President of no less importance than his declaration of judicial reform.

Real Sector: Trends and Factors O. Izradnova At the beginning of 2008 the economic growth is characterized by high rates of investment and consumer demand. Over January-April the increase in the investment into the fixed assets was equal to 20.3%, in retail trade turnover 15.6%. The gap between real wages and labor efficiency growth rates is retained. The specific feature of the current economic situation is high background of inflation.

Consumer prices index has gone up by 6.3% since the beginning of the year and industrial production producers prices by 7.7%. In April 2008 producers prices in industry increased by 4.5%.

In January-April 2008 the trend for the change of the industrial growth structure towards the increase of the processing industries share sustained. The increase in processing industries output was equal to 10.2% as compared with 11.8% in January-April 2007, and in extractive industries output to 0.6%, as compared with 3.5%. It should be noted that the positive dynamics of electricity, gas and water production and distribution restored 104.5% as compared with the previous year. Industrial production index in January-April 2008 was equal to 106.9%, of agriculture goods production to 104.6%, of freight transportation to 105.5% and of retail trade turnover to 115.6%.

Under existing situation at the world market of raw materials and low base of the 1st quarter 2007, increase in export over the 1st quarter of the current year was equal to 39.8% and the foreign trade balanced grew by more than USD 20 bln as compared with the corresponding period of the previous year. The volume of funds accumulated in the Reserve Fund increased by USD 4.7 bln and was equal to RUR 3069.5 bln by 01.05.08, in the Fund of the National Welfare to RUR 773.8 bln. The positive feature of the beginning of the current year was acceleration of national savings to investment transformation process. The share of investments in fixed assets was equal to 16.7% of the GDP in the 1st quarter 2008, exceeding by 3.1 p.p. the level of the corresponding period of the previous year.

This year the nature of the economic growth was formed under the influence of continuing expansion of the internal market. According to a preliminary estimation the increase in the internal demand in the 1st quarter 2007 as compared with the corresponding period of 2007 was equal to 11.5%, GDP increasing by 8.0%. Anticipating growth of the investments in the fixed assets as compared with the households final consumption has been one of the main factors for structural shifts of the GDP used. Over January-April 2008 the growth of the investments in the fixed assets was equal to 20.3%, in the final consumption of households to 13.6%.

In 2008 the trend for acceleration of workload in construction growth rates continued to be in effect it formed in the 2nd quarter 2006 and was supported by intensive growth of investments in the fixed assets. Increase in workload in construction in January-April 2008 was equal to 26.7% as compared with 18.0% in the corresponding period of the previous year. Over January-April 2008 the housing of total of 13.1 mln of square meters was put into commission, which is by 6.6% more than the figure for the corresponding period of the previous year.

The dynamic growth of the investments in fixed assets as compared with the dynamics of the production reflects the transition to a more capital-intensive stage of the Russian economys development, which is connected with the expansion of activity dealing with transport infrastructure development, housing building, industry and agriculture modernization. However it should be noted that sustention of disproportions between investments flow and material and technical provision of the construction, which is reflected by anticipating growth of demand for construction materials, machinery and equipment is accompanied with the acceleration of prices growth in construction. Machinery and equipment production in January-April 2008 went up by 24.3%, transport vehicles production by 17.6% as compared with the corresponding period of 2007.

I II II IV I II II IV I II II IV I I I I 2005 2006 2007 Gross Domestic Product Expenditures for households final consumption Investments in the fixed assets Fig. 1 Changes in the Dynamics of GDP used by Components over 2005-2008, as to the corresponding quarter of the previous year The rise of investment demand is supported by the sustention of high growth rates in construction materials production. Over January-April 2008 the increase in construction materials production was equal to 9.8%, exceeding by 2.8 p.p. the level of corresponding period of the previous year. Demand for wood and construction plastics increasing, growth of wood processing production and wooden goods production was equal to 14.8% (+3.7 p.p. as compared with the figure of January-April 2007) and of chemistry production to 3.7%. One of the worrying moments is the slow-down of construction materials production: non-metal mineral products production slowed down to 10.3% against 23.0% in the corresponding period of the previous year.

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